Cost of Doing Business: Payment Processing in the U.S. iGaming

The rapid expansion of the U.S. online gaming market—projected to exceed $22 billion in revenue by 2030—has created a massive, parallel economy for payment processing services. For leading operators like DraftKings & FanDuel, moving money is not just a utility; it is one of their most meaningful variable operating costs.

The Landscape: Key Providers and Market Share

The U.S. market is unique in its fragmented regulatory environment, which has favored providers that can navigate complex compliance requirements. The market is currently an oligopoly dominated by a few key specialists.

Leading Payment Providers

• Paysafe (Skrill/Neteller): Market Leader. The dominant specialist in global iGaming. Their digital wallets are industry standards for high-frequency bettors due to speed and acceptance rates.
• PayPal: Major Player. High consumer trust. While slightly more expensive for operators, its ubiquity converts casual players who are wary of sharing bank details with a casino directly.
• Trustly: Rising Star. Specializes in Open Banking (account-to-account) transfers. Gaining massive traction because it bypasses card network fees, significantly lowering costs for operators.
• Worldpay (FIS) & Nuvei. Infrastructure. These are the “backend” powerhouses processing card transactions. Nuvei specifically has aggressively targeted the U.S. sports betting market with high-risk optimization.
• Play+ (Sightline): Niche/Loyalty. A prepaid card solution heavily used to bridge the gap between cash-based casino players and online platforms.

Market Share Dynamics

While exact market share figures are proprietary, industry data suggests that Debit/Credit Cards (where allowed) still account for 40-50% of deposit volume due to user convenience. However, Digital Wallets (PayPal/Skrill) and ACH/Bank Transfers (Trustly) are rapidly eating into this share. Operators under incumbent structures are incentivised to promote Bank Transfers (ACH) because fees are significantly lower than card networks.

The Cost Breakdown: Fees and “The High-Risk Premium”

Online gaming is classified as “High-Risk” (Merchant Category Code 7995 reserved for Betting and Casino Gambling transactions) by card networks (Visa/Mastercard).

This classification triggers a tiered fee structure significantly higher than standard e-commerce (e.g., Amazon or Shopify merchants).

The Fee Structure

• Operators generally face a “blended” cost on every transaction (Deposit and Withdrawal).
• Standard Cards: ~1.5% – 2.5%
• Interchange Fees (Paid to Issuing Bank): The non-negotiable base rate.
• High-Risk Surcharge: often +0.5% to 1.0%
• Processor Markup (Paid to Worldpay/Nuvei): The fee for the gateway technology.
• Rate: 0.5% – 1.5% + $0.10–$0.30 per transaction.
• The operator pays fees on the $100 Deposit AND the $90 Withdrawal.
• Total Estimated Fee: 2.5% (in) + 1.5% (out) = ~4% of the handled capital.
  Hidden Costs
• Chargebacks: If a player disputes a loss as “fraud,” the operator pays the refund plus a penalty fee ($25–$100 per instance). Excessive chargeback rates (>1%) can lead to an operator losing their processing ability entirely.
• Cash Advance Fees (Player Side): Many credit card issuers treat gambling deposits as “Cash Advances,” charging the player an immediate $10 fee + high interest. This causes friction and deposit abandonment, indirectly costing the operator revenue.
• Recycling: Unlike e-commerce, where a user buys an item once, a gambler may deposit $100, bet it 10x (recycle), and withdraw $100.

Revenue Impact: What % of Revenue is Spent on Payments?
This is the most critical metric. To understand operating cost of payments, one must distinguish between Handle (total dollars wagered) and GGR (Gross Gaming Revenue, all stakes from wagers minus payouts / return to player).

The Math of Margins:

• Sportsbooks operate on thin margins, typically holding 7-10% of Handle as Gross Gaming Revenue (GGR).
• Payment fees are charged on movement of money, not the revenue.
• If an operator pays ~2-3% in fees on the total money deposited/withdrawn, and their GGR margin is only 7%, payment processing can consume 30% of revenue.
  
• Example: This high cost burden was a primary driver cited by DraftKings’ controversial (and later retracted) proposal in 2024 to add a surcharge to winning bets in high-tax states like Illinois. The move was an attempt to offset a combination of state taxes (up to 40%) and processing fees, which together threatened to erase profitability.

Scale Economics: Do Big Operators Get Better Deals?
Yes, but with limits. The playing field is not level, but the “floor” is high for everyone.

The “Interchange-Plus” Advantage

• Small Operators: Often forced into “Blended Rate” contracts (e.g., flat 2.9% + $0.30) to simplify costs and secure access. They lack the leverage to negotiate.
• Tier 1 Operators (DraftKings, FanDuel, BetMGM): Negotiate “Interchange-Plus” pricing. They pay the raw interchange rate (pass-through) plus a tiny markup to the processor (e.g., Interchange + 0.20%).

Why Scale Has Limits

• Even giants like FanDuel lack negotiating power with Visa or Mastercard. The Interchange Fee (the bulk of the cost) is fixed by the card networks.
• A small operator and a massive operator both pay the same ~2.5% to the bank that issued the customer’s credit card.
• The only real discount large operators get is on the gateway fee (the tech provider’s cut), which might drop from 0.50% to 0.10% due to volume.
• Result: Large operators might save ~10-15% on total processing costs compared to smaller rivals, but cannot escape base cost of moving money via cards.
  

Strategic Opportunity: Private Loops
Large operators use their scale to build “closed-loop” ecosystems. For example, FanDuel Prepaid Play+ Card. By convincing users to load money onto a branded prepaid card (managed by Sightline/Play+), the operator shifts the transaction off the expensive Visa/MC rails and onto a cheaper internal ledger for subsequent bets, drastically reducing long-term fees. Small operators cannot afford to launch these bespoke card programs.

The “Interchange Floor” (The Unavoidable Cost)
Notice that neither operator gets a discount from Visa or Mastercard.

• If a player uses a Chase Sapphire Reserve (High Rewards Credit Card) to deposit $100:
• Startup Pays: ~2.5% to Chase.
• Tier 1 Giant Pays: ~2.5% to Chase.
• The Difference: The Startup likely pays a “blended” 2.9% rate to their processor (e.g., Worldpay), effectively overpaying on cheaper debit cards to subsidize expensive credit cards. The Giant pays the exact raw cost for every card type, saving money on the 70% of players who use cheap Debit Cards (regulated at ~0.05% + $0.21).

“Private Loop” Advantage (Play+)
The biggest hidden advantage for Tier 1 operators is the Branded Prepaid Card (Play+).

• Scenario: A player wants to bet frequently.
• Tier 1 Strategy: They send the player a physical “FanDuel/DraftKings Card.”
• The Trick: When the player loads this card, the operator pays a fee once. Subsequent bets, wins, and redeposits happen on the operator’s private internal ledger (closed loop).
• Result: They avoid hitting the Visa/Mastercard network for every single wager, cutting “Churn Costs” by millions. A startup cannot afford the $500k+ setup fees to launch a program like this.

Negotiating the “Markup”
The “Markup” is the fee paid to the tech provider (e.g., Nuvei, Paysafe) for processing the transaction.

• Startup: Is a “price taker.” If the processor says “0.50% markup,” they pay it.
• Giant: Is a “price maker.” They can tell Nuvei: “Drop your markup to 0.10% or we move $100M/month to Worldpay tomorrow.” This leverage crushes the variable cost.

Future Outlook
For U.S. iGaming operators, payment processing is not just a line item; it is a decisive factor in profitability. With fees consuming an estimated 20-30% of NGR (Net Gaming Revenue) in high-churn verticals, the market is shifting strategies:

• War on Credit Cards: Operators will aggressively incentivize users to use Open Banking (Trustly) or ACH, which have flat fees ($0.50) rather than percentages.
• Consolidation: Smaller operators who cannot negotiate better gateway rates or afford “closed-loop” card programs will struggle to compete on margin, leading to further market consolidation.
• Crypto as a Wildcard: While currently regulatory-heavy, stablecoin integration remains the “holy grail” for operators hoping to bypass the 2.5% card tax entirely.