Paypal is getting back into the online gaming business after a 12 year long hiatus. Its long awaited re-entry, in an industry it controlled a decade ago, was expected to be insanely hyped out. The payments company has, however, gotten back into the industry rather quietly with not so much as a press release.
Paypal has slowly, almost discretely, gotten back into the lucrative yet legally questionable industry. The company’s ads popped up in popular gaming sites such as WSOP.com and Derby games. Paypal is widely available in foreign gaming sites but was unavailable for local online gamblers largely due to a partnership the company entered into with Ebay back in 2003.
The merger with Ebay compelled the company to let go of business sources bearing a high risk of financial fraud. Online gaming has the second highest figures for fraud attempts, only behind online adult entertainment.
Before the merger, Paypal was an independent company with a dominant foot in the gaming industry but also close to bankruptcy. According to Howard Madison, a financial analyst with SSR, “PayPal nearly went out of business when it was first formed, because of fraud. They've invested significantly in fraud risk management."
The company has grown since the merger to a strong brand with over $4 billion in reserves and zero debt, giving it huge room for growth.
After the much publicized fall out between Paypal and Ebay in February this year, the company set its sight on a field it was once king of. Analysts have predicted the company will reap big from their re-entrance into the online gaming business, which a 2014 Morgan Stanley report indicated would be a $20 billion industry by 2020. But why the quiet entrance?
According to Andy Frankenberger, a decorated poker player and former Wall Street broker, “My thinking is PayPal may not want attention because there is a perception that online gaming is a gray area. Perhaps PayPal doesn’t want to jeopardize their market status in states that oppose online gaming.”
Currently, online gaming is only legal in a handful of U.S. states. Even daily fantasy is not legal in all states. However, the numbers do indicate huge potential. New Jersey’s online gaming revenue for July was $12 million while online horse betting across the U.S. raked in $2.6 billion in revenues.
Frankenberger said, "There is huge upside if online gaming would be allowed in some of the larger states, like California and New York. Right now it's a fraction of what it could be. To the extent PayPal can participate, it would seem to be a great opportunity."
Gamers will be the biggest beneficiaries from Paypal’s entry into online gaming as they won’t have to wait days before their checks are mailed to them. Now they will have the money instantly credited to their accounts. In short, online gaming just got a lot more convenient.