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Moves to mandate electronic payments could simply push money laundering and problem gambling elsewhere.
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Why cashless gaming would be an unwise all-in wager
12 May 2023
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Your local pub, club or hotel is grappling with proposed changes to regulations on the use of electronic gaming machines (EGMs). At the recent NSW state election, two very different approaches were part of the political campaigns.
On one hand, the former Liberal Party government sought specific measures to further regulate EGMs and replace physical cash with electronic means of tender, often referred as ‘cashless gaming’.
On the other hand, the newly elected Labor government provided for an ‘evidence gathering’ approach with cashless gaming trials in pubs and clubs prior to regulatory change. Pubs, clubs and hotels now await this trial process.
Before we consider possible scenarios, let’s examine some fundamentals.
What is cashless gaming?
EGMs have traditionally used cash only as a tender type to provide for a credit account balance to wager. A cashless gaming system would provide for an electronic wallet to either:
- Be an additional tender type accepted by EGMs, or
- Be mandated to replace cash as an exclusive tender type.
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While a specific form of electronic wallet has yet to be determined, existing electronic payment methods could be potential options. Adding additional tender types is generally accepted by pubs, clubs and hotels, but mandatory cashless gaming is a far more focused approach with distinct advantages and disadvantages.
The main advantage of mandatory cashless gaming is the ability to electronically log spend, identify players and have predetermined spending limits. It is also convenient to avoid carrying cash or withdrawing it from an ATM.
The previous NSW government considered this electronic measure useful to profile spending and identify participants as a step closer to reducing problem gambling and money laundering. The data allowed authorities to trace the source of the funds.
But this one-size-fits-all approach also brings disadvantages that create other problems. Let’s revisit the NSW lockout laws of 2012. These measures were a broad-brush approach to curb a problem of alcohol-fuelled violence in late night establishments. What appeared to be a reasonable measure (a 1am curfew), reduced incidents but also restricted the movement of the law-abiding majority and reduced the attractiveness of the area.
The result was reduced customers and the closure of 176 venues in Sydney CBD. The lock out laws addressed one problem but substantially reduced employment and tourist visits. These laws have since been repealed in an attempt to reinvigorate Sydney’s nightlife.
A mandate for cashless gaming to address money laundering and problem gambling means accepting that the majority of participants will bear some cost. It would intrude upon the privacy of the vast majority who choose EGMs but do not launder money or identify as problem gamblers. A one-size-fits-all approach could involve the unwelcome commercial reality of reduced customer participation.
Know your customer
Pubs, clubs, hotels and casinos have for decades sought to know their customers and serve them better. Casinos have offered significant returns to EGM players to encourage attendance and connection. But for decades this invitation has had moderate impact. EGM customers value their anonymity, for a variety of reasons. Their private choices may be a poor fit with their professional or business profiles, family or religious values, or traditions. They might fear cyber criminals or be concerned about how personal preferences will be used. There is no end of reasons why a customer may wish to transact without divulging their activity. But the overwhelming takeaway is that the customer has traditionally valued anonymity.
Abruptly encroaching on customer behaviour – as evidenced by the lockout laws – may simply result in reduced participation. A downturn in club visits could have detrimental impacts on employment, the community and suppliers, and may lead to concerns about viability.
It also puts pubs, clubs and hotels at a competitive disadvantage as cash remains legal tender for most transactions. No industry condones money laundering, but to mandate cashless gaming may drive both good and bad activity towards other sectors where there is relatively little regulation to curb consumer over-spending, such as retail or pay-later finance products.
Clubs NSW has worked collaboratively with clubs for decades to proactively report suspected instances of money laundering to AUSTRAC or the police, to identify and assist problem gamblers and impart best business practices.
This experience is used to shape specific, targeted approaches to problems rather than broad-brush solutions with the potential for unwelcome impacts.
The challenge for CFOs is twofold. Abrupt regulatory changes require delicate management. The overarching goal should be ensuring a sustainable venue by making interactions with customers simple and easy, providing choices where possible and then engaging with what works well. To be aware of best practice, talk to your peers and industry associations.
Rather than mandating an abrupt and unsettling change, a better next step might be the introduction of cashless gaming as an additional tender type and then devising strategies – with the benefit of experience – that involve the customer.
Joseph Vitalone is CFO of Penrith RSL.
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