Understanding the Role of Open Banking in Curbing Illegal Gambling Activities Online

In 2019, the UK government announced plans to update its then-14-year-old Gambling Act to accommodate the changes in the gambling industry since becoming law. But amid considering it a priority, such plans have been shelved multiple times, with no specific date for the review and the industry’s presence in various media growing.

Across the globe, calls for tighter regulations on gambling have also gotten louder, with several European countries already taking action. The industry itself is taking steps, given the existence of sites like Wagering Advisors, which collect ratings and reviews for various online casino sites. But clearly, more must be done to provide a fun and safe gaming experience.

Amid these calls, the banking sector has stepped up to offer a solution, if not a stopgap measure: open banking. Here’s a look into what it is and how it can help.

PSD2 But British

In 2016, the European Union (EU) adopted the Second Payment Services Directive (PSD2). The European Central Bank explains that this update to the original PSD enacted in 2007 aims to:

  • Help integrate the payments market in Europe
  • Ease the bar of entry for new players in the market
  • Improve the safety and security of making payments
  • Better protect European consumers and businesses

The UK, then part of the EU, adopted PSD2, later rebranded as open banking. It required major national banks to standardise their data and share them with authorised organisations, namely the account holder’s transactions. Of course, this is provided that the account holder has consented to share such information with other parties. 

The eponymous Open Banking Implementation Entity (or simply Open Banking) manages the country’s open banking system. However, enforcing its rules and regulations is the responsibility of the Competition & Markets Authority (CMA). The banks are responsible for ensuring secure payments, though data protection is the responsibility of the Information Commissioner’s Office.

According to the CMA, open banking currently extends to over 300 regulated firms and over 200 third-party service providers. There are roughly a hundred apps that employ open banking, which you can search on Open Banking’s app store. It expects at least 60% of the country’s population to adopt open banking by September this year.

Streamlining Checks

To understand open banking’s potential in curbing illegal online gambling, it pays to know how and why it exists in the first place. Sadly, casinos are widely used mediums in money laundering, passing off earnings from illicit sources (e.g., drug trafficking) as legitimate—in this case, casino winnings. One study found that nearly GBP£88 billion is laundered in the UK annually.

The Anti-Money Laundering Centre, a government agency based in the Netherlands, explains the laundering process as a ‘three-phase model.’ The steps include:

  • Placement – entering the money into the gambling account
  • Layering – moving it between accounts to mask its origins
  • Integration – passing it off as wins from online casino games

Digital currencies, while convenient ways to wager, leave a less clear paper trail. Unlike bank accounts, a perpetrator can open as many e-wallets as they need, often not needing to present valid credentials. This is one of several reasons lawmakers have called for more oversight of digital currencies, particularly cryptocurrencies.

Banks and, by extension, online casinos have struggled to implement Know Your Customer (KYC) mechanisms over the years. Industry analysts say these methods account for 3% of a company’s overhead expenses, only to wait too long to get results that aren’t always accurate. This is where open banking comes in.

Allowing firms access to customers’ bank information, provided they consented to such, helps them assess a customer’s financial risk. They can weed out accounts of a dubious nature, even stumbling upon potential fraud before it can do much harm. It can also help prevent underaged people from signing up for a gambling account (only 18 and older can play in the UK).

The same can be said about complying with anti-money laundering (AML) regulations, which carry a heftier price tag. Open banking provides firms with information, such as the customer’s transaction history, which typically contains information about the parties they transacted with. 

Be Wary Of The Risks

No solution, no matter how disruptive, is without its fair share of risks. While an improvement over the current system, open banking is relatively new and prone to errors. There’s always the fear of using something new, especially among consumers. 

In this context, it falls to online casinos to explain the terms and conditions of their open banking system in a way that won’t worry players. The most important point is to allay their fears about letting casinos use their sensitive information to make their gaming experience more secure. It’s also essential to explain how players can opt out of the system if desired.

Moreover, as it’s a growing niche, open banking will have its share of fraudsters. Experts often warn consumers of the dangers of ‘screen scraping,’ copying data presented on the device screen to acquire information immediately. Although widely employed in banking, they’re considered a non-secure method and can be used by hackers.

Open banking’s sole point of contact, API technology, can set a dangerous precedent. No system is immune to cyberattacks, and successfully breaking the API can leave the entire system at high risk. It becomes a graver issue when the time comes to hold someone accountable for the breach. Is the bank to blame? Or maybe the app developer? 


With online gambling projected to step up in the coming years comes the urgent need to protect players and their money. At first glance, open banking may appear insecure, given that people must consent to let banks use their financial data to work. However, doing so can help financial institutions better protect their consumers, especially when betting big at poker or the slots.

Open banking is relatively new; as such, some hiccups are to be expected. These will improve as businesses and the government enact measures to bring out open banking’s full potential. In the meantime, it pays to be aware of its limitations and tread with care.

Nakoa Davis