Though mobile gaming has been around for years, it has recently experienced a spike in popularity with the rise of more sophisticated, app-based smartphones. As gamers flock to mobile, mobile financial services (MFS) providers are increasingly seeking ways to break into this growing space, though they have faced challenges in developing seamless, secure transactions for mobile games. 

The rise of mobile gaming is a global trend – though the growth is most perceptible in developed economies. In the five leading European markets, a third of mobile users play games on their mobile phones,[1] and mobile gamers in the U.S. are expected to reach over 140 million by 2014.[2] In South Korea, a loosening of telecom regulations and an increase in smartphone ownership has created a “rich environment for the growth of mobile gaming,” and gaming is expected to grow there at a double-digit rate into 2017.[3] Countries such as China, Nigeria and Brazil have also experienced a rapid increase in gaming via mobile devices.

What Makes MFS For Gaming Unique? 

M-payments are essential to the monetization of mobile games, facilitating paid downloads, in-app purchases of virtual goods and other gaming revenue sources. To capitalize on these transactions, gaming companies and MFS providers are increasingly joining forces to achieve a shared goal: seamless, secure m-gaming purchases. According to David Ashman, Director of Industry Affairs at the Association for Interactive Media & Entertainment (AIME), in a recent interview, “Gaming companies know how to create a great user experience, but have limited knowledge of monetization options.”

Designing effective systems for in-game purchases can be challenging, requiring providers to take into consideration a unique set of issues not relevant in m-payments for physical goods or at brick-and-mortar stores. While many MFS platforms cater to adult consumers, transactions in the gaming space must be accessible to a broad range of users, including those that may not have credit cards, such as teenagers. “If credit cards are your only payment method, you are cutting off a key demographic – the younger audience,” said Ashman. 

While appealing to younger gamers is important to game providers’ bottom line, MFS providers and gaming companies must tread carefully to avoid misuse. A lawsuit filed against Apple in 2011 highlights the risk of in-game mobile purchases that are accessible to children. The suit was filed by a group of parents, who claimed their children were able to repeatedly purchase virtual goods in mobile games, unknowingly racking up enormous bills.[4] Though Apple has since put in place protections to address this problem, the case highlights the considerations involved in designing m-payment systems for mobile games, particularly those that target youth. 

Beyond reaching unique demographics, MFS for gaming must be particularly rapid, offering a seamless experience that does not interrupt the flow of the game. Processes requiring too many keystrokes may cause user drop-offs – shrinking already narrow revenue streams. This is particularly true in the context of mobile gambling, which thrives on impulsive purchases and thus requires a frictionless transaction process (see next article for more on m-gambling).

Tailoring M-Payments To The Gaming Ecosystem

A range of mobile micro-payment offerings have emerged with the aim of ensuring seamless, but secure, in-app purchases. Leading the way in the UK is the mobile operator-backed Payforit system, which was originally launched in 2006 to facilitate secure online micro-payments using only a mobile phone (with no need for a credit card or bank account). The recently launched Version 4 enables secure in-app purchases, and offers “single-click” purchases once user information has been entered at least once.[5]

Fifteen payment providers have been designated as accredited Payforit payment intermediaries in the UK, including companies such as Boku, Bango and Zong (PayPal). Many of these companies also operate globally; Zong, for instance, operates in over 40 countries, in partnership with over 240 mobile operators.[6] To pay for virtual goods via Zong, users simply enter their phone number, and enter the secure code that they are sent via text message. The purchase is then charged to their monthly mobile bill or prepaid mobile account. This two-step verification process, along with partnerships with Verisign, McAfee and TRUSTe, ensures secure transactions and quick detection of fraud.[7]

As gamers increasingly migrate to mobile devices, from smartphones to tablets to advanced feature phones, MFS will need to adapt to these new contexts. The discussion on how best to accomplish this is quickly rising to the top of the virtual gaming agenda, with one panel at this week’s ICE Totally Gaming 2013 conference centering on the importance of speedy, yet secure, m-payments.[8] As mobile gaming continues to gain pace, this issue is likely to move to the forefront of the MFS industry. 

Super Bowl weekend has become a de facto “national holiday” in the United States, celebrated by attending parties, gorging on junk food, and – in many cases – placing a wager on your favorite team. In fact, more bets are placed on the Super Bowl than on any other sporting event of the year, though the majority of bets are made under the table.[1] These wagers – and other gambling activities – are increasingly migrating to mobile devices, as regulations ease and app-based smartphone usage grows. 

What Is Spurring The Rise Of M-Gambling?

Previously opposed to many forms of Internet gambling, the U.S. Justice Department decided in late 2011 to remove legal obstacles to online betting – giving states the power to make a variety of gambling activities available via the Internet. For state governments caught in tight budget situations, easing online gambling restrictions provides an important source of tax revenue – and many have already taken advantage of the changes.[2]

Illinois, for example, was the first state to legalize online lottery ticket sales,[3] with Florida and other states now considering a move in the same direction.[4] New Jersey has taken a specifically mobile approach to virtual betting – with Government Chris Christie signing legislation this month to allow mobile wagers in the state’s horse racetracks.[5] Though sports betting remains illegal on a federal level (except in the state of Nevada),[6] New Jersey voters passed a referendum in 2011 to allow sports wagers in the state. Governor Christie further gave the green light to sports betting, citing the federal law as unconstitutional.[7] State assemblyman John Burzichelli envisions that mobile gambling will boost attendance to the tracks from “younger, tech-savvy patrons,” moving the horse-wagering industry into the 21st century.[8]

Beyond regulatory changes on the national and local levels, the increase in social-based gambling has also contributed to a rise in the mobile betting market, according to a StrategyEye report. As social game companies such as Zynga move into the real-money gambling space, and gambling companies increasingly integrate social elements, this “potent cocktail of social and mobile” is expected to drive growth across the industry.

In the UK, where all forms of remote gambling are licensed by the Gambling Commission and can be legally provided, mobile gambling has grown increasingly popular due to a spike in smartphone usage. UK-based bookmaker Paddy Power has reported that 34 percent of active customers access the service via their phones, with 55 percent of regular betters owning a smartphone.  According to Raj Vemulapalli, Vice President of Mobile Engineering at Betfair, a UK betting exchange: “Developing new betting methods and experiences for the increasing amount of our customers who wish to access Betfair through their mobile phones is a key priority of the business.”[9]

Barriers To Widespread Mobile Gambling

Despite its popularity, however, there are a variety of barriers to the spread of mobile gambling – both in the United States and elsewhere. Critics of mobile-based lottery tickets in the U.S., for instance, worry that while increased accessibility via mobile phones might boost state tax coffers, it could mean less money for local lottery ticket retailers.[10] Others are concerned that opening lottery sales via online (or mobile) channels, would make it too easy for gamblers struggling with addiction to access their vice.[11]

The rise of mobile gambling is also largely dependent upon legality, according to a recent Juniper Research report. Globally, each local or national government has its own set of regulations governing virtual betting, whether mobile or online. These regulations, however, are still very much in flux, as governments develop new regulations or seek to overturn outdated legislation.

Even where it has been legalized, mobile gambling faces a “chicken-and-egg” problem, similar to other mobile payment solutions. For instance, although New Jersey has approved mobile gambling in Atlantic City casinos, none have yet begun to offer this service. Casino owners, though intrigued by the convenience of mobile betting, are concerned that there would not be enough mobile gambling patrons to make their investment worthwhile.[12] Further, as with other mobile games, the business model for mobile gambling is questionably sustainable, with service providers, portal operators and billing/payment technology providers all vying for a cut of gross yields.[13] 

Despite these hindrances, total mobile gambling wagers are expected to continue rising over the coming years, as users seek the convenience and privacy afforded by mobile phones, and smartphones become more ubiquitous. In fact, total wagers from mobile casino, lottery and betting are expected to reach more than $100 billion by 2017.[14] Given this industry-wide growth, the integration of mobile technology (where legal) may be a viable, and increasingly important, business opportunity for stakeholders.