Despite Its Vast Size, Banks Still See the Gaming Industry as High Risk. Is Crypto the Answer?

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The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Like many online or digital businesses, banks tend to classify gaming companies as ‘high-risk merchants’ and charge them more for transactions. This is primarily because the legacy banking infrastructure was established before the internet, so many of its rules and protections are unsuited for modern business. This is changing, but too slowly. 

As traditional finance tries to catch up, nimbler and more innovative fintech companies are already providing solutions. One option in particular – using cryptocurrency to route money – is gaining considerable traction in the gaming sector. 

Gaming is Big Business

According to a report by Accenture, the full value of the gaming industry is now over US$300 billion. This is more than the movie and music sectors combined. This is being driven by the rise of internet connectivity, AR, VR, cloud gaming and mobile games. The pandemic and global lockdowns caused a surge in gaming, but the figures show no signs of abating as the world opens up.

As more people get smartphones, gaming is going to continue to grow. At present, there are 2.81 billion gamers, and this is predicted to rise to 3.07 billion by 2023. The most common monetization method for mobile gaming is ‘free-to-play’ with micro-transactions embedded in the gameplay. This model is incredibly lucrative. Research valued the worldwide in-app purchase market in 2019 at US$76.43 billion and predicted that figure will rise to US$340.76 by 2027.

Other sectors include the console gaming market, worth around $42.44 billion and likely to reach $65.74 billion in 2025. However, money is not just made by console and game purchases but also from subscriptions, downloadable content, in-app purchases, and cloud gaming.

Then there is the growing popularity of the global eSport market, which is currently worth US$1.08 billion and set to rise to US$1.6 billion by 2024.

The gaming industry is vast, and apart from initial hardware purchases, it is almost entirely online and borderless. Due to its digital and globally accessible nature, this also results in game companies being labelled ‘high risk’.

High-Risk Enterprises Like Gaming Companies are Penalized by the Current Banking Infrastructure

The number of companies labelled ‘high risk’ is rising as the internet becomes increasingly ubiquitous. The banking system and cross-border payment infrastructure is taking too long to adapt their procedures. This is where fintech and payment platforms have stepped in.

An excellent example of these new solutions is XanPool, which uses cryptocurrency to facilitate seamless and instant international payments via its XanPay platform. Jeffery Liu, XanPool’s founder and CEO, explains, “The legacy banking system and its infrastructure wasn’t designed for the online world with its multitude of international payments. 

“The rules established before the internet don’t allow for smaller businesses who trade globally and receive cross border payments. Consequently, the banks label them as high risk,” Liu continues. “Given that most of the planet works for SMEs, and those numbers are rising thanks to online business, there is something seriously wrong. 

“The gaming sector is a great example. It is a vast industry, including things like eSports and console or mobile gaming. The banks and credit cards don’t like risks from issues like chargebacks, potential fraud, or situations where the credit card holders aren’t physically present, signing for a purchase. By its very nature, digital gaming platforms increase the risks of chargebacks because of payment delays and customers cancelling purchases.

Liu adds, “Some games are made by huge developers, but increasingly, smaller enterprises, even individuals, can make apps and games. However, all face high transaction fees, delays to payment, and risks due to how the current infrastructure labels them. So, a new developer or online SME is stuck with high-risk merchant accounts. To solve these issues, we developed XanPay. We wanted to provide a new way of routing transactions that are instant, cheap, and safe.”

Cryptocurrency Might be the Solution for Those Deemed High Risk

The XanPay platform is built on the infrastructure of XanPool, which was founded in 2019 to solve the problems of onboarding and offboarding from fiat currencies to crypto. XanPool is market-making software that lets buyers and sellers – liquidity providers – trade cryptocurrency using local payment platforms or bank accounts. By having cryptocurrency and a liquidity pool of local currencies, the platform can bypass the traditional banking system.

“XanPay is an easy to implement payment platform that leverages XanPool’s liquidity and crypto to make cross-border payments that are instant and secure. This cuts out the dangers of things like chargebacks fees and the reluctance of banks to provide credit to new or online businesses. It can be used by any enterprise, such as gaming companies, that had been deemed risky. This also results in much lower transaction fees and more favorable exchange rates,” Liu says.

Many of the problems faced by smaller companies that produce items for the international market result from how money is routed. Digital business is surging, and the gaming sector is one of those at the forefront. Yet as things stand, the legacy infrastructure is impeding growth by labelling enterprises as ‘high risk’. 

This is a noted problem, with the G20 recently announcing a focus on cross-border payments, for example. But for many, progress has been too slow. Now that agile fintech platforms are providing solutions, such as XanPay using cryptocurrency, ‘high risk’ companies have better options. The banks need to catch up, or the vast gaming sector will go elsewhere.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.