Online investing and gambling – an increasingly blurred line?

By Sharon Collard

The boom in online investing brings opportunities but also risks – including links between risky investing and gambling problems. The blurring of investing and gambling poses challenges for regulators and businesses that are responsible for protecting consumers from harm.  

From a UK perspective, the rise in online investing – boosted by the pandemic – marks an important shift in a population that has stuck doggedly to cash savings even in the face of historically low interest rates. And it is encouraging to see younger adults getting involved in tech-enabled investing, attracted by easy-to-use interfaces and fee-free business models.

At the same time, new trends like meme investing exploit age-old human biases that can exacerbate risk, particularly in the volatile and uncertain times in which we live. People see high-risk activities like cryptocurrency trading (unregulated in the UK) as an exciting fast-track to easy wealth. Investors may conduct little or no research before they buy, instead making snap decisions based on what they hear from social media influencers and short-form trading tips on TikTok. They tend to over-state their own knowledge while also distrusting official sources of information and dismissing regulator’s risk warnings as old-fashioned and downright boring. And it goes without saying that their ‘capital is at risk’ with a good chance of losing most or all the money they invest and a low chance of making money even over the longer-term.

In addition, the academic literature highlights strong links between risky investing and gambling problems. Risky trading can be part of a broader repertoire of gambling activities and studies show links between higher rates of “problem gambling” and high-frequency trading in riskier products like derivatives. There is evidence of “addictive-like trading behaviour” – small early wins followed by loss chasing, where someone can end up losing control over the money they have invested. These risks have been exacerbated during the pandemic with people spending much more time at home where they may be isolated and bored. The national charity GamCare has reported a rise in the number of people asking for help with problems related to day trading on its online forums. The past few days have also seen the fallout from the collapse of Football Index, a gambling platform with an estimated 0.5 million users that marketed itself as a “stockmarket for footballers” – perhaps the most blatant example to date of the blurred line between gambling and investing.

This blurring raises many questions for regulators and businesses about how to protect individuals who may be at risk of significant harm through gambling and high-risk investing. There is also the difficult question of how to regulate an online space awash with unregulated financial advice and increasingly sophisticated investment frauds and scams. For gambling treatment and support professionals, it raises the question of whether high-risk investing should routinely be screened for, and treated as, a subset of gambling disorder. Altogether, this points to the need for better cross-sectoral regulation and collaboration in a world where boundaries are more blurred than ever.

 

When the funds stop: maximising the effectiveness of bank card gambling blockers

By Sharon Collard, Jamie Evans and Chris Fitch

Our review of bank card gambling blockers published today shows they can be an effective way to help people control their spending on gambling. To make sure more people can benefit from this technology, all banks and credit card firms should offer blockers as a standard feature on their cards, with a time-released lock of at least 48 hours and the option to limit cash withdrawals.

A lot has happened since September 2019 when we officially launched the ‘Money and Gambling: Practice, Insight, Evidence (MAGPIE) programme funded by GambleAware. With the COVID-19 crisis ongoing, there are concerns that regular online gamblers have gambled more during lockdown; while both the House of Commons and the House of Lords have called for urgent reform of gambling regulation so that children, young people and adults are properly protected from gambling harm.

Our review of bank card gambling blockers shows they can help people control their gambling spend but they need to be much more widely available. While eight UK financial firms offer gambling blocks as standard to customers with a credit or debit card (see Table 1 below), as many as 28 million personal current accounts and 35 million credit cards may not have this option. We believe that blockers should be a standard feature available to all card holders across a firm’s full card range.

There is also work to be done to make sure people know about bank card gambling blocks. Nearly half of our survey participants (43%) – many of whom were receiving treatment and support for their gambling – were not aware that bank gambling blocks exist.

The design of bank card blockers is critical to their effectiveness. Some can be toggled on and off by customers at will – making them a light switch rather than a lock. Our review shows that a time-released lock of at least 48 hours should be a standard feature on all blockers – something the House of Lords also supports. To complement gambling blockers on cards, we want to see customers given the option to limit their ATM withdrawals. A ‘third line of defence’ could be the option to block cash transfers from a credit card to an account where the money could be used to gamble.

Despite the Gambling Commission’s recent ban on licensed gambling companies accepting credit card payments, we believe that every credit card should still offer gambling blocks. This is because online gambling sites outside of Britain are not licensed by the Gambling Commission and continue to allow customers in England, Wales and Scotland to gamble via credit card payments. Credit card providers could go one step further by automatically restricting gambling on all credit cards, rather than relying on customers to turn on a block. Even then, there remains a risk that unscrupulous gambling operators engage in ‘transaction laundering’ which renders a gambling block ineffective.

Gambling blocks can help but they are not enough. People with experience of gambling harms want to see financial firms take wider action if they are serious about helping tackle this public health issue. Beyond banks, they want the gambling industry, regulators and the Government to do much more to protect consumers in a world of boundless and frictionless gambling where, in the words of one participant, it is possible to go from “zero to devastation in a very short period”.

Read the report:

A Blueprint for Bank Card Gambling Blockers – ReportA Blueprint for Bank Card Gambling Blockers – Executive Summary