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Elton Dimech, Managing Director of Payhound, examines the evolving interplay between cryptocurrency and the iGaming sector, particularly in light of the upcoming Markets in Crypto Assets (MiCA) regulation set to take effect across Europe.
As the industry goes through a transformative year, Dimech highlights the potential obstacles for both established and emerging suppliers, operators, and regulators alike, and provides actionable takeaways for companies looking to embrace crypto and choosing the right provider.
With its growing popularity, cryptocurrency is fundamentally changing financial services, making it accessible to the masses and altering how we transact. Crypto has introduced alternative payment methods that may be more accessible and trustworthy than traditional financial services.
This major shift offers many benefits for individuals and businesses alike. For individuals, crypto provides financial autonomy, allowing access to alternative systems, meaning faster settlement times. Additionally, crypto offers greater security, essentially giving individuals more control over their financial assets.
Crypto supports businesses enabling them to open up new opportunities for economic growth and financial inclusion. The usage of crypto has many benefits, including lower transaction costs, faster settlement times, and access to a global market, enabling companies to streamline operations whilst expanding their reach.
The usage of crypto has many benefits, including lower transaction costs, faster settlement times, and access to a global market, enabling companies to streamline operations whilst expanding their reach.
Such rising popularity of cryptocurrencies has attracted the attention of major regulatory bodies such as the Securities Exchange Commission in the US and the European Union where MiCA is set to level down the playing field.
In the world of iGaming, player experience is of paramount importance. By adding crypto in the mix as a deposit method, operators enhance their own player experience by offering instant deposits, withdrawal mechanisms, without any chargeback risk.
For the operators, this has led to reduced transaction fees due to the reduction of intermediaries along the way which would otherwise be present and crucial for the successful journey of funds during a deposit or withdrawal affected by the player in fiat terms. This makes crypto an appealing option for both players and operators.
However, integrating crypto can pose various challenges for companies that have no prior experience in the field. Recognizing the market gap, industry leaders such as Payhound are dedicated to aiding operators in seamlessly integrating cryptocurrency payments into their platforms.
Moreover, in the iGaming industry, crypto has also emerged as a popular payment method for facilitating instantaneous B2B settlements among suppliers, operators, and affiliates. The decentralized nature of crypto allows for swift and secure transactions, enabling stakeholders in the iGaming industry to streamline their payment processes and enhance liquidity and operational efficiency.
One common misconception about the world of crypto is that there are no regulatory frameworks or legislation in place. There are a number of jurisdictions in Europe that offer a regulatory framework or registration processes for Crypto Assets Services Providers (CASPs) to legally operate.
However, the biggest challenge we will be experiencing this year is the upcoming MiCA regulation in Europe, which is paving the way to provide the necessary clarity and stability thus enhancing responsible growth and widespread adoption of cryptocurrencies for companies across Europe.
The main objective of MiCA is to essentially support innovation in the industry by providing legal certainty for CASPs, amongst others, whilst mitigating risks associated with crypto. This impending regulation will improve consumer protection and establish safeguards against financial risks and misleading market practices in line with other more established regulations in other related industries, that have been put in place by the European Union years ago such as the Investment Services Act or the Financial Institution Act.
The main objective of MiCA is to essentially support innovation in the industry by providing legal certainty for CASPs, amongst others, whilst mitigating risks associated with crypto.
CASPs will need to be registered as a legal entity with substance in at least one Member State and will need to be granted authorisation by the local regulatory authority which will amongst other items, assess the CASP for demonstrating sufficient regulatory capital, establishing good governance practices and ensure proper internal controls that promote best interest to their clients.
Furthermore, MiCA’s provisions expect that providers will be keeping their own capital segregated from client funds, issuing regular balance statements to their clients to embrace transparency and admit crypto assets for trading that have published whitepapers and deal solely with issuers who comply with MiCA, whilst rejecting any crypto assets that offer inbuilt anonymity and therefore prevent the possibility of identifying the crypto assets holders and tracking their transaction histories.
For CASPs, MiCA should be resolving regulatory fragmentation allowing them to passport their rights into other EEA Member States, thus enhancing clarity and eliminating the need to obtain other registrations that would have otherwise been expected in order to promote service in that respective Member State. It should, along with the EU Single Rulebook regulation, also embrace a unified AML and compliance offering thus increasing stakeholder confidence, particularly the bankability aspect as a supplier of service.
In the forthcoming landscape, as MiCA takes effect and local regulatory authorities within the EEA assert their enforcement, the fate of certain crypto providers remains uncertain. While there’s no definitive answer, I believe that without adequate compliance measures, some CASPs may struggle to sustain operations beyond the current year. This could compel them to seek alternative bases outside the EEA, presenting significant hurdles, particularly if their clientele primarily consists of EEA-based clients.
There is also the expectation of greater consolidation in the market with the smaller CASPs unwilling or unable to afford the enhanced regulatory, compliance, and reporting obligations and the associated costs that such regulation brings with it.
The consolidation is also expected to happen with other service providers, particularly financial institutions, as the interplay between both CASPs and the latter is becoming more evident and essential to offer businesses an augmented solution without having to resort to two or more different service providers to reach their goal.
Apart from the MiCA obligations, a business should also look for a solution that besides harnessing confidence through security, also offers ease of use of the product. CASPs should also make the right choice in the selection of partners that will ultimately produce a frictionless and enjoyable client journey.
Payhound has been regulated since 2021 under the Virtual Financial Assets Act issued by the Malta Financial Services Authority, an Act which, when compared with the upcoming MiCA regulation, has been drawn up to be almost identical to each other. Therefore, since its inception, the company offered its clients a robust crypto solution with very limited expected changes when MiCA kicks in.
Payhound’s proprietary technology has been purposely designed to service businesses that in some way or another want to embrace crypto in their daily operations with instant conversion capabilities, reporting tools, and quick settlement times due to its extensive banking network and crucial liquidity partnerships.
These are the necessary qualities that businesses should look for when searching for their ideal CASP. In my opinion, a successful crypto provider will not only offer a payment solution but instead will become a trusted partner in the client’s journey.
Article originally published in 5Star Magazine in May 2023.
