INTRODUCTION
A few days ago, a client approached me with an ambitious gleam in their eyes and a question that hinted at the promise of fortune: “How do I open an online gaming business related to bets and lotteries?” As someone who has been continuously entangled with the online gaming industry due to my profession, I knew the journey was filled with challenges and opportunities. I advices him that you need to understand the legal landscape. As each State has its own regulation regarding online gambling. You need to comply with these laws, which might involve obtaining licenses or setting up your operations in a jurisdiction where online betting is legal. One of the most important determinant in setting up online gambling business is to distinguishes games of skill from game of chance. I also shared additional insights as follows, that could assist in setting up your own online gambling business.
The online gambling industry in India makes a lot of money. The market size of online gambling in India was $2.7 billion in 2023. A group called IMARC Group thinks that by 2032, market size will be $5.49 billion. This means that the amount spent on online gambling will grow at a rate of 8.10% each year between 2024 and 2032.
IDENTIFY EXACT NATURE OF BUSINESS
In India, gambling laws are largely determined by individual states, leading to a variety of regulations across the country. For instance, states like Goa and Sikkim have legalized and regulated certain types of online gambling, allowing them to operate under specific guidelines. On the other hand, Maharashtra, Telangana, and Andhra Pradesh have taken a much stricter approach by banning online gambling entirely. In Tamil Nadu, the situation is more fluid; the state had banned real money games such as rummy and poker, but these bans were recently overturned by the Madras High Court. Meanwhile, states like Kerala and West Bengal are more lenient, permitting games that are based on skill rather than chance. This diverse regulatory landscape reflects the different attitudes towards online gambling in India.
Games of chance are primarily determined by luck or random events. Players have little to no control over the outcome, and winning is largely based on chance. Examples include slot machines, lottery, and bingo. Games of skill rely heavily on the player’s physical or mental abilities. The player’s expertise, strategy, and decision-making significantly influence the game’s outcome. Examples include chess, rummy, poker (to an extent), and fantasy sports.
In legal terms, the distinction between games of chance and games of skill is crucial. Games of chance are often regulated or prohibited by law, while games of skill are generally considered legal activities. A key factor in determining whether a game is a game of chance or a game of skill is the degree to which skill influences the outcome. If skill plays a substantial role in determining the result, the game is more likely to be classified as a game of skill.
BUSINESS STRUCTURING
a) Sikkim: The Sikkim Act and Rules lays down requirements, the operator must only function in Sikkim and can only be a company incorporated in India. The requirement include:
i. The firm/company must be registered in Sikkim.
ii. Application to be made to the government (Form I).
iii. Application fee of INR 500/-.
b) Nagaland: The process of obtaining a license has been goven in the Nagaland Prohibition of Gambling and Promotion and Regulation of Online Game and Promotion and Regulation of Online Games of Skill Rules, 2016. The requirements include:
i. The person/entity must be registered in India and have a substantial holding and controlling stake in India.
ii. The company should not be engaged in any form of ‘gambling’’
iii. No criminal record.
iv. Application should be filed in the prescribed format along with the application fees of INR 50,000/-.
v. Required documents need to be submitted.
c) Goa: Section 13A of the Goa, Daman and Diu Public Gaming Act allows for five-star hotels and offshore vessels to set up casinos without the same being prohibited under the definition of ‘common gaming house’.
STATE SPECIFIC LAWS
In India, gambling laws are primarily governed at the state level, with each state having the authority to regulate gambling activities within its borders. This means that the legality of online gambling can vary significantly from one state to another, with some states like Goa, Daman, and Sikkim allowing certain forms of gambling, including online casinos, while others impose strict prohibitions. The following state specific laws relating to online gambling:
a) Sikkim: The state of Sikkim permits the offering of casino games such as roulette and blackjack by obtaining a licence under the provisions of the Sikkim Online Gaming (Regulation) Act, 2008 (“Sikkim Act”). Sikkim has a licensing regime for all online games – whether of chance or a combination of skill and chance. It is pertinent to note that the licensees are permitted to conduct their gambling activities only in five-star hotels.
The state of Sikkim offers licences for intranet games under the Sikkim Act and Rules. The intranet games include: (a) super pan 9; (b) roulette; (c) keno; (d) blackjack; (e) backgammon; (f) punto banco; (g) chemin-de-fer; (h) bingo; (i) baccarat; (j) poker dice; (k) casino brag; (l) poker; (m) pontoon; and (n) other sports games that involve prediction of results of sporting events and placing a bet on the outcome, in part or whole, of such sporting event.
The duration of the licence is five years unless it is surrendered or cancelled. The licence may be renewed on application for the same. The licensees under the Sikkim Act and Rules are required to pay a provisional fee of INR 1,00,000 (approx. USD 1,210) and INR 1,00,00,000 (approx. USD 121,048) as a licence fee for a five-year licence with an online gaming levy at a percentage as may be notified from time to time by the state government.
b) Nagaland: Nagaland has a licensing regime only for online skill games and a prohibition on gambling. The Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2016 (“Nagaland Act”) identifies poker as a skill game and requires an operator to procure a licence for offering it.
Under the Nagaland Act, the operators need to obtain licences for games of skills conducted through online media: (a) virtual sports fantasy league games; (b) chess; (c) virtual team selection games; (d) sudoku; (e) virtual stock/monopoly games; (f) quizzes; (g) virtual mystery and detective games; (h) binary options; (i) virtual adventure games; (j) bridge; (k) virtual combat games; (l) poker; (m) virtual boxing; (n) rummy; (o) virtual wrestling; (p) nap; (q) virtual fighting; (r) spades; (s) virtual sports (including soccer, cricket, archery, snooker, bridge and pool); (t) virtual racing games (including horse and car racing); (u) solitaire; and (v) virtual golf.
The duration of the licence is five years, provided that all the terms and conditions are complied with. After five years, the licence may be renewed yearly subject to the payment of the licence fee. An annual licence fee for a game for the first three years is INR 10,00,000 (approx. USD 12,085) or INR 25,00,000 (approx. USD 30,212) for a bouquet of games and for the next two years an individual game licence is INR 20,00,000 (approx. USD 24,171) and INR 50,00,000 (approx. USD 60,428) for a bouquet. There is an additional royalty of 0.5% to be paid by licensees.
c) Rajasthan: In 2022 issued a draft bill, namely the Rajasthan Virtual Online Sports (Regulation) Bill 2022 (“Rajasthan Bill”), proposing to regulate fantasy sports in the state under a licensing regime, however the same is not in force yet.
d) Telangana and Andhra Pradesh: The state of Telangana and Andhra Pradesh prohibit all activities in relation to real-money online gaming including skill gaming.
e) Tamil Nadu: In April 2023, the state government of Tamil Nadu implemented the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 (“TN Act”) to ban online gambling and real-money online games of chance in the state of Tamil Nadu.
A “local online games provider” (an online games provider whose central management and control of the service is in Tamil Nadu or whose service that is made available to customers is hosted in Tamil Nadu) whose online games are not hit by the prohibitions under the TN Act can offer such online games only upon the receipt of a “certificate of registration” from the Tamil Nadu Gaming Authority.
The duration of the “certificate of registration” for a “local online games provider” is three years from the date of its issuance. Every application by a “local online games provider” for grant of the “certificate of registration” shall be accompanied by a fee of INR 1,00,000 (approx. USD 1,200).
f) West Bengal: The state government West Bengal have granted permission to the Royal Calcutta Turf Club to offer online betting on horse races. The club has also tied up with foreign race operators to offer their races on an online betting platform.
MARKETING, PROMOTION, AND ADVERTISEMENT OF ONLINE GAMBLING
The majority of the State Gaming Laws prohibit the publishing, printing, distributing, selling or circulating of any newspaper, news sheet, or such other similar documents, or any information or news with the intention of facilitating or aiding gambling. However, these limitations are not necessarily applicable to games of skill.
State Specific Regulation.
The Advertising Standards Council of India (“ASCI”), a self-regulatory body, has introduced a self-regulatory advertising code that applies to advertisements on cable/satellite television including gambling advertisements. The code prohibits the propagation of products that are banned by law. Specific to the real-money gaming industry, ASCI released the ASCI Guidelines for Online Gaming for Real Money Winnings, which prescribe, inter alia, that advertisements are prohibited from displaying minors (below the age of 18) playing the game and must include a clearly visible disclaimer that the game offered involves an element of financial risk and may be addictive in nature.
a) Sikkim: The state permits licensees to advertise online games, provided they comply with the following:
i. Advertisements must provide the online gaming operator’s website address.
ii. Advertisements should not be directed to any individual who is below 18 years of age.
iii. Advertisements should not be directed at any jurisdiction where online gaming is prohibited.
iv. Advertisements should not be offensive or indecent.
v. Advertisements should be based on facts.
b) Nagaland: The licensees are permitted to advertise on both offline and online platforms, and also have the permission to display their licence that has been granted by the government of Nagaland.
c) Tamil Nadu: The TN act prohibits, across all media in Tamil Nadu, advertisements of all those real-money games which are caught within its prohibitions (including online real-money rummy and poker). The TN Act further prescribes punishment for advertising online gambling and real-money games of chance (imprisonment for a term which may extend to one year or with a fine which may extend to INR 1,00,000, or with both).
LOCATION OF PLAYER
As stated above in India, gambling laws are primarily governed at the state level, with each state having the authority to regulate gambling activities within its borders. Meaning each state decides the rules on location of players. A few state regulations are as follows:
a) Sikkim: Initially the Sikkim Online Gaming (Regulation) Act, 2008 had allowed licensees could offer the games across India through websites and online services. However, 2015 amendment significantly altered the scope of the original Sikkim Online Gaming (Regulation) Act by restricting gaming opportunities to within Sikkim’s territorial borders. This change was made to ensure compliance with the IT Act, 2000, and to avoid conflicts with other states’ jurisdictions. As a result, online gaming services are now limited to intranet terminals located at gaming Parlors within Sikkim, preventing the extension of these services beyond the state’s physical boundaries.
b) Nagaland: Nagaland is one of the few Indian states that explicitly recognizes and regulates online games of skill and it explicitly bans online gambling. , through the Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2016. The Act provides for the issuance of licenses to operators offering games of skill. Once a license is obtained, operators can legally offer these games to players across India, provided that the games are permitted in those regions. This extra-territorial application is unique to Nagaland and allows businesses to target a broader audience beyond the state’s borders.
c) Tamil Nadu: The Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022, completely bans online gambling in the state. It requires the use of geo-blocking technology to stop people in Tamil Nadu from accessing online gambling services. This means companies cannot offer their gambling services to anyone in Tamil Nadu, making sure the ban is enforced. By using geo-blocking, state governments can ensure that banned gambling sites are not available within their borders, and that allowed online gaming services do not operate outside their designated areas.
FOREIGN INVESTMENT
According to Chapter 5.1 of Consolidated FDI Policy Circular of 2020 issued by DPIIT dated 15 October 2020 (https://dpiit.gov.in/sites/default/files/FDI-PolicyCircular-2020-29October2020.pdf). Foreign Direct Investment (FDI) is prohibited in: a) Lottery Business including Government/private lottery, online lotteries, etc. b) Gambling and Betting including casinos etc. Thus, FDI is strictly prohibited in entities involved in lottery, gambling, and betting activities in India, including casinos. While the specific definitions of lottery, gambling, and betting are not explicitly provided, judicial precedents have established that “games of chance” fall under the prohibited category, while “games of skill” may be permissible for FDI.
The Supreme Court has employed the “dominant factor test” to determine whether chance or skill predominates in a game. Based on this test, games like rummy, horse racing, and fantasy sports have been classified as games of skill and are eligible for FDI. Therefore, a careful evaluation of business models is essential to assess their permissibility under the FDI guidelines, ensuring compliance with the distinction between games of chance and games of skill.
PAYMENT GATEWAY
As the Online Gambling business operates in a virtual landscape selecting a payment gateway is essential as there is no concept of cash in this business structure. Payment gateway provides for transactions between the players and gambling site. There is no ban on connecting a payment gateway to an online gambling business in India but involves adhering to a comprehensive set of legal and regulatory requirements.
2. https://iclg.com/practice-areas/gambling-laws-and-regulations/india
3. https://corefy.com/blog/how-to-start-an-online-gambling-business
6. https://aklegal.in/online-gambling-the-legal-framework/
7. https://parinamlaw.com/state-of-play-online-gaming-and-anti-gambling-laws-in-india/
8. https://iclg.com/practice-areas/gambling-laws-and-regulations/india
10. https://www.legalkart.com/legal-blog/is-online-gambling-in-india-legal
FAQs
1. What are the key facts to be considered while choosing Payment Gateways?
i. Security and Compliance: Payment gateways must ensure high levels of security, including encryption and tokenization, to protect sensitive financial data. Compliance with PCI DSS and other local regulations is crucial to operate legally and securely in India
ii. Fraud Prevention and Risk Management: Implementing robust fraud detection systems and personalized anti-fraud rules is vital to prevent financial crimes and ensure a secure transaction environment. This includes technologies like 3D Secure and creating white and black lists of buyers
iii. Ease of Integration and Scalability: Payment gateways should offer flexible integration options, such as APIs and SDKs, to seamlessly connect with existing systems and scale as the business grows. This reduces development time and costs, enabling quick adaptation to market changes
iv. Customer support: Responsive and knowledgeable customer support can make a significant difference in resolving issues quickly and efficiently
v. Multi-Currency and Multi-Method Support: Supporting multiple currencies and payment methods, including UPI, e-wallets, and cryptocurrencies, is essential for catering to a diverse user base in India. This flexibility allows businesses to reach a wider audience and accommodate various customer preferences
2. What are some common mistakes merchants make when choosing a gambling payment gateway?
Common mistakes include the following:
i. A common error is not considering payment options that meet the preferences of their target audience. A suitable payment gateway should offer a variety of payment solutions to ensure smooth transactions. It’s also important to include diverse methods, such as Indian payment systems, to cater to a wide range of customers.
ii. Merchants often underestimate the need for a secure and efficient payment experience. Complicated processes can discourage users from completing transactions, so it’s vital to choose streamlined solutions.
iii. Personalizing payment options can further improve customer satisfaction. An efficient gateway enhances overall payment processing, allowing casino operators to offer various payment methods tailored to player preferences.
iv. Ensuring that the payment gateway provider offers secure handling of sensitive payment details is crucial for long-term success in the gambling industry. Selecting a top-tier provider can significantly impact the overall performance of a gambling platform.
3. What are some popular payment gateways for gambling platforms?
Some popular payment gateways for gambling platforms include Razorpay, CCAvenue, PayPal, PayU, NOWPayments, AptPay, Skrill, Neteller, EcoPayz, and Trustly. Each of these gateways offers unique features and benefits, catering to different user preferences and business requirements.
4. How do payment gateways help with regulatory compliance in the gambling industry?
Payment gateways can help gambling platforms comply with regulatory requirements by implementing robust security measures, adhering to strict anti-fraud and anti-money laundering protocols, and supporting Know Your Customer (KYC) and customer due diligence procedures. By choosing a payment gateway that follows these practices, businesses can mitigate risks and ensure compliance with evolving regulations.
5. How to Connect a Payment System for Gambling?
Business owners need to start with the following stages:
i. Open an account in a local bank.
ii. Get a license that allows your business to offer gambling services.
iii. Find a payment gateway that enables a company to open a merchant account for gambling.
iv. Discuss the processing conditions and sign an agreement.
v. Let gateway representatives provide an audit and evaluate your gambling platform.
vi. Qualified specialists connect the chosen solution through API and FTP protocols.
vii. Once all the gateway components have been installed and connected, experts provide the final settings to ensure everything functions properly.