PayPal launches German online casino crackdown

21 August 2019

PayPal has made changes to its terms of use in the Germany, which will see operators prohibited from using the popular online payment system to process transactions for products that are not legal in the jurisdiction in which they are used.

Given that online casino games are not legal outside of the state of Schleswig-Holstein in Germany, the rule effectively prohibits the use of PayPal for igaming payments in the remainder of the country.

The changes - which will come into effect on 21 October - also adds that “if you are unsure as to whether or not a specific offer is permitted, you must ensure that it is legal before using PayPal's services.”

According to PayPal, the added term exists to clarify section 9.1 of its user agreement, which already prohibit clients from the “infringement of applicable law, contract or regulation.”

In June, Lower Saxony (Niedersachsen) issued the country's first federal blocking order to a payment service provider. The unnamed company, widely thought to be PayPal, was ordered to stop working with operators offering online casino, poker and lottery betting in the market. The Niedersachsen Ministry of the Interior, which is responsible for implementing payment blocking controls across all German states, also sent warnings to number of other payment service providers over links to illegal gambling.

It follows a lawsuit filed against the payment services giant by law firm CLLB in July this year on behalf of a customer that lost money gambling with a variety of igaming operators. According to business newspaper Handelsblatt, CLLB argued that, as these operators were not licensed, PayPal should not have accepted the bets and as a result the company should refund the plaintiff their losses. The case is ongoing.

PayPal's decision suggests German authorities are set to strictly enforce the Third State Treaty on Gambling. The legislation has been signed by the 16 Minister-Presidents of each German state, but must be ratified before the end of the year in order to come into force from 1 January, 2020. It is due to be in place until 30 June, 2021, by which time state leaders aim to introduce a new, overhauled regulatory framework that will replace the State Treaty and Schleswig-Holstein's liberal model.

Analysts at Regulus Partners have suggested that enforcement of the Treaty, which prohibits in-play wagering and online casino, as well as setting a mandatory €1,000 monthly spending limit for players and a 5% turnover tax, could slash operators' revenue from the market. However GVC Holdings, which is one of the country's largest operators, has suggested that delays to the licensing process were likely, resulting in companies being able to continue offering in-play and online casino.