The use of PayPal as a deposit method for online gambling sites is letting some players bypass limits on their checking counts and credit cards and leading to massive overspending, The Guardian reports.

PayPal

PayPal didn’t get where it is today by offering all its customers a £150,000 temporary line of credit, as The Guardian implied this week, but when its security controls fail, it can have devastating consequences for problem gamblers. (Image: PayPal)

The UK newspaper has learned of a case where a 20-year-old had been permitted to deposit £2,000 ($2,600) every few minutes, despite having maxed out his checking account. His parents woke up the next day to the news he had lost £150,000 ($193,000).

At issue is the 48-hour “lag” between a PayPal account purchase and the debit of funds from the bank account it’s tethered to. If there are no funds in a PayPal account, PayPal will still allow you to make a transaction and then seek the funds from an associated bank or credit card within 48 hours.

System Glitch?

While The Guardian implies that PayPal is putting all players at risk of racking up huge debts, the idea that it became a fintech giant by offering everyone a £150,000 line of credit for 48 hours is nonsense.

PayPal has security protocols in place to detect and prevent this kind of thing happening – as anyone who has made a legitimate large transaction only to find their account suddenly frozen, pending investigation, can attest. What’s concerning, though, is that on this occasion these protocols failed.

We cannot comment on individual cases. However, we are urgently looking into these reports and take them very seriously,” a PayPal spokesperson told The Guardian. “Our team has already reviewed the controls we have in place to identify and block problem gambling, and changes have been made to tighten the rules that govern these payments.”

UK Gov Mulling Credit-Card Ban

In the early days of the online gaming industry, PayPal was the biggest processor of online gambling transactions in the world, but it withdrew itself from all markets in 2003, due to the then legally gray nature of online gambling in most jurisdictions. In 2010, it began accepting gambling transactions again, but only for customers in jurisdictions where the online gambling was fully licensed and regulated.

The UK government’s Department for Digital, Culture, Media and Sport has launched a review into whether the use of credit cards for online gambling should be banned in order to better protect the vulnerable. When contacted by The Guardian, it said it would consider payment processors as part of the review.

Deputy leader of the opposition Tom Watson urged companies like PayPal to be “more responsible in identifying problem behavior and stopping gamblers racking up huge debts through their service.”