Financial news

The Ministry of Electronics and Information Technology (MeitY) is likely to issue a separate order to fintech and payment companies, asking them to block the access of their payment gateways to non-permissible online games, said government officials with knowledge of the matter.

This comes in the backdrop of the government issuing the online gaming rules, which laid down the framework for games to be certified as permissible through a self-regulatory mechanism.

“There will be a notification or an order that a non-permissible game should not be given the ability to gateway through a financial payment gateway. If you are not permissible on the Indian internet, it is not just for the users to not access it but also for gateway into any other application into India,” a senior MeitY official said on condition of anonymity, adding that the process is expected to happen once the self-regulatory organisations (SROs) are up and running.

The move will further help in cracking down on operations of illegal online betting and gambling companies, especially those based in foreign locations, said the official.

Earlier this month, the MeitY had notified the online gaming regulations, asking the industry to set up SROs with a diverse set of individuals who will be responsible for certifying online games as permissible or non-permissible. The government has said that online real money games that allow wagering on an outcome are not allowed under the law, in addition to those that have the potential to cause user harm, financial fraud or addiction.

Gaming industry executives said the government’s move to close a potential loophole would prove to be helpful, especially to fantasy sports platforms, as it would further disincentivise internet companies from allowing betting and gambling companies.

“Even though legitimate online gaming companies may comply with the new rules, some illegal actors may continue to operate using payment gateways to operate in India. There is a need to stop these entities from operating,” said a co-founder of an Indian online gaming company, who did not wish to be identified.

ET reported last week that the Directorate General of GST Intelligence (DGGI) had cracked down on Cyprus, Mauritius and Cayman Islands-based entities offering online gambling and betting, some of them said to be posing as fantasy game platforms. Internal scrutiny by the DGGI suggested that these companies were not registered in India and were helping high-net-worth individuals, including some celebrities, and social media influencers launder money abroad.

Payments industry executives said that over the past few months, banks and fintech companies have proactively started blocking access of payment gateways to players that were operating in the regulatory grey areas such as those in online gaming and cryptocurrencies.

Sectoral experts also believe that the potential move by the MeitY to ask payment gateways to block access to non-permissible games could clear the path for legitimate real-money games (RMG) to use those channels.

“Hopefully, for the RMG sector, if their games are allowed under the new rules, then it should lead to ease of banking services as well,” said Rameesh Kailasam, CEO, IndiaTech.org, a body representing internet companies. “The banking system today is still a bit risk averse for the likes of gaming and related services, primarily due to various state interpretations. With the new set of rules coming, the banking system should become more accommodative towards those compliant games to start with.”

He said the banking and payments system, states, tax authorities and law enforcement have to be brought up to speed on the new rules so that it leads to ease of doing business for those covered by these rules.

The MeitY official cited earlier said while the online gaming rules cover entities such as intermediaries engaging directly with online gaming, they will also be applicable to companies outside the direct purview of the rules if they have anything to do with games on the Indian internet. Besides payment gateways, it would include publishers and portals carrying advertisements of online games.

Last Friday, minister of state for electronics and information technology Rajeev Chandrasekhar said at a Twitter Spaces session that advertising of non-permissible games, whether in a surrogate form or otherwise, would not be allowed as per the new rules.

“If something is not permitted on the internet, we cannot have platforms based in the British Virgin Islands or the Cayman Islands advertise in India on the internet. In the rules, we have prescribed that no advertising – surrogate or otherwise – of these online gaming services that contravene the provisions on wagering, addictive behaviour or harm should be permitted,” said Chandrasekhar.

In addition, the MeitY is expected to soon issue a set of frequently asked questions addressing some of the concerns and clarifications sought by the online gaming industry during the consultations following the notification of the new set of rules.