NETeller Exits US Online Gambling Market

2007 January 22, Jonny Vincent

Following the arrests in the US of its founders, online payment third-party processor NETeller announced last week that it has exited the US market.

The NETeller founders were arrested and charged with money laundering under the power of the 1961 Wire Act.

NETeller grew to become a multi-million dollar company after being able to capture a large percentage of the market share during the online poker and casino boom in the last five years.

PayPal was a major competitor in the early days, but eBay purchased PayPal in 2001 and then limited it to non-gambling transactions. NETeller moved swiftly into the gap, eventually listing on the London Stock Exchange.

But the glory days for NETeller appeared to be over last week, after the unexpected arrests of the two founders, Stephen Lawrence and John Lefebvre. The company was quick to react to the arrests, exiting the US market almost immediately. A statement on the NETeller website reads: "Due to recent US legislative changes and events, effective immediately, US members are no longer able to transfer funds to or from any online gambling sites."

Lawrence was arrested in the US Virgin Islands and Lefebvre was arrested on the same day in Malibu, California. Both men are Canadian citizens. Neither founder was currently connected with NETeller at the time of the arrest, but both still retained shares in the company.

Due to the nature of their quick withdrawal, NETeller have left tens of thousands of US customers stranded with millions of dollars 'trapped' in online poker accounts. In addition, there is a desperate hunt on for a third-party payment processor to step into the gap and begin handling the millions of US-customer transactions NETeller has decided to pass on.

Many industry players thought Citadel would be the obvious choice to replace NETeller. But Citadel followed NETeller out of the US market, leaving a substantial demand for someone to step in and start handling transactions. NETeller processed $7 billion in transactions in 2005, and over $5 billion in the first half of 2006. If estimates are to be believed, NETeller handled almost half of the global market for online wagers in the last two years.

Online gamblers need not worry too much just yet, however. The market is simply too lucrative and, sooner rather than later, a third-party payment processor will step into the gap. Ironically, the UIGEA which sought to 'protect' players, will likely endanger them. Companies stepping into the market will likely not be as reputable as NETeller, and will almost certainly not be publicly traded.