How online casinos work

By Iasmina Bunea updated:

Online casinos may seem simple and straightforward, but the truth is, there is a lot of work behind them that makes them work the way they do. There are many elements that make a gambling platform, and each has its essential role. Let’s see how online casinos work, how they make a profit, and where everything they offer comes from!

Summary:

  • The first online casinos
  • How online casinos work
  • How do online casinos make profit
  • Conclusions, Methodology, and References

The first online casinos

1994 was the golden year for online gambling as in different parts of the world, two forces were about to change gambling forever. The government of Antigua and Barbuda passed the Free Trade & Processing act and, at the same time, Microgaming was established on the Isle of Man.

The law gave companies the chance to get licenses from this small Caribbean nation and operate online casinos. Only a few months later, in 1995, CryptoLogic, the missing piece of the puzzle, made an appearance. This company specializes in real money transactions over the Internet, and it made the creation of a real online casino possible.

Microgaming launched their own gaming platform, but even though the website says it dates from 1994, the company said it did not officially launch until 1998. This means that the real first online casino was the one launched by CyptoLogic in 1996. Regardless of the time aspect, this was indeed the first gaming platform that allowed players to bet real money via the Internet.

By the end of 1996, approximately 15 Internet gaming sites were available, and by 1997, players worldwide had access to over 200 online casinos, sportsbooks, and Poker sites.

How online casinos work

Due to technological advancements, casinos have considerably evolved from their land-based form, which is still available nowadays, to the online casinos we may join today. The online version comes with a much faster pace, allowing players to switch from one game to another at any point in a matter of seconds. Moreover, what makes online casinos become more popular each day is the convenience they offer since one may play from anywhere at any time, and their special features that players cannot benefit from in a land-based casino.

If land-based casinos are relatively easy to understand for some players, behind the online ones are plenty of technologies, legal aspects to keep in check, and essential protocols to follow.

What is KYC, and why is it important

KYC, an acronym for Know Your Customer, is a process online casino and other businesses use to verify their customers’ identity and their financial information.

What is KYC and why is it important

The KYC process may be a nuisance to some players, but it is meant to protect them and the online casino. It prevents underage gambling and blocks fraud, bribery, corruption, and money laundering.

During this process, customers are required to provide the following information:

  • Full name;
  • Address;
  • Date of birth;
  • Address;
  • Phone number.

In order to prove the age and identity, the user will have to send a photo or a scanned image of their passport, ID, or driver’s license. The address will also need to be confirmed as accurate, so a utility bill or bank statement no older than three months will be required.

Some casinos will ask their players to go through further financial verification and provide additional documents. These are required to verify the payment method or the source of money to make sure they have been acquired legally. Also, casinos need to make sure the account owner themselves makes the deposits. The documentation required for this process may include:

  • Scan or photo of the bank card used or other payment method;
  • Pension;
  • Payslip;
  • Bank statement;
  • Dividends;
  • Trust deed;
  • Director’s remuneration;
  • Savings account.

The process, requirements, and documentation needed may vary from one casino to another and from one situation to another.

Important: In order for the documents provided to be accepted, they have to be legible and of good quality.

Tips: Notify the customer support whenever your personal details such as phone number or address change to avoid any future issues!

Be aware: Some online casinos will perform soft credit checks! These do not affect your credit score, but if the information found does not match the one you offered, you will be contacted and asked to provide further information.

Payment methods & process

In order to allow players to enjoy games using real money, online casinos need to offer a variety of payment options. To do this, they have to first negotiate with the payment system providers and agree on their integration on the website and the fees.

Fees

Even though players do not have to pay fees most of the time, the casino operators do have to pay fees to the payment providers. These are discussed and agreed upon for each case, so they may differ from one site to another and from one payment option to another.

Third party payment providers

The payment providers are third-party companies, which means they also add to the security layers the players benefit from. This is excellent news for gamers, as their money and financial information are protected by both the casino and the payment system.

Deposits are performed instantly or in a matter of minutes, but cashouts usually take longer. This happens because the online casino’s team has to verify the payment request and, in some cases, manually approve it. This is especially true for huge amount of money.

E-wallets payments

Payments made via e-wallets are performed faster, but when a user requests a withdrawal via debit card or bank transfer, the bank will run its own checks and approve the transaction aside from the casino’s verifications. This means it takes even longer to get the money from the casino.

Currencies

Casinos often offer a wide variety of currencies players may deposit in, but often, they operate using a base currency. For the Canadian market, this should be CAD, but some choose to operate in EUR or USD. This involves automatically exchanging the money upon deposit or withdrawal, for which the casino pays the conversion fees from the amount exchanged.

Tips: It is always better for Canadian players to play using CAD to avoid losing money in the exchange process. Also, choosing e-wallets for cashouts will allow for faster transactions.

Game Collection and software providers

Collaboration with many software providers and having an extensive game collection is great for any gaming site. However, casinos do not own the games on their websites, nor they have much control over them. The casino cannot determine who wins, how much, how the game works, or anything related to it except for the fact that it shows up in their collection.

Software providers create the games, and they run on their servers, regardless of the platform the user enjoys them on. This means that if a game does not work or is not working correctly, most likely, it is not a problem with the online casino but with the provider’s server.

Furthermore, progressive jackpot slot machines will pay out jackpots with money from the software provider, not the online casino. These jackpots are continually increasing due to all gamers playing the same game on any platform it is available on.

Some casino platforms offer in-house games, but this is a rare occurrence and websites that only provide these are not very trustworthy. This is because each software provider is fully licensed by a competent body, such as the Malta Gaming Authority. This license shows that the provider was checked and is occasionally audited to make sure that they create fair games and everything is functioning legally. This, just as in the case of payment options, adds another layer of security for the user. In-house games are not licensed by anyone, so their fairness cannot be proven.

All casino games run on a Random Number Generator. The licensing authority and third parties in charge of auditing the software provider will check if the RNG works properly, conferring fairness to the game. The RTP (Return to Player) is also set by the software provider for each game, not by the casino.

Collaborations between online casinos and software providers, just as in the case of payment systems, come with specific fees for the casino operator. These vary from one software provider to another and may also change during negotiations.

Top online casinos come with a variety of games of all types, created by many software providers, including the most famous in the industry. This attracts more players and helps them trust the platform more, while offering them the diversity they need to keep on coming back and playing more.

Important: More software providers on a platform do not only offer a wider variety of games for the players but also shows the platform is trustworthy.

Promotions

Online casinos create promotions to attract and retain customers. They come in many categories:

  • New player bonuses – no deposit, first deposit, and welcome deals;
  • Existing player bonuses – reload offers, seasonal or temporary promos, cashback;
  • Refer a friend deals;
  • Loyalty offers awarded upon reaching a certain VIP level.
promotions

Aside from this general categorization, there are many other types of bonuses such as:

  • Sticky Bonus – these promotions contain an amount of money, be it fixed or directly proportional to the deposit, but the bonus amount will be deducted from the winnings upon withdrawal. This allows the player to play with borrowed money instead of genuinely free money;
  • Free Bonus – this is usually a fixed amount of money players get regardless of their deposit over the minimum limit;
  • Exclusive deals – these are promotions created by the casino in partnership with another website, usually a bonus aggregator such as CasinoBonusCA.

All deals come with specific requirements and rules set by the casino. They vary from one promotion to another and from casino to casino. These are:

  1. Minimum deposit – this may be the minimum deposit the casino requires, or it can be a different amount that only applies to one promotion;
  2. Wagering requirement – always shown as a multiplier, this requirement shows how many times the player needs to wager a certain amount of money. This may apply to either the bonus, the deposit, or the winnings. In some cases, this applies to a combination of these. Unless this is completed, no winnings from the promotion can be cashed out, but some promotions come with none;
  3. Maximum cashout – regardless of the amount won from a deal, this is a limit of how much the player may withdraw from the winnings. The money exceeding this limit will be voided.
  4. Availability – promotions usually come with a time limit after which they expire and are forfeited.

Important: All the information on an offer can be found in the Terms and Conditions section and Promotional Rules. Players are advised to always read these before proceeding to use any promotion!

Licenses

For an online casino to run legally and fairly, it needs to be fully licensed and regulated by a competent authority. There are multiple such authorities, but their practices and stringency levels differ. For the Canadian market, the most popular licenses are issued by:

  • Malta Gaming Authority (MGA);
  • United Kingdom Gambling Commission (UKGC);
  • Kahnawake Gambling Commission (KGC);
  • Curacao Government.

Licenses are granted after the site and its owners are checked and are confirmed to have met certain requirements such as:

  1. Owners are senior management are fit to conduct such business and have no criminal records;
  2. The RNG software is regularly tested and validated;
  3. Customer support is provided via phone, live chat, or email;
  4. All gaming software must display elapsed time for players to keep track of their gambling;
  5. Quick and fair responses to complaints.

Each authority comes with its own requirements and conducts its own examination process. This often includes close examination of the games, incorporation documents, the processes related to conducting the games, terms and conditions, rules and policies, as well as technical documentation of both the control and gaming system.

These authorities each have their own fees, both up-front and annual. The more stringent ones also have higher fees, making it possible only for the competent and prepared casino operators to obtain a license from them.

Tips: The more licenses, the better! Some online casinos have a single license, which already proves they are running legally and fairly. However, if more authorities checked and licensed one website, you may rest assured everything is working properly.

Customer support

The customer support of an online casino can be provided in house, or it can be outsourced, and it can be provided via multiple communication channels such as email, phone, Live Chat, and even social media and Skype in some cases.

In-house customer support is the best because the agents work for the online casino, so they know the industry better, and they have more information about the platform. When the support is outsourced, the agents have less information on the casino and may also not be too familiar with the industry.  

Tips: For faster communication, most Canadian players prefer using Live Chat. Test it before joining a casino and make sure the agents give quick and satisfactory answers!

Data security

Data security is crucial for both gamers and online casinos. All the information shared by or collected from customers needs to remain private and away from any hacker’s hands. In order to do this, casinos have multiple security layers, which include:

  • Firewall – much like the firewall on our computers, the ones virtual casinos use block unwanted access of anything suspicious on the network;
  • SSL Encryption – Secure Socket Layer Encryption keeps all the transferred data safe by encrypting it during its transfer and decrypting it on its arrival. This way, in case any piece of it is intercepted, it will not be decoded;
  • Privacy Policy – now that the information is successfully and safely collected, what the casino does with it, and how long it will keep it is also essential. This information can be found in the Privacy Policy, and every player should read it.
Data security

Tips: A clear and transparent Privacy Policy is a sign that the platform is secure and fair. Find it on the homepage’s footer on any online casino!

How white label casinos work

White label products, by definition, are created by a company and rebranded and sold by another. This can be done for online casinos too. There are many white label casinos out there thanks to the clear advantages this brings:

  • The setup may take even a couple of weeks;
  • Payment processing and fraud prevention and detection systems are handled by the white label solution along with the risk management;
  • Customer support is usually part of the white label services package;
  • The legal and licensing part will also be taken care of.

This makes it easier and faster for casino operators to launch a product that works properly, allowing them to focus on marketing and management.

Famous and reliable white label casino software providers are:

  1. Tain;
  2. Playtech;
  3. Realtime Gaming.

How do online casinos make profit

Online casinos are quite lucrative businesses, and their profit comes from the customers’ wagers. In order to increase their profits, they have to attract players using promotions and other enticing features. The more people deposit and come back to play more, the more unlucky bets are made, resulting in more profit for the casino.

The system that helps online casinos make profit even when players win is called house edge. This formula is the base on which a percentage of the player’s money will be kept by the casino each time they play. It is usually around 5% and, even though it may not sound like much, it is a substantial amount considering the number of active players a casino usually has.

Commissions are also collected in games such as Poker, right before they start. Some casinos take a percentage of the bets, while some have a fixed fee all players need to pay before the round begins. This is because the casino’s role in this type of games is only to be the dealer, which gets it no profit after the game ends.

Conclusions, Methodology, and References

Online casinos are difficult to create from scratch, and they require plenty of money to be invested in the development of every aspect they need to work correctly. From the visual design to the games, payments, and customer support, everything has to meet high quality standards in order for the operator to be granted a license. However, some may choose to go with white label solutions that take care of everything for them, and they can market a product created entirely by a different company. The online gambling industry is very profitable both when players lose and win. The house edge and game commissions determine how much profit the platform makes, but they are still reasonable enough for players to enjoy playing and have a fair experience.

The information in this article has been collected from the following sources:

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