Demystifying affordability part one: What is affordability?

Affordability has been a widely debated topic in the industry over the past few years, first being mentioned back in the Gambling Commission’s 2018 Review of online gambling. But in recent months it has become one of the hottest topics in British gambling.

Since that first mention in 2018, the affordability conversation has developed into a main focus in the UK market, gaining attention from not only the regulator and industry but also media, politicians and the public. 

The Commission’s recent National Strategic Assessment stated it best when it said “individuals spending more than they can afford to lose is one of the harms most associated with gambling. Harm can be significant even at low spending levels as the level of spend at which harms begin to occur depends on the consumer’s discretionary income”.

A proposed solution to mitigate these harms would be to conduct affordability checks to ensure customers can afford their level of spend and apply appropriate customer interactions as a result of such checks.

This series will look to first set the regulatory context, before shedding light on the most important areas operators must consider when addressing affordability. The series will cover the benefits of automating affordability processes, the concept of a layered approach to affordability, the importance of non-intrusive affordability checks and how to develop affordability frameworks that deliver high levels of player protection while respecting the privacy and convenience of the customer.

The Gambling Commission
When affordability was first mentioned by the GC in the 2018 Review of online gambling, it was in the context of customer due diligence. 

The review stated that the Commission would consult on whether operators should have to set limits on customer spend, until an operator knew more about their customer. An affordability check was an example used for how an operator could do this.

The GC’s Enforcement Report for 2018-19 highlighted that its enforcement team had reviewed numerous cases where individuals demonstrated gambling-related harm but were allowed to continue to gamble without effective engagement.

“Disposable income data identifies clear benchmarks that should drive social responsibility triggers which will help identify gambling related harm,” the regulator said. 

In the July 2019 formal guidance for remote gambling operators, the GC repeated the importance of affordability when operators develop their customer interaction policies. 

In this document, it made a key distinction: between ‘disposable income’ (income after tax) and ‘discretionary income’ (income after taxes and living costs). It said that spending a significant amount of one’s discretionary income on gambling would be considered harmful.

With the Covid-19 pandemic reaching the UK in early 2020, the Commission released its Additional formal guidance for remote operators during the Covid-19 outbreak, in which it instructed operators to conduct affordability assessments for individuals picked up by existing or new thresholds and triggers which indicate they are experiencing harm. 

Operators should note that the regulator continues to advise that these two formal guidance notes remain enforceable. This means that these should be considered in advance of the outcome of the customer interaction consultation.

Outside pressure on affordability regulation 
The affordability conversation has not only been pushed forward by the regulator, as the government has taken a strong interest in gambling regulation as a whole.

This has contributed in part to greater public awareness of gambling regulation and, as a result, consultations on topics such as affordability and the long-awaited 2005 Gambling Act Review. 

The All Party Parliamentary Group (APPG) on Gambling Related Harm published its findings of an inquiry into online gambling harm which – along with a number of recommendations – advised affordability checks should inform deposit limits for customers. 

The House of Lords Select Committee on the Social and Economic Impact of the Gambling Industry released a report in July 2020. Their recommendations included the Commission having to explain the minimum steps which operators must take when considering customer affordability, and make it clear that it is for the operator to take steps which will enable them to identify customers who are betting more than they can afford. 

The Social Market Foundation, the cross-party think-tank, published a report – “Gambling review and reform: towards a new regulatory framework” – authored by James Noyes that first put forward the proposal of a soft cap of £100 per month on net deposits. It argued £100 was a figure which is more than what the majority of gamblers spend and ensures gambling activities do not amount to serious financial harm. 

The Remote Customer Interaction Consultation
A culmination of the above factors, increased public interest and enforcement action taken by the Commission against operators for social responsibility failings including record fines, licence suspensions and revocations, resulted in the regulator launching a consultation to provide clarity on affordability.

The remote customer interaction – Consultation and Call for Evidence recently closed on the 9th February 2021 and is set to determine at what threshold operators will be required to conduct affordability assessments, what an affordability assessment consists of and how operators will be expected to interact with their customers based on their affordability. The Gambling Commission’s enforcement action over the past few years against operators on social responsibility failings including failures in respect to assessing customer affordability shows that affordability checks are already an expectation of the regulator and this consultation is to formalise what is already being enforced.  

Discretionary Income – the key metric
In the recent Remote Customer Interaction Consultation and Call for Evidence the GC states that they consider “the most relevant way of assessing how much consumers may have to spend before beginning to experience harms as a result of their gambling is through discretionary income,” not disposable income. That is, income after both tax and spending on necessities such as food, travel and housing. 

This means that a consumer with high living costs may be able to afford to spend much less on gambling than a similar earner with less to spend on essentials.

If customers were to fund their gambling by using funds that are needed to support necessities, this would be unsustainable and have the potential to cause gambling-related harm as the customer’s quality of life would no doubt be affected. 

In addition, the Gambling Commission also states that it would not be expected that anyone could spend their entire discretionary income without experiencing gambling-related harm.

Discretionary income therefore lies at the heart of the affordability conversation. The challenge for operators is how to assess a customer’s affordability and their discretionary income in an ongoing way throughout the relationship with a customer, balancing both the need to protect the customer, the customer’s privacy and the customer’s own free will.

Having developed a solution over the past three years and worked closely with operators, we’ve seen those that adopt a layered approach to affordability greatly strengthen their responsible gaming frameworks and apply appropriate affordability assessments at different stages in the customer journey.

This layered approach consists of both tailored affordability checks and interactions based on the profile of the customer and how much they are wanting to spend. 

In the second part of this series, we will examine this approach in more detail.