Brazil's current market leader Betano is struggling with the ongoing threat of illegal operators. Regulatory chief Ioannis Spanoudakis calls for increased enforcement.
Despite the excitement of Brazil launching its regulated online sector earlier this year, one concern still stands above all the black market, says Ioannis Spanoudakis, chief regulatory affairs officer at Betano owner Kaizen Gaming.
He is calling for enforcement to be stepped up to improve the position of licensed operators.
Betano was the first to apply for a licence in Brazil last year and H2 Gambling Capital ranks it the regulated markets current leading operator.
But like its licensed peers, Betano has faced early challenges, namely getting to grips with strict new KYC requirements and the still prominent illegal market. Becoming licensed in the market was expensive and arduous for operators, with many barriers to entry.
Despite the lengthy process, which promised to benefit licensees through stronger player protections and a heavy clampdown in the black market, illegal operators remain at large.
In March, Brazilian Institute of Responsible Gaming (IBJR) co-founder and CEO Andr� Gelfi warned the illegal market was still accounting for around 60% of monthly GGR in the country.
Spanoudakis says the very sizeable black market remains the primary challenge for licensed operators in Brazil.
Online gaming is a large and rapidly growing industry that must operate responsibly, he tells iGB. A key part of that is eliminating the black market and players migrating to the legal ecosystem.
Of course, when illegal operators flourish, the state loses significant tax revenue that could otherwise be reinvested in public services, including prevention and treatment programmes.
Despite these ongoing concerns, Spanoudakis feels its necessary to acknowledge the progress that has been made since Brazils 1 January market launch.
Of course, due to the sheer volume of unauthorised operators, tackling the black market will be a complex and time-consuming effort, Spanoudakis continues.
[But] many players have already begun transitioning from unregulated platforms to licensed, legal operators, which is a positive sign for the future of the Brazilian market.
Brazils journey to regulated online gambling was fraught with delays, as around five years passed between the National Congress first approving legislation and the Chamber of Deputies giving the final go-ahead.
In Spanoudakis view, this gave Brazil the time needed to draw from international experience and best practices, to establish a comprehensive and largely complete regulatory framework.
While the country was relatively late in regulating the market, the delay provided an opportunity to learn from more mature jurisdictions and adopt proven strategies, he explains.
The authorities consulted with international operators and experts on betting and responsible gaming to shape their regulatory framework.
As part of the new framework, the regulating Secretariat of Prizes and Bets (SPA) introduced a raft of stringent new KYC restrictions for operators.
Now, Betano requires customers to submit their full name, date of birth and Individual Taxpayer Registration (CPF) number at the point of registration.
Then, Betano conducts a thorough identity and age verification process, utilising both public and private databases, as well as mandatory facial recognition technology.
The integration of facial recognition technology process has proved one of the biggest challenges, according to Spanoudakis.
Not only does this require a high level of technical sophistication, but it also demands a seamless user experience to prevent friction during onboarding, Spanoudakis says.
While the KYC requirements are essential in Spanoudakis view, theyve also impacted the competitiveness of licensed operators in Brazil against the black market, where players dont face the same level of friction.
Legal operators are investing heavily in robust verification systems, facial recognition technology and compliance infrastructure, all of which can create a more complicated and time-consuming onboarding experience, Spanoudakis adds.
Meanwhile, offshore operators often offer instant access with no identity checks becoming accessible even to minors and vulnerable groups and creating an illusion of convenience.
It highlights the need for stronger enforcement against illegal operators and public awareness campaigns to help users understand the value of a safer, compliant betting environment.
Spanoudakis has faith in the current regulatory framework and believes it is one of the best not only in LatAm, but across the globe.
His confidence lies also in the SPA avoiding overly restrictive measures seen elsewhere, at least for now.
But with the Brazilian Senate last week approving new measures on advertising, such as watersheds on gambling ads and a ban on celebrity endorsements, Spanoudakis emphasises the importance of balanced regulation.
Excessive regulation can drive players away from licensed operators and push them toward the black market, which undermines the goals of regulation in the first place, he says.
Despite the markets early challenges, Spanoudakis feels the influx of international operators demonstrates the attractiveness of Brazil as a market, as well as the value of the SPAs regulatory framework.
Of course, challenges remain, but we recognise that Brazil is undergoing a complete market transformation and, naturally, it will take time for all elements to fully settle, Spanoudakis concludes.
There is a shared understanding from the majority of stakeholders, including operators, authorities and customers, that a strong regulatory environment is essential for long-term industry growth and for effective consumer protection.
