Tip of the iceberg: how Tipico is breaking through Germany’s new regulations

The German market has historically been something of a cold and frosty environment for online gambling operators, where firms are frozen out through a climate of confusion and inconsistency from the 16 German Lander. Time and time again, efforts to create a fully functional Germany-wide gambling market have floundered, despite the best efforts of three die-hard states (Hesse, Schleswig-Holstein and North Rhine-Westphalia) and even the European Commission to end the deadlock.

However, the air of tension looked to be clearing in March 2019 when the previously conflicting Lander came together to agree a new amended Interstate Treaty (IST) on Gambling. The treaty, which provided for the licensing of both sports betting operators and, more startlingly, online casino in Germany for the first time was a watershed moment in the fledgling market. However, as the saying goes, the devil is in the detail and so it proved with this new IST, as it later turned out with increasingly swinging standards being applied to the online casino market. This drive towards increasingly speculative standards on online casino standards has been characterised by a transition period which would make even the most compliant operator wince.

Tipico is a name synonymous with the German market, having been one of the market leaders there for many years. As the dominant local market incumbent, this has allowed the firm to carve out a niche which should allow it to fend off the potential onslaught of operators looking to plant their flag in Germany. However, as with its less experienced counterparts, much of Tipico’s recent work has been cutting through the ice of the new regulations and transposing them onto its existing business plan, as Tipico head of corporate social responsibility Joachim Häusler relays to EGR Compliance.

Tipico head of corporate social responsibility Joachim Häusler

EGR Compliance: Firstly, what is your opinion of the new interstate treaty?

Joachim Häusler (JH): It has taken quite a long while. We have all been there from the beginning and it is good that we are eventually getting there that a regulated market is being created. Given the lengthy processes and significant issues involved, it’s understandable that everybody just wanted to get this done now. However, for me it didn’t really follow the ideal process. The ideal process would have involved something like a learning regulation, where you don’t impose measures of speculative nature but start only with whatever you have evidence for that works and then you graduate it, expand it and encourage the development and evaluation of new measures to protect players all based on evidence. For example, if the evidence points to something regarding AML checking, implement that. If it’s deposit limits, implement that, etc. Using this rationale, we would eventually have a growing regulatory framework that gets more and more effective over time, which is most importantly based on evidence, and not just on the speculation.

EGR Compliance: In what ways do the new German standards interact with Tipico’s own corporate responsibility goals?

JH: Well, if you look just at the headlines, then Germany is very much in line with everything else we have seen in other markets. It’s not all that far away from what many operators, including us, have done voluntarily for years, but the problem is more in the fine print. There are a number of very much untested details, which might be strict but nobody knows if they are effective at protecting players. And we as operators are now under a bit of time pressure to generate a system that would make those requirements realistic for the market so that they are at least accepted by consumers. Because these measures must be accepted by consumers as an advantage of gambling with a licensed operator where possible, else the regulated market will fail.

And of course we need to create the framework to evaluate all that because, so far, there is not much evidence on the effectiveness of many of those requirements. We should be able to find out soon whether these measures have side effects in terms of the market or behaviour or might just not work at all because these standards have not yet been used in a real gambling setting. So, this is for us the main task to make things viable and measurable so that we can give evidence-based feedback on these measures as soon as possible.

EGR Compliance: What’s been the biggest challenge for you in implementing these standards? And how have you dealt with it?

JH: For me, the biggest challenge in implementing these standards is to abstract them to the underlying policy goals. If the task was merely to programme the standards and whatever happens happens, that would be a disservice to our customers. The point is finding out what the actual goal of the policy is and what is the most customer friendly way to achieve that goal. We’re not going to do this by doing a word-by-word translation of what’s on the paper but instead by finding out where we can adapt our businesses to maintain the best possible solution for our customers while maintaining compliance with regulations. Regulating us as a company is very easy for the authorities. Regulating a market, however, is harder and effectively means that customers must accept whatever policies you draw up as an advantage for them. Because if they don’t, they will be actively channelled out of the regulated marked towards unlicensed black-market operators.

EGR Compliance: What has been the financial impact of implementing these new standards?

JH: As of this moment, I wouldn’t really be able to give you the financial impact of implementing these rules. However, there are several areas where there is a tangible impact on the business. An example of this is ID verification. By rolling out ID verification to our whole database, we could effectively derail the video identity-based operators that are allowed to work in the German market just with that workload, and if other operators followed suit then none of those businesses would be able to function. We have seen that and we as operators, and of course the authorities, need to learn fast and open as many possible and reliable ways for ID verification as possible as only then we will not lose customers to offers outside the regulated market. Right now, customers have to wait if they are lucky 15 minutes for their ID verification process to start and if they are unlucky or try it at the wrong time, they might just not get anywhere, which will lead customers to doubt that the regulated market is a benefit for them. The same thing is true when it comes to limits: imagine you were richer than most people and despite effectively proving that by providing sufficient source of wealth information, there is still a limit applied that might be much lower than what you could afford. How would you explain that to this customer and expect that he considers that an advantage?

Those are the small details that will, to a degree, drive customers out of the regulated market.

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EGR Compliance: Are deposit limits an effective method of encouraging responsible gambling among players?

JH: Probably, yes, self-set deposit limits are one of the best researched measures and, at least, there is some solid evidence that they positively affect future player behaviour. Having said that, now we come to the fine print. Much of the German limit regime revolves around imposed limits. There’s actually no evidence on the protective effects of such imposed limits. There’s a couple of studies that show that imposed limits are not well accepted by gamblers and don’t lead to behavioural change. I wouldn’t yet lock the door and say that they are actually harmful. Then again there’s nothing out there to show that they lead towards safer gambling behaviour.

So again, limits are very important if you want to share responsibility with your customer, but the way they are done in Germany, there’s not much evidence for protective effects they may have on customers. Indeed there is some evidence that it might drive customers out of the market.

EGR Compliance: As the market leader in Germany, how important is it to Tipico to be at the front of the queue when it comes to new licences and importantly to prove its compliance with regulations to German players?

JH: There’s nothing to prove. I think we wouldn’t be the market leader if we hadn’t proven that a long time ago. For other operators, it might be like an important thing to show off and say ‘look, we can do that as well’. Being trustworthy is one of the attributes most reliably associated to us by consumers. For us it’s about just implementing the regulation as consumer friendly as possible. I don’t know if we are in the front of the queue when it comes to the implementation but we want to make sure this regulated market becomes as much of a success as possible.

EGR Compliance: How long have you been working on complying with the new rules? Is there still any work to be done?

JH: I think many German operators have, over the course of the last 10 years, moved to continually improve their player protection long before these requirements were published. We worked with earlier documents and thought about what might change or how we expected that to be implemented. When the requirements were published, there were several small surprises but, again, the headlines were expected not only to us, but to others as well. I think we were not the only ones to prepare for a long period before that.

What’s left to be done? Many small details and a lot of stuff to be improved in areas where the authorities have given us feedback. For that, the authority required an implementation plan, a document where we tell them, for example, on this date please look at this feature, by that date please have a look at that feature etc, which we all have to complete and send back. This is true for all operators and we’re all having the same kinds of conversations with the licensing authorities, where we present these plans with launching deadlines, they give us feedback if it’s needed or if they have questions, things like that.

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EGR Compliance: Based on your own experiences of adopting these rules, where do you see the biggest challenges for other operators?

JH: Traditionally, new market entrants have just looked at what everyone else has done and copied that. They don’t have to research it or understand it, they don’t have to make sense of it, they can simply see what everyone else does. Now everyone starts at the same time and each implementation plan is unique, so not every operator will do things in the same way and there is room for differentiation.  If you want to be at the front, you need to do things better so just looking at what everybody else has done would not be enough for us. However, inversely, if there is something lacking in the whole industry, we would be the first ones to get questioned by the authorities so that’s a burden in being the market leader.

EGR Compliance: How would you describe your relationship with German regulators? Have they been receptive to any issues you’ve identified?

JH: Hesse has been involved in this for so long and I’m sure it was a tough process for them as well but they’ve learned so much over the course of that process. Right now, Hesse, together with Schleswig-Holstein and some of the other authorities, have an in-depth understanding of our market and the business we’re involved in. They are able to ask the tough questions, based on what they see and when something is not like how they want it to be, they have the knowledge to discuss what’s going wrong so it’s good to work with an experienced authority.

EGR Compliance: How important to Tipico’s ongoing corporate social responsibility goals is it that your employees understand and play their part in shaping Tipico’s response to the new standards?

JH: This is extremely important because we cannot dictate responsible behaviour from the top. That would be like herding cats, which typically doesn’t work. But we are in the lucky position that our colleagues demand that, in like any satisfaction survey we made in the last few years, there was always a majority of more than 90% of colleagues that say it is important for them to work for a responsible operator. So, there is this internal motivation, which is matched by the trust of our consumers.

So we don’t have another choice. Everybody wants us to be responsible, just look at the results of our report. This is our role and our business and it’s kind of defining. Of course, there are moments when colleagues curse about new requirements, but only because it forces us to move fast and make dynamic changes to the way we operate. As I’ve said, we hope to make a business advantage out of the regulation and it’s something we had been preparing for.

EGR Compliance: What additional player protection functionality has Tipico installed to its software to comply with the new standards?

JH: I think the most interesting topic here is to talk about behavioural monitoring. Typically, when we talk about consumer protection, we’re talking about informed choice. Even in areas of increased risk, medical products or financial transactions, the focus is on informing you about your risks, and then you can do whatever you like. The problem is, if you are an addict, then you are not in control of your behaviour all the time, so informed choice wouldn’t help. So in gambling, you have a setting where, for a very small group of customers, like 1% of the population, you need completely different measures than for the vast majority, the remaining 99%, and this is what creates gambling regulation as it is right now.

The problem for authorities is they want to have one-size-fits-all requirements. However, doing so necessarily will channel consumer demand out of the regulated market. Behavioural modelling provides a solution for this dilemma. There is a baseline of requirements for all customers which is expanded based on the observed behaviour of the customer. This might be the one single defining element to make gambling regulation more acceptable for consumers, because blanket measures that are tailored to protect addicts are not very well suited for the remaining 99%. The more we can introduce this tailored and individualised player protection, the more we can keep the market acceptable for the majority and safe for all.

We provide both channels, retail and online, and therefore the interesting part was how to make synergies out of that, so how to introduce to behavioural modelling with statistics to retail behaviour in the shop and also how to introduce the observation methods, the staff in the shop are using, to the online business. After we did that, we then built one overarching statistical model that would take all those data sources, all those inputs in real time and make a risk estimate out that. As an example, in the shop, an employee could observe something, he reports that observation with a few clicks, and it becomes in real time part of the transaction history of that player and is considered for every future interaction with that player. For me, I think it’s important that we don’t have those silos, i.e. this is retail, this is online, but have one overarching view of the customer. So far, we are the first to do that to bridge that gap.

EGR Compliance: Do you feel the German regulations are beneficial in the long term or will they create issues with operator compliance once the new market is up and running in 2021?

JH: No, I think it’s absolutely beneficial. Having the chance for a regulated sports betting market and a tolerance regime for games gives us the opportunity to see how operators react, how they deal with a regulated market and, ultimately, it gives the authorities the chance to spot bad actors who are not willing or not able to work within the regime and take measures against them. For example, if someone is not able to change their online casinos now to conform to the toleration regime then this is a relatively clear message to the authorities that this will probably not be a good candidate for future licences.

On the other hand, it gives us and the authorities time to test whether requirements are actually working, so we can learn the lessons in time for the fourth IST. Things ultimately can run a lot smoother than if they had no experience with implementing the treaty at all. Now they can collect a solid evidence base over the coming months.

EGR Compliance: In your opinion will the Lander pursue a restrictive approach towards operators when the new IST goes live in 2021?

JH: I hope we move away from the distinction between restrictive and tolerant to a distinction of whether players are effectively protected. Just because measures are restrictive, they are not necessarily effective. And the goal is not to restrict, the goal is to actively protect players.

EGR Compliance: How will working with a centralised gambling regulator for the German market change the way that Tipico approaches corporate responsibility?

JH: I don’t think it would change that much. Even now for the online business there’s perceptibly one authority leading the efforts. Also, a complete centralisation will not happen in the future. The retail business will continue to be subject to state regulation. Every state will have their own specific set of requirements that decide whether a certain shop is permissible or not.