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Untangling the Web of Fantasy Gaming and Fintechs in India

From fresh start-ups to established ones, there are currently 300+ fantasy sports platforms (FSPs) in India. According to EY, India is the world's largest and fastest-growing fantasy sports market. In a joint report with Deloitte, the Federation for Indian Fantasy Sports (FIFS) predicted that the Indian Fantasy Sports industry will grow at 33% CAGR and reach 500 million users by FY27. Adding an expected FDI of INR 25,000 crores by FY25, the numbers, and the fantasy gaming industry become very lucrative for Fintechs to take an interest in.



Where do Fintech Companies fit in Online Games?

Signing up and playing one of these games is fairly easy. From the get-go, the fintech partner makes itself useful. From registration and record-keeping of the KYCs to crediting an initial amount to the participants to play with, fintechs make everything easy.


The Symbiotic Relationship

While we can see the financial gains and tier 2 and tier 3 city market penetration as the primary motivators for Fintechs to dive into fantasy gaming, the rationale of the gaming companies for integrating Fintechs into their operations differs. Here are the key benefits that fantasy sports leagues and platforms get from collaborating with Fintechs:

  • Payments and transactions: Offering a range of payment options, including credit/debit cards, digital wallets, and enabling players to deposit funds, withdraw winnings, and engage in other transactions
  • Virtual currencies and tokens: Levelling the playing field for all players from various backgrounds by facilitating in-game transactions for purchasing virtual items, participating in contests, or engaging in other activities within the ecosystem
  • Security and fraud prevention: Employing advanced encryption technologies, fraud detection algorithms, and identity verification protocols to ensure the safety of transactions and maintain trust
  • Partnerships and sponsorships: Joint marketing campaigns, co-branded events, or exclusive offers that benefit both the fintech company and the gaming platform while enhancing the user experience

Despite this, the picture is not as rosy as it looks.

Regulatory Challenges and Compliance

As always, if there's money involved, so are the lawmaking government bodies. Fantasy Games and Fintechs are highly regulated by various Self Regulatory Organisations (SROs), the Ministry of Electronics and Information Technology (MeitY), the RBI, and the courts. Especially because of the common misconception that fantasy games played with money are a type of gambling.

Terror Funding, Scams, and Money Laundering

Winnings from large-scale betting and gambling platforms in India have historically been associated with funding terrorist outfits or other illegal activities. The IPL spot-fixing scandal of 2013 was revealed to have links with terror financing in Pakistan. Similarly, the busting of an international gambling ring in Feb 2023 revealed that online gaming (betting) apps like CricketBet, Fair Play, MazaPlay, PariMatch, Betway, and many others were used to fund Naxal and militant activities in the country.

Instances of Chinese companies scamming the Indian public with the help of betting apps and shell companies have also become worryingly frequent since the reveal of the Hawala Scam and later through multiple ED raids on such operations. Hence, the necessity for constant supervision and regulation of fantasy sports platforms with real money involved.

Game of Skill vs. Game of Chance

Trying to put a recurring debate to rest, online games in India have been defined across categories of Game of Skills and Games of Chance to ensure they fall under the proper jurisdiction and laws. Whether fantasy sports are games of skills, i.e., not illegal gambling, has reached many state high courts and the Supreme Court.


The Curious Case of Dream 11’s Success

If you are an avid IPL fan, it is unlikely that the name Dream 11 does not ring a bell for you. Rapidly gaining limelight with its growth and the court petitions against it, Dream 11 and similar games were declared 'games of skill' by the Supreme Court in 2019, protected from further scrutiny. Despite not being easily accessible to people after getting banned from Google Play for quite some time, Dream 11 still managed to become India's most popular fantasy sport. The pandemic only allowed this user base to grow stronger and more loyal.

Without looking back since then, Dream 11 and its contemporaries have taken advantage of this staggeringly profitable para-social engagement through cricket-frenzied masses. Redseer's report states that 61 million users have racked up approximately INR 2,800 crores in gross gaming revenue in IPL 2023 season. It is a 25% increase from last year's revenues and a 30% CAGR from 2019.

Ambiguous Definition of Gambling

An objective and quantifiable way to put any online game in either skill or chance categories still needs to be improved in the recent Gaming Amendments of the IT Rules 2021. Resultantly, there is no clear distinction between what can count as online gambling or not. Gaming companies and their stakeholders depend on the legislative bodies for this decision case by case.

Possible Methods of Standardization

  • Skill-based Scoring System for player tracking with measurable criteria like speed, accuracy & reaction time
  • Randomness Assessment to recognize the degree of random factors and their impact on the game's result
  • Decision Tree Analysis to see what decisions in the game lead to what result and the level of influence by random factors
  • Machine Learning Algorithms to analyze historical data of the game and have empirical evidence for an objective judgment 

Unregulated Co-branding Deals by PPIs

The RBI had already rejected the PPI licensing applications by Dream 11 and similar parties in the past, leading to partnerships with fintech companies that could help them set up payment wallets on their platforms. Now, the latest regulations by the NCPI have closed down any such wallets for unregulated partners, like fantasy gaming platforms, among others. It is a clear mandate that a Prepaid Payment Instruments (PPI) bank should not be used on any other app that does not hold a PPI license. Interestingly, fintech firms Fampay and Cheq have somehow managed to escape the diktat for now, while Dream 11's collab with Pine Labs and Muvin's with LivQwik have been quickly shut down.

Why did RBI issue this rule? To promote fair competition for UPI adoption. It widens consumer access, prevents monopoly by specific platforms, and allows the RBI to monitor PPI instruments for enhanced financial security and transparency.

Forex Violations Under the Guise of Online Gaming

On 24th May 2023, the Enforcement Directorate (ED) conducted raids at 25 locations regarding allegations of forex violations by gaming apps. The ED stated that approximately Rs 4000 crore was remitted under the guise of payments for importing goods and services. The collected amount from the general public through gaming websites is reportedly routed through multiple bank accounts before being remitted out of India by misrepresenting the purpose of the remittances as imports. Such remittances, involving income from activities like racing or hobbies, are not permitted as per FEMA (Foreign Exchange Management Act) provisions of 1999.

Taxation for Fantasy Gaming Earnings

Further monitoring the earnings from fantasy gaming, the Union Budget 2023 has stated the latest taxation process to follow here:

  • The winnings from fantasy sports are taxable under section 115 BB of the Income Tax Act 1961, under “Income from other Source."
  • From April 1, 2023, tax payment will be based on net winnings at year-end, eliminating the need for TDS on each win
  • New Section 115BBJ levies a 30 percent tax on the net winnings from online gaming
  • New Section 194BA has removed the Rs 10,000 threshold for TDS as gaming platforms used to escape TDS via loopholes in this
  • The exact definition of 'net winnings' and whether foreign game owners or players will be taxed is still unclear

Predictions for the Coming Years

Despite all the legal, moral, and logistical hurdles in the way, the fantasy gaming industry in India is thriving. With cheap smartphones and mobile data reaching more and more parts of the country, Google allowing fantasy sports platforms on the Play Store, and the government allocating a dedicated ministry and budget, the partnership of fintech and fantasy gaming is well on its way to overcome even the predicted revenue and growth figures.


Closing Thoughts

As the fantasy gaming industry and fintech continue to evolve, it is evident that their convergence has brought about a new era of immersive experiences, advanced technologies, and innovative monetization avenues. With the potential to shape the future of entertainment and finance, the amalgamation of these industries is set to redefine the way we play, engage, and transact in the gaming realm.

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Untangling the Web of Fantasy Gaming and Fintechs in India

Purvai Soni
Ankit Abhishek
  • January 23, 2024
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