Sweepstakes platforms have become an increasingly popular entertainment option for a growing online player base. One of the biggest challenges facing a sweepstakes platform operator is making sure its platform is compliant with all relevant laws.

While sweepstakes aren’t considered gambling and therefore subject to strict licensing regulations, there is a bevy of state and federal laws defining exactly how a sweepstakes must function to stay on the right side of the law. Creating a robust platform capable of meeting all compliance standards requires a variety of backend software engineering approaches.

The challenges a sweepstakes platform faces include:

·      Confirming the eligibility of potential players

·      Designing and managing a parallel virtual currency

·      Articulating terms and conditions that meet all regulations

·      Handling prize redemption

·      Compliance with AML (anti-money laundering) and KYC (Know Your Customer) regulations

·      Staying compliant with regional restrictions

All of these areas are potential stumbling points that can get a sweepstakes platform unwanted legal attention if not handled properly with proper backend infrastructure.

Verifying Player Identity

A sweepstakes platform has three main areas where verifying a player’s identity is critical: KYC, AML, and geo-fencing. While KYC and AML are often bundled together, they address distinct compliance concerns. Each of these three requires software solutions to function smoothly and in full compliance with regulations and payment processor requirements.

Know Your Customer

At a minimum, a sweepstakes platform will need to confirm that a player is over either 18 or 21 years old (depending on the state), resides in a state permitted to play, and isn’t on any kind of restricted list. The standard practice is to collect the player’s full name, date of birth, address, and the last four digits of their Social Security Number, and then verify this information against a trusted database.

If you’re dealing with large prize redemptions or higher risk players, it might be necessary to undergo further KYC verification, often involving government-issued photo ID. Here, a handful of KYC providers offer plug-in automated identity verification solutions that can streamline the verification process and minimize the aggravation for your customers.

Anti-Money Laundering

Online platforms that allow the insertion and withdrawal of money can be exploited by money launderers or used to finance illegal activities. AML compliance demonstrates that your platform is vigilant against this risk, and is often a requirement for working with payment processors. An automated system that monitors all activity on your platform and flags suspicious or unusual behavior patterns will help you stay compliant with AML.

Geo-Fencing

Two states - Washington and Idaho - have effectively banned online sweepstakes platforms, and a number of other states have varying levels of restrictions. You’ll need to confirm that all your players are compliant with the regulations of their home state. It’s important to note that your task is to identify where the player is when they’re playing, not just their home address.

Traditionally, an IP check was the way to verify location, but proxies and VPNs can fool a simple IP check. More sophisticated geo-compliance software uses a multi-tiered approach, combining device-level signals, WiFi (News - Alert) triangulation and cellphone data to pinpoint your players’ true locations.

Presenting Free Entry Methods

One of the foundational pillars that legally separates a sweepstakes from a casino is that it’s possible to enter a sweepstakes for free. Fulfilling this requirement is critical in maintaining your sweepstakes platform’s legal status.

It’s not enough to just have a free entry option: If your free entry method is deemed too complicated, too difficult to understand or use, and not used frequently enough, you could be judged as non-compliant. It’s important that your platform’s software architecture is properly designed and implemented with a clear, good-faith free entry method.

Managing Virtual Currencies

Most sweepstakes platforms operate a dual virtual currency system. One type of currency is for entertainment purposes only, with no possibility of being redeemed for real-value prizes. The second currency can be redeemed for cash or gift cards.

Designing the architecture for this system can be complicated, especially when integrating it with the verifications needed when paying out to players making a redemption. You’ll need to integrate these currencies into the platform so that players are able to have a parallel experience when playing, depending on the currency they use. Often, players will be able to select from a list of various prizes, each of which has different currency thresholds, and those need to be implemented and updated too.

Maintaining Terms and Conditions and Compliance With Changing Regulations

Anything gambling-adjacent has seen major legal changes over the past decade, and it’s likely that the regulatory landscape will continue to shift in the near future. This is especially true at the state level, where various states continue to tweak how they handle online sweepstakes.

A platform benefits greatly from a sophisticated version control system for handling your terms and conditions. They will likely be changing with some degree of regularity, and any oversights or mistakes can leave you vulnerable to regulatory action.

It’s also important to have an architecture in place that lets you easily make changes to how individual states are handled within your platform. If you’re coding that aspect of your platform in an ad-hoc fashion, you’ll likely run into significant re-work and the potential for errors as states make changes to their laws.

These types of requirements aren’t implemented the same way across the industry. Per TheLines’ review of social gaming sites, there’s significant variation in the way sweepstakes platforms handle currency mechanics, the conditions for making redemptions, and player eligibility. It’s vital that you have a configurable compliance system that can handle the different regulations of multiple states.

Responsible Gaming Tools

Creating responsible gaming tools protects your players and protects you from legal scrutiny by demonstrating your willingness to safeguard the player experience. Implementing cool-off periods and allowing players to pre-set spending limits makes your platform more user-friendly and prevents the kinds of situations that provoke increasing regulations.