The US sports betting market has grown into a $35 billion annual industry since the Supreme Court struck down PASPA in 2018, but the regulatory landscape remains one of the most complex in the world. As of February 2026, 41 states plus the District of Columbia have legalized some form of sports betting, each with its own unique set of rules governing everything from which payment methods are permitted to how operators must handle responsible gambling requirements. For payment processors serving this market, understanding these nuances is not optional, it is existential.
This guide provides a comprehensive overview of the current state of play, focusing specifically on the payment-related regulations that operators and their payment partners need to navigate. We cover the states that matter most by volume, highlight the restrictions that trip up newcomers, and outline the compliance frameworks that BetFlow uses to keep our operators on the right side of every jurisdiction.
The Current State of Legalization
The pace of legalization has accelerated significantly since 2023. Six new states launched legal sports betting in 2025 alone, and three more are expected to go live in the first half of 2026. However, the term “legal sports betting” masks enormous variation. Some states, like New Jersey and Pennsylvania, offer fully open online markets with dozens of licensed operators competing. Others, like Montana and Oregon, restrict online betting to a single state-operated platform. Still others, like Mississippi, allow sports betting only within the physical boundaries of licensed casinos.
For payment processors, the critical distinction is between states that permit online and mobile wagering versus those that are retail-only. Online betting creates the payment processing challenges that are the focus of this article: deposit flows, withdrawal processing, identity verification, and geolocation compliance. As of early 2026, 36 states permit some form of online sports betting, though the specific rules vary widely.
The states that remain holdouts, most notably California and Texas, represent massive untapped markets. California alone could be worth $3-5 billion annually if legalized. Multiple ballot initiatives are in various stages of development in both states, but political dynamics, particularly the influence of tribal gaming interests in California, continue to complicate the path forward. Payment processors should be preparing infrastructure now for these inevitable launches, even if exact timelines remain uncertain.
Payment Method Restrictions by State
One of the most operationally complex aspects of US sports betting is that each state can and does restrict which payment methods operators may offer. While credit cards, debit cards, and ACH bank transfers are widely accepted, the specifics differ enough to require state-by-state configuration. Here is an overview of the most common restriction categories and the states that enforce them.
Credit card restrictions are the most impactful. Twelve states now explicitly prohibit the use of credit cards for sports betting deposits, up from just three in 2021. This trend reflects growing concerns about responsible gambling and consumer debt. Illinois, Maryland, and Virginia were among the earliest adopters of credit card bans, and states that legalized in 2024 and 2025 have overwhelmingly followed suit. For payment processors, this means implementing real-time BIN checks to distinguish credit from debit cards, and blocking transactions accordingly, with zero false positives in either direction.
Prepaid card acceptance varies even more widely. Some states treat prepaid cards the same as debit cards, while others classify them alongside credit cards and restrict their use. A handful of states, including Massachusetts and Ohio, have specific carve-outs for reloadable prepaid cards issued by regulated financial institutions while banning non-reloadable gift cards. These distinctions require BIN-level granularity in payment configuration, which is something BetFlow handles through our compliance rules engine.
BetFlow Compliance Engine: Our platform automatically enforces state-specific payment method restrictions in real-time. When a bettor initiates a deposit, our system checks their geolocated state against our rules database, validates the payment method is permitted, and blocks the transaction before it reaches the acquirer if it violates any state regulation. This prevents costly compliance violations and the regulatory penalties that follow.
Compliance Requirements for Payment Processors
Beyond payment method restrictions, each state imposes a set of compliance requirements on entities involved in processing sports betting transactions. The scope of these requirements has expanded considerably over the past two years, and payment processors that were previously treated as passive intermediaries are increasingly being held to higher standards.
Know Your Customer (KYC) requirements are now standard across all online betting states, but the depth of verification varies. Most states require identity verification using government-issued ID, SSN matching, and address validation. However, several states, including New York and Connecticut, have added enhanced due diligence requirements for players who exceed certain deposit thresholds, typically $10,000 per month. Payment processors need to support tiered KYC workflows that escalate verification requirements as player activity increases.
Anti-Money Laundering (AML) obligations have also tightened. Suspicious Activity Reports (SARs) must be filed for transactions that meet federal thresholds, but many states have implemented additional reporting requirements specific to sports betting. These can include mandatory reporting of rapid deposit-withdrawal cycles, unusually large deposits relative to player history, and patterns consistent with structuring. BetFlow's transaction monitoring system flags these patterns automatically and generates state-specific reports.
Tax reporting adds another layer of complexity. The IRS requires W-2G forms for gambling winnings exceeding $600, but state tax reporting thresholds and requirements differ. Some states require withholding on all winnings above the federal threshold, while others have higher thresholds or different withholding rates. Payment processors must be able to calculate and withhold the correct amounts based on both federal and state requirements.
Tribal Gaming Considerations
Tribal gaming operations add a significant layer of complexity to the US sports betting landscape. In many states, tribal compacts grant Native American tribes exclusive or preferential rights to operate sports betting within their jurisdictions. These compacts often have their own set of payment-related requirements that may differ from or supplement state regulations.
In states like Connecticut and Michigan, tribal operators account for a significant share of the online sports betting market. The payment processing requirements for tribal operators can differ from commercial operators in the same state, including different settlement structures, tax treatments, and reporting obligations. Payment processors serving tribal operators need to understand the specific compact governing each tribal gaming operation.
Florida presents perhaps the most complex tribal gaming situation in the country. The Seminole Tribe's exclusive sports betting compact, which was challenged in court and subsequently revised, includes specific requirements for how deposits and withdrawals must be processed. Similar complexities exist in Washington state, where sports betting is limited to tribal casinos and each tribe's compact may contain unique payment provisions.
Future Outlook: What to Expect in 2026 and Beyond
Looking ahead, several trends will shape the regulatory landscape over the next 12-24 months. First, we expect continued movement toward credit card bans. States that currently allow credit card deposits are increasingly facing pressure from consumer advocacy groups, and we anticipate at least four more states will implement restrictions by end of 2026.
Second, real-time payment networks like FedNow and RTP are beginning to intersect with sports betting regulation. Several states are considering regulations that would require operators to offer instant withdrawal options, which aligns with the broader industry trend toward faster payouts. Payment processors that can support real-time settlement will have a significant competitive advantage.
Third, federal legislation remains a possibility, though far from certain. Multiple bills have been introduced that would create a federal framework for sports betting, potentially harmonizing the current patchwork of state regulations. While the odds of comprehensive federal legislation passing in the near term are low, payment processors should monitor developments closely, as even targeted federal action on issues like payment method restrictions or AML requirements could significantly impact operations.
At BetFlow, we maintain a dedicated regulatory affairs team that tracks developments across all 50 states and updates our compliance rules engine in real-time. Our operators can focus on growing their business knowing that their payment processing infrastructure will adapt automatically to regulatory changes. If you are entering a new state or need to ensure your existing operations are fully compliant, our team is here to help.