Is it trading? Or is it gambling? Want to predict what the court will decide?
The question of whether these platforms are for trading or gambling is becoming increasingly difficult to answer as prediction markets such as Kalshi and Polymarket grow in popularity. And while the answer might seem largely academic to community bankers, it could have very real implications for banks, their customers, and potentially even the financial products they offer.
Prediction markets allow users to buy contracts tied to whether a particular event will happen. Will the Federal Reserve cut interest rates? Will a candidate win an election? Will inflation exceed a certain level? Will the Chiefs win on Sunday? If the event occurs, the contract pays. If it doesn’t, it doesn’t.
Sounds a bit like investing. It also sounds a lot like gambling. Which is it? That distinction is now at the center of a legal battle that could ultimately land before the U.S. Supreme Court.
Two courts, two answers
As American Banker recently reported in “Prediction markets look an awful lot like online betting,” the 9th U.S. Circuit Court of Appeals ruled that Nevada can regulate Kalshi’s sports event contracts under its gambling laws. Earlier this year, however, the 3rd Circuit reached essentially the opposite conclusion in a case involving New Jersey, ruling that the state could not regulate Kalshi in the same manner. Now, it appears, it’s a safe bet (sorry!?) that the Supreme Court will eventually have to settle the issue.
At stake is more than semantics. It’s a question of who regulates this rapidly growing industry. Kalshi maintains that its event contracts are derivatives and therefore fall under federal Commodity Futures Trading Commission (CFTC) jurisdiction. The CFTC agrees, describing event contracts as financial instruments that can be used either to speculate on outcomes or hedge economic risks. State gaming regulators see things differently, particularly when those contracts involve sports. The 9th Circuit concluded that simply structuring a sports wager as an “event contract” doesn’t necessarily transform it into a federally regulated financial product. So, which is it?
Follow the money
American Banker points to some revealing Bank of America customer account data. Gen Zers and Millennials are among the most active prediction market users, with nearly one-quarter of active users participating daily.
More telling, between January and July, money flowing back into users’ accounts from prediction markets amounted to only about 75% of the money flowing out to them. Bank of America noted that its data may not capture winnings users leave on the platforms.
There’s another statistic bankers should notice: The median deposit balance of households engaged in online betting was only about 60% of the balance held by households that weren’t. In other words, whatever we call prediction markets, their growth could have severe consequences for banking customers’ financial health.
Why banks should be paying attention
The first issue for banks is fairly obvious: payments. Customers fund prediction market accounts from somewhere, and increasingly that somewhere may be a checking account. As these platforms grow, banks could see more money moving from traditional deposit accounts into prediction markets.
Then there’s the question of risk. If prediction markets are ultimately treated primarily as gambling, banks may need to approach transactions and relationships involving these platforms much as they do other gaming-related activity, taking into account compliance, payments, fraud, and reputational considerations. If they’re considered federally regulated derivatives markets, however, an entirely different possibility emerges.
Prediction markets could become legitimate hedging tools
The CFTC says event contracts can enable businesses and individuals to hedge event-driven risks and investors to manage portfolio exposure. A business, for instance, could potentially hedge against an economic, political, or weather event that might materially affect revenue.
Could banks someday offer customers access to similar products? Could commercial bankers help business customers use event contracts to manage risk? Could financial advisors eventually consider them alongside other alternative investments? Those questions remain unanswered. But they illustrate why this debate matters far beyond sports betting.
There’s also the more immediate issue of banking the prediction market companies themselves. Regulatory uncertainty makes those relationships complicated. The Financial Times recently reported that JPMorgan Chase ended its banking relationship with Polymarket in 2025 over regulatory concerns, although Polymarket subsequently found another banking partner. For community banks, that example underscores the difficulty of serving businesses whose regulatory classification remains unsettled.
What should banks do now?
For now, banks should probably watch and wait. Banks don’t need to decide whether prediction markets constitute investing or gambling. Courts, regulators, and perhaps Congress will do that. They should, however, understand how customers are using these platforms and consider monitoring transaction volumes and patterns. Risk, compliance, and payments teams should also be following the evolving regulatory landscape.
Most importantly, banks should recognize that this is about more than whether someone can place what looks suspiciously like a sports bet on an app. The larger question is where gambling ends and financial speculation begins. For decades, banks have helped customers save, invest, and manage risk. Prediction markets blur the boundaries and eventually, the Supreme Court may help draw those boundaries. Until then, bankers would be wise to keep watching where the money goes.
Bank Marketing Center
We’re Bank Marketing Center, the leading subscription-based, automated marketing platform created specifically for community banks. Today, we help marketing professionals at more than 300 financial institutions develop and distribute timely, engaging communications that strengthen brand trust, deepen customer relationships, and drive revenue growth.
We make that possible by automating many of the essential marketing functions banks depend on; from content creation using professionally designed bank marketing templates to social media scheduling and monitoring, digital asset management, compliance routing, and more.
We also believe strongly in sharing the knowledge and insights we gain along the way. Whether we’re exploring the latest AI tools, offering strategies for attracting and retaining top talent, hosting a webinar on operational efficiency, or sharing expert perspectives on where the banking industry is headed, our goal is the same: helping community banks succeed.
Want to learn more about how we can support your community bank and its marketing efforts? A good place to start is bankmarketingcenter.com. You’re also welcome to contact me directly at 678-528-6688 or by email at nreynolds@bankmarketingcenter.com. As always, I look forward to hearing your thoughts.