There’s Risk and Reward in Online Gaming
Online betting can be a fun, exciting pastime. It attracts millions of new players each year. As a result, pay-to-play games have become a massive sector of the global digital economy.
The financial impact of this rapid growth is staggering. According to Juniper Research, total online wagers—including casino games, sports betting, and other avenues—will reach nearly $1 trillion globally by 2023. That translates to almost 1% of projected global GDP.
Of course, as the market grows, so do the associated risks. Given the prospective growth in the industry over the next few years, we can’t afford to be cavalier about fraud in the online gaming space.
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What is Online Gaming Fraud?
Online gaming fraud occurs when an unscrupulous individual manipulates or exploits an internet betting site for monetary gain. This type of fraud can take many forms, such as money laundering, affiliate fraud, bonus abuses, and multi-accounting.
Essentially, the term “online gaming fraud” can encompass any illegal process carried out by individuals or professional cybercriminals against an online betting outlet. When someone attempts to defraud an online gaming institution for money, benefits, or bonuses, they’re committing gaming fraud.
Online gaming fraud tends to slip under the radar whenever you fail to detect a fraudulent user or counterfeit account. We’ll talk about the most popular scams cybercriminals employ further down. For now, though, we have to raise a key question: why does online betting fraud happen?
Why is Online Gaming So Risky?
Unfortunately, online gaming attracts a good deal of fraud. This owes, in part, to traditional ties to offline betting, which is only intermittently legal (depending on jurisdiction). There's also the added complication of accessibility; it’s a lot easier to attack an online outlet than to try robbing a brick-and-mortar casino. As a result, the industry naturally attracts the attention of many bad actors.
Given the high-risk nature of the industry, fraudsters are constantly on the lookout for loopholes in existing anti-fraud systems of which they can take advantage. No system is perfect, and the online gaming industry faces many unique challenges combining risk management with profit scaling.
Not all perpetrators are committed cybercriminals, though. Picture this: a user decides to play for a few minutes, but before they realize it, they’ve managed to spend far more money than they intended. The player then decides to call the bank and file a chargeback, claiming that the charges were unauthorized. This is an example of first-party (or “friendly”) fraud, and it’s a growing issue in the online gaming space.
Of course, it’s not entirely hopeless. You can recover some of the money lost to friendly fraud and other online gaming fraud tactics through the representment process. This requires in-depth knowledge of card scheme policies and regulations, though, and it must be conducted on a very short timeline.
It’s a difficult balance to strike. As an operator, you have to acquire new players and keep them entertained and satisfied, but also mitigate risk posed by fraud and gaming chargebacks. Managing this risk is a full-time job in itself.
The Impact of Online Gaming Fraud on Operators
The gaming industry tends to see a high rate of fraud attacks. The problem is pronounced among mobile users in particular, where fraud rates reached 32% in 2021.
When fraudsters strike, you lose the value of the transaction in question. However, there are other consequences to consider as well:
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The Top 7 Online Gaming Scams
The ThreatMetrix Gaming and Gambling Cybercrime Report reveals that roughly one in every 20 new accounts created with an online gaming site is connected to online gaming fraud. The same report claims that, during peak attack periods, bots may account for up to half of daily traffic to your site.
Fraudsters may use hacked, compromised, or counterfeit accounts for multiple purposes. Below are seven of the most common fraud tactics employed in the online gaming space:
Despite the prevalence of fraud in the online game space, it’s not easy to differentiate scammers from legitimate users. For example, players often employ IP spoofing, VPNs (virtual private networks), and other techniques to hide their location.
Using any of these techniques could be a sign of online gaming fraud…but that’s not necessarily the case. You could end up turning away legitimate buyers by accident.
How to Stop Online Gaming Fraud
Authenticating users and providing a quality customer experience are vital to prevent fraud and chargeback abuse. However, that’s easier said than done.
The current situation puts online betting shops in a difficult position. Some degree of friction in the customer experience is necessary to deter online gaming fraud. However, too much friction can turn away legitimate users. One report published by Jumio found more than 25% of potential online gaming users abandoned the account opening process before completion. Most of these individuals claimed the process was too lengthy or complex.
Merchants must balance the need for authentication with the demands of the customer experience. The only way to accomplish this is to separate positive friction points from negative ones.
A “positive” friction point presents a reasonable and minimal degree of friction that is ultimately negligible relative to the protection it provides. Some examples of positive friction include:
- Verifying card CVV when connecting it to the user’s account.
- Asking users to verify each addition of funds before finalizing.
- Requiring complex and unique passwords for all new accounts.
- Offering 3-D Secure 2.0 for users who opt-in to the service.
- Deploying backend fraud detection tools (geolocation, fraud scoring, etc.).
- Offering mobile payments with two-factor authentication.
- Verifying the age of users to prevent underage abuse of online gambling.
No Strategy Will Ever Be Perfect
Even after adopting positive friction points and eliminating negative ones, you're still not guaranteed against fraud attacks.
As we discussed at the top, the gaming industry is a fast-moving space. The nature of online gaming requires you to stay on top of technological advancement, industry regulations, card scheme rules, international law…and more. That can seem intimidating, but partnering with industry experts to manage different facets of your business strategy can make it much more manageable.
Chargebacks911® is the leading brand in the chargeback management space. We partner with merchants, acquirers, and processors operating in the gaming space to produce real, lasting chargeback reduction. Click below to learn how you can reduce costs and recover revenue today.
