Running an online gambling operation – regardless of the type of operation (casino, sportsbook, bingo, etc.) – puts you at risk of gaming fraud. No online business – gambling related or not – is safe from fraud. In fact, it’s smart business practice to anticipate that at some point you will be targeted.
Fraud is bad for iGaming businesses for many reasons, most notably because it can greatly decrease online gambling profits and taint the reputation of merchants. High levels of fraud can also result in the termination of merchant accounts, such as important payment providers.
Unfortunately, fraud is a serious reality for many who run an online gambling operation. As such, you not only need to have the necessary security protocols in place to prevent fraud, but you also need to educate yourself about the different types of fraud that target iGaming businesses. This knowledge will help you to anticipate risks and understand how to protect yourself.
In this guide on how to prevent iGaming fraud, we’ll explore:
- What is gaming fraud
- How does fraud impact gaming
- Why does gaming fraud occur
- The most common types of online gaming fraud in 2022
- How to protect your business from fraud
What is Gaming Fraud?
Online gambling fraud occurs when an individual (cybercriminal) seeks to abuse, cheat, hack, and/or steal for the purpose of taking advantage of both the gambling operator and other players.
Of course, online gambling risks exist for players just as much as they do for operators. There are crooked casinos/bookmakers and fake gambling sites that can scam players out of money, too. However, the dangers of online gambling fraud that we’re focusing on here are those gaming frauds that apply strictly to operators being targeted by cybercriminals. As such, this also excludes match-fixing.
Why? While match-fixing is illegal and is also a type of fraud related to gambling, it directly involves tinkering with a sports match or event and isn’t carried out to scam a specific business. An example of match-fixing is if a football team loses on purpose so that those who knew this was going to happen win money from betting on this outcome. Moreover, Most match-fixing is carried out by groups and not individuals. Gambling fraud, on the other hand, is an individual specifically exploiting one or more aspects of the operator’s business.
How common is it?
Unfortunately, online gambling fraud is common. Since the gambling industry rides legal and moral lines, it has always been appealing to fraudsters.
Also, the more lucrative an industry gets, the more cybercriminals it attracts. As such, the risk of fraud increases with each passing year as the world becomes more digital and more casino and betting sites pop up online and mobile. In fact, a Research and Markets report – “Online Gambling Market Report 2020-30: COVID-19 Growth and Change” – forecasts that the global online gambling market is expected to reach $92.9 billion in 2023 at CAGR of 11.64%.
As for actual fraud crimes, American consumer credit reporting agency, TransUnion, reported that since the COVID-19 pandemic began, online fraudsters have increased their rate of digital scams against businesses, including online gambling. Its Q1 analysis of global online fraud trends revealed that comparing the periods of March 11, 2019 – March 10, 2020 and March 11 2020 – March 10, 2021, online gambling saw an increase of 54.81%, with “Policy/License Agreement Violations” noted as the top type of fraud.
In regard to cybercrime activity as a whole, the total cost of all cybercrime in just the United States is several billions of dollars a year. An even scarier thought is that according to a report by Cybersecurity Ventures (a world leading researcher and publisher for the global cyber economy) it is estimated that cybercrime will cost the world $10.5 trillion each year by 2025.
How Does Fraud Impact Gaming?
Online gambling fraud can have disastrous consequences on a business. Primarily, it reduces gambling profits and damages the reputation of operators in a high-risk industry where credibility and trust are often under scrutiny. High incidences of fraud can also lead to merchants having their account terminated. In short, being a victim of gambling fraud can not only cost your business lots of money, but it can also shut it down.
Fraud drives up costs and lowers revenue
Online gaming credit card frauds are among the most common in the industry. In many cases, it involves the use of a compromised credit card. When the innocent cardholder discovers that their credit card has been stolen and they are a victim of fraud, they can demand a chargeback to have the unauthorized gambling transactions reversed. For the operator, this results in both the loss of the transaction amount as well as the levying of the chargeback fee.
Since credit card networks monitor chargeback activity of merchant accounts, they may require those with notably high fraud and chargeback rates to take steps to lower these numbers. Merchants who cannot do so, run the risk of having their payment accounts terminated. If this happens, they will be forced to turn to “high risk” iGaming payment processors, which cost more, can put them at a greater risk of fines, and can quickly limit an operator’s options to affordably and reliably accept credit cards for online gambling transactions.
Fraud damages reputations
In addition to driving up costs due to chargebacks, payment processor fees, and potential fines, fraud also impacts an iGaming business’ reputation with their customers and their partners.
Customers who are victims of fraud question the reliability, safety, and fairness of the establishment. They will not only typically close their account but will often complain about their experience and leave a bad review, which can negatively impact a gambling brand’s status in an industry that is already saturated with competition.
Beyond payment partners, other business partners such as software companies, game providers, affiliates, etc., may also choose to charge higher fees or cut ties. It’s not uncommon for other organizations to want to distance themselves from what they might perceive to be a high-risk situation if they continue working with a business excessively victimized by fraudsters.
Fraud can lead to compliance issues
Regulators continuously tighten their compliance rules and crack down on gambling sites. They have no tolerance for license holders that do not take the necessary actions to prevent, spot and prevent fraud. If an iGaming operator fails to detect instances of fraud or self-exclude players, they can face hefty fine, legal troubles, and even closure.
Fraud overwhelms support agents and lowers customer satisfaction
Fraudsters send your business processes into chaos, which tends to result in an influx of customer complaints. Not only does this mean unhappy customers, but your customer support team is left having to deal with the complaints and can quickly become overwhelmed with resolving these issues and meeting customer requests.
Failure to solve fraud issues for legitimate players will not only result in the loss of some of these customers, but it will also hurt your company’s reputation and could make other players think twice about signing up.
Why Does Gaming Fraud Occur
You might wonder why iGaming sites are at an increased risk of scams. The simple answer to this question is technology continues to improve and more people are opting to play online.
According to Zion Market Research, the global online gambling and betting market was worth around USD$61.5 billion in 2021 and is expected to grow to about USD$114.4 billion by 2028, with a compound annual growth rate of about 10.9% over the forecast period.
The COVID-19 pandemic had a favorable impact on the iGaming sector and boosted the demand for internet-based gaming in several countries. While more online players means more money for gambling operators, it also comes with a greater risk of fraud.
Due to the high-risk nature of the industry, fraudsters will always search for more ways to find loopholes within online gambling operations. As such, the gaming industry is left in the difficult position of facing the unique challenge of finding a balance between acquiring new players and managing risk.
Most Common types of Online Gambling Fraud in 2022
Every online business can be at risk of just about any type of fraud. However, certain industries are at a higher risk of certain forms of fraud than others. In the case of online gambling, the most common types of fraud today include:
- Multi-account fraud
- Credit card fraud
- Chargeback fraud
- Affiliate fraud
- Self-Exclusion Fraud
- Phone top up abuse
- Money laundering
- Synthetic IDs
- Deepfake ID videos
Here is a closer look at each:
A common way that fraudsters attempt to get an edge over a gambling operator is by setting up and controlling multiple user accounts by using different IP addresses and devices to avoid detection. Multiple account fraudsters typically create and control several accounts to cheat the system by engaging in one of these schemes:
- Bonus Abuse – One of the most common casino frauds, the cybercriminal uses their fake accounts for the purpose of taking advantage of new customer offers (e.g. sign up bonus, free spins, etc.). Once they’ve fulfilled any necessary wagering requirements linked to the promotion (with the lowest amount wagered possible) they withdraw their funds and usually abandon the accounts before they can be caught in breach of the casino’s terms, policies, and agreements.
- Gnoming – This is a common form of multiple account fraud used on bookmakers. The fraudster may engage in gnoming to evade maximum bet limitations. More commonly however, the multiple accounts are used to directly influence outcomes so that while the other fake accounts are used to deliberately lose, one can pocket all the wins and bonuses.
- Chip dumping – A common form of fraud used in online poker, chip dumping occurs when a fraudster is in control of several players at a poker table and uses these multiple accounts to manipulate the game in favour of one of them so that this one account can win chips from the other players at the table.
An operator that is a frequent victim of multiple account fraud can quickly find themselves running at a loss.
Credit card fraud
As previously mentioned, credit card gambling fraud is common at gambling sites. Fraudsters use stolen credit cards to top up their account and play real money games so they can use illegitimate money to claim real wins and quickly cash out. The goal of these fraudsters is to launder cash from large batches of stolen payment credentials that they can find on the dark web.
This becomes a financial problem for the unsuspecting casino when the true credit card owner discovers their credit card was stolen and proceeds to initiate chargeback gambling transactions.
Sometimes called “friendly fraud”, chargeback fraud occurs when a legitimate customer attempts to get money back from an online casino or bookmaker under false pretenses. It most commonly happens when a player is losing online gambling money and feels getting a credit card chargeback will reimburse their gambling losses. The player calls up their bank and claims that their card was used without their permission.
Unless the operator has proper security protocols and KYC (Know Your Customer) checks in place, they won’t have much luck winning this dispute as the bank will often side with the customer. It’s one of the top schemes among desperate players who want to know how to get their money back from gambling sites.
Due to the unique business models of online casinos and sportsbook, they are not allowed to advertise on standard ad networks. This puts these gambling operators at a greater risk of marketing fraud tactics, particularly those related to affiliate marketing.
Affiliate fraud is a type of marketing fraud where fraudsters typically take advantage of affiliate programs by spamming referral links, maliciously diverting traffic from other sites, and/or utilizing software to generate fake clicks and transactions. More advanced techniques could also include the fraudster using malicious browser extensions that swap legitimate affiliate URLs for their own, including injecting ads with referral links into ad-free pages. In short, operators pay the fraudster for a job they’re not doing.
Affiliate fraud can be an issue for some iGaming operators, as many rely on affiliate programs as part of their acquisition marketing strategy to drive authentic and valuable traffic to their site.
To ensure the protection of players, regulators require their licensees to adhere to certain responsible gambling protocols, such as self-exclusion. This allows customers who are experiencing problem gambling to take an extended break from a casino or sportsbook, during which time they cannot sign into their account and the casino is not allowed to send them marketing communications.
Self-exclusion fraud occurs when an unscrupulous player selects to self-exclude and then logs into the platform using an alternative account. This individual then attempts to exploit the responsible gaming system for personal financial gain with continuous threats of blackmail, reputation damage, and reporting the operator to the authorities unless they give into the fraudster’s demands.
Over the past year, this type of fraud has increased and is expected to become a bigger problem in 2022 and beyond.
Phone top up abuse
These fraudsters target online casinos that offer pay by phone deposits (phone top ups). Using social engineering and phishing methods, they target unsuspecting credit card users, asking them to make a phone payment. This payment then goes directly into the fraudster’s gaming account. In essence they trick victims into funding their accounts for them.
Another issue for online gambling businesses is that they are a prime choice for money launderers. Any business that processes large volumes of money can be used to turn illegally obtained money (washed) into legitimate cash. Criminals deposit the dirty money into the casino, play for a little bit at low wagers and then cashout their “clean” winnings.
A common fraud in the US, synthetic IDs are now being used by fraudsters to bypass KYC checks. The way it works is false information is stitched together from real ID documents and fake data, which makes them harder to detect than false profiles.
The continual flow of data breaches makes it easy for fraudsters to access real ID documents on the dark web. These breaches, coupled with the COVID-19 impact, has seen the practice increase in the past few years.
Deepfake ID videos
Though not as widely used as synthetic IDs, video deepfakes are a trend that is likely to grow as the technology becomes more affordable. Fraudsters use this technology to bypass video ID verification systems that are used as part of a KYC process.
Deepfake video fraud could become a growing concern for the industry, especially since not all iGaming sites have the resources to check whether the videos are legitimate.
How to Prevent Gaming Fraud
Gambling fraud prevention is key to reducing gambling scams, credit card gambling fraud, and chargebacks. The best way to safeguard your business is to known exactly who your customers are and the accounts they are accessing. Naturally, this isn’t always as easy as it sounds, as fraudsters are expecting to meet resistance and are primed to test your defenses. This is where anti-fraud software, such as the solutions provided by the platform providers TCS reviews, can help.
The right software can stop online gambling fraud-related threats such as:
- Synthetic identity
- Identity theft
- Money laundering
- Account takeover
- Account farming
- Disputed payments
- Reversed payments
- Bot attacks
- Phishing attacks
- Regulatory fines
Implement Fraud Prevention Software
A major part of preventing online gaming fraud is by employing fraud detection software. This software is specifically designed to monitor, investigate, and block fraudulent activity on your gaming site. Fraud detection software and tools are most often used to prevent fraudulent transactions that are made with stolen credit cards and to confirm a user’s ID at signup and login.
The main features to look for when selecting optimum fraud detection software include:
- Risk rules – This allows an operator to filter user actions based on the data found. A basic example of a risk rule is: IP point to VPN = block login. Risk rules are typically static, giving an operator the simple option of accepting or rejecting user actions.
- Risk scoring – This is a sophisticated system that lets operators tinker and explore scores and thresholds, providing them with an overall gauge of how risky an action is.
- Real-time monitoring – All payments need to be monitored to prevent chargeback and for anti-money laundering purposes. Likewise, ID verification and account protection must also be constantly monitored. Real-time monitoring detection software gives operators the advantage of immediately blocking a suspicious action before it is too late. It allows for the real-time analysis of biometric, behavioral and environmental data, as well as for players to be verified in real time.
- Advanced machine learning – Machine learning or machine learning algorithm is part of any top fraud prevention software. This technology can help make sense of the volumes of data accumulated and suggest risk rules based on an operator’s historical business data.
- Constant detection and analysis of in-session events – This includes continuous detection and analysis of bots, malware, remote administration tools, web injects, new unknown devices, etc.
Employing cutting-edge fraud detection and prevention technologies will help protect and grow your business. It can help you provide your players with a frictionless experience, which makes for happier customers. It can also reduce operational costs as well as help you to avoid compliance issues.
Examples of top iGaming fraud detection software companies include (in no particular order):
Implement strict KYC (Know Your Customer) protocols
One of the most important processes in helping to prevent iGaming fraud is to follow a good KYC practice. An estimated 70% of fraud occurs after the KYC stage. Therefore, its important to detect suspicious transactions before they are processed to prevent chargeback related losses.
KYC involves a number of steps to verify a user’s identity and is a process that the player must complete directly after registration, before depositing. Depending on the local legislation, KYC may include:
- ID verification (Proof of identity)
- Proof of address
- Age verification (a legal requirement in most jurisdictions)
- PEP (Politically Exposed Person) check
You can also monitor the data of customers during the signup process by using these verification methods:
- Device/Browser fingerprinting –This allows you to discover information about the device or web browser the customer is using. Some devices or browsers will immediately raise red flags indicating suspicious use, such as if credentials have been stolen or acquired through phishing attacks. These fingerprints are designed to remain the same regardless of whether a visitor to your site uses a VPM or goes into private browsing mode. As such, it is easier to catch fraudsters as they cannot conceal their identity. Fingerprints can also be used to verify users as they log in to their accounts, which helps to make sure a player is using only one profile at a time.
- IP analysis – This can reveal plenty about an individual’s internet usage, location, and even their potential for engaging in fraudulent activity.
- Email analysis – Many emails are linked to social media accounts, making it easy for operators to track fake accounts.
It’s also important to verify payment methods and during account top-ups, monitor credit card information to make sure it does not post a high-risk threat or that it hasn’t been stolen. Learn more about KYC in iGaming.
Online Gaming Fraud FAQ
What is online gaming fraud?
It is a criminal activity carried out by an individual that seeks to abuse, cheat, hack, and/or steal from gambling operators or other players for financial gain.
What are the consequences of chargeback fraud?
A high chargeback rate will negatively impact a gambling operator’s overall revenue. It will also damage the operator’s ability to accept credit card payments.
Is identity theft a problem for online gambling?
Yes. Fraudsters commonly look for stolen identities to open multiple accounts, commit bonus abuse, and launder money.
Can a person be prosecuted for online gaming fraud?
Yes. If a fraudster is caught committing internet gambling fraud they can be charged and face huge fines or even jail time.
How do I protect my gaming business from fraud?
The best way to protect your operation from fraud, money laundering and other criminal activities is to use up-to-date fraud detection software from a reputable company that has experience with the iGaming industry.
Safeguarding your business from gaming fraud is one of the most important steps you can take toward securing long-term financial success. Our software platform reviews can help you find the best casino and betting software solution for the job. Many of these reputable providers can assist you in protecting your iGaming business with the best security encryption protocols, tools, technologies, firewalls, and anti-fraud systems.
Not sure where to get started? Reach out to the TCS team and we’ll be happy to connect you with the most ideal security partner.