By Olivia Wilde.
As gaming becomes a bigger and more profitable industry, it also becomes an attractive target for fraudsters. In 2023, gamers spent an average of eight hours and 27 minutes per week on games, with revenue from online gaming expected to reach $175.10 billion by 2024. This rise in popularity, combined with the anonymity provided by gaming platforms, makes the industry vulnerable to various types of fraud.
Fraudsters often exploit both gaming companies and unsuspecting players, making it crucial for companies to recognize and prevent fraudulent activities. Although gaming subscriptions are highly profitable, they come with unique risks, including chargebacks and potential reputational damage. Below, we explore the impact of online gambling fraud and how to protect your business from it.
6 Major Consequences of Online Gambling Fraud
1. Decreased Revenue
Fraud can severely impact your company’s revenue, diverting funds that should be coming from legitimate users into the hands of fraudsters. The losses can accumulate quickly, paralyzing business operations and crippling growth.
2. Chargeback Costs
Chargebacks, or unauthorized transactions, are a significant financial burden. Investigating fraudulent transactions is both costly and time-consuming. In addition to refunding customers, companies also pay processing fees, putting strain on risk management teams and increasing vulnerability to further fraud.
If chargeback rates rise, companies may be flagged by payment processors, jeopardizing their ability to process transactions. The increasing scrutiny from payment providers such as Visa and Mastercard means stricter claim handling and higher fees for businesses. Additionally, friendly fraud—when a customer makes a purchase and then claims it was unauthorized—adds to the costs, and is particularly difficult to prevent.
3. Wasted Marketing Efforts
Affiliate fraud and bonus abuse can undermine marketing efforts. Fraudsters manipulate marketing programs or exploit promotional offers, often by creating multiple accounts to take advantage of bonuses. This wastes valuable marketing resources and reduces the effectiveness of your campaigns.
4. Damaged Reputation
No gaming company wants to be associated with fraud. Players form strong communities around games, and a reputation for being unsafe or vulnerable to scams will drive users away. Players are quick to share negative experiences on forums and review sites, which can lead to a mass exodus of customers. That is why you should choose only trusted casinos with a good reputation. A good example is Stay casino. Many players have shown that it is popular for a reason.
5. Loss of Customer Trust
When players invest time and money into a game, the security of their accounts is paramount. Fraudsters often target accounts with valuable in-game assets, and if players believe they’re at risk of being exploited, they’ll quickly move on. This erosion of trust can have long-lasting financial consequences for a gaming company.
6. Regulatory Fines
As governments increase scrutiny on the gaming industry, more regulations are likely to follow. Companies that fail to protect their users from fraud may face heavy fines and penalties. Ensuring transparency and accountability can help you avoid regulatory pitfalls while safeguarding your business.
6 Common Types of Online Gambling Fraud
1. Multi-Account Fraud
In this form of fraud, individuals create multiple accounts to gain an unfair advantage in games. For example, a player might control several accounts in a poker game, increasing their chances of winning by manipulating the outcomes. This practice not only skews the game’s results but also reduces fairness for legitimate players.
2. Credit card Fraud
Fraudsters often use stolen credit card information to make unauthorized in-game purchases. They then quickly sell valuable in-game assets or accounts for profit, leaving the original cardholder to deal with the fallout. Stolen credit card data is often bought and sold on the dark web, posing a real risk to both gaming companies and players.
Chargebacks from such transactions can result in significant financial losses, as companies are forced to refund the fraudulent purchases while also paying processing fees.
3. Friendly Fraud Chargebacks
Friendly fraud occurs when players make legitimate purchases but later dispute the transaction to get a refund. This is particularly common in online gaming, where users may buy in-game items and later claim they didn’t authorize the purchase. While chargebacks were initially designed to protect consumers, they are now frequently abused, causing serious losses for businesses.
4. Account Takeover Fraud
In account takeover fraud, cybercriminals gain access to user accounts through stolen login credentials, often obtained via data breaches. Once inside, they steal valuable in-game assets or sell entire accounts. This type of fraud is especially harmful to players who have invested significant time and money into their gaming accounts.
Hackers can use the compromised accounts to send spam, steal funds, or engage in further fraudulent activities. For gaming companies, this can result in lost revenue and damaged relationships with loyal customers.
5. Bonus Abuse
Bonus abuse occurs when fraudsters create multiple accounts to take advantage of special offers or referral programs. By manipulating promotional incentives, they can extract in-game currency or rewards, which are then sold for real money. This not only drains company resources but also complicates marketing efforts aimed at attracting genuine players.
Gaming companies often face a tough balancing act between preventing fraud and maintaining a smooth user experience. Overly stringent identity verification processes can alienate legitimate users, while insufficient controls leave the platform vulnerable to abuse.
6. Affiliate Fraud
Affiliate fraud is a type of marketing fraud where corrupt affiliates exploit marketing programs to earn fraudulent commissions. This might involve driving fake traffic or creating false referrals, which waste marketing budgets and reduce the effectiveness of campaigns. Companies must be vigilant in monitoring affiliate behavior and implementing robust verification systems to avoid falling victim to this type of scam.
How to Protect Your Business from Fraud
- Implement Advanced Fraud Detection Systems: Use AI-powered fraud detection tools to monitor transactions and flag suspicious activity in real time.
- Verify Customer Identity: Strengthen your account verification processes by requiring multi-factor authentication (MFA) and regularly auditing user accounts.
- Monitor Chargebacks: Stay on top of chargebacks by closely analyzing transaction data and identifying patterns of friendly fraud.
- Educate Your Users: Provide resources to help players recognize phishing scams and protect their accounts from takeovers.
- Enforce Clear Bonus Policies: Develop clear terms and conditions around promotional offers to deter bonus abuse, and ensure they are well-communicated to users.
Final Thoughts
Online gambling fraud is a growing threat, but with the right strategies and tools, gaming companies can protect their platforms and their players. By recognizing the most common types of fraud and implementing effective countermeasures, businesses can minimize the financial and reputational risks that come with online gaming.
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