Monica Eaton, Chargebacks911 Founder, spoke to Payment Expert about the threat of fraud in the igaming space.
PaymentExpert: What type of threat do chargebacks pose to gambling operators and why is an efficient fraud-fighting strategy so pivotal?
Monica Eaton: Online gaming attracts millions of new players each year, with pay-to-play games becoming a massive sector of the international digital economy. The total online wagers are expected to reach nearly $1 trillion globally by 2023 according to Juniper Research, which translates to almost 1% of the projected global GDP. However, as the market grows, so do the associated risks of fraud and chargebacks.
It should be noted that not all perpetrators of online gaming fraud are committed cybercriminals. A gamer might decide to play for just a few minutes before realising they’ve spent far more money than they intended. The player may then decide to call their bank and file a chargeback, claiming that the charges were unauthorised. This tactic is known as first party misuse, and is becoming a rapidly increasing issue in the online gaming space and one that all operators need to be actively looking to address.
PE: How can firms with an omnichannel model offering both retail and online effectively minimise the risk of chargebacks across both verticals?
ME: Authenticating users and providing a quality customer experience are vital to preventing fraud and chargeback abuse. However, that’s easier said than done. The current landscape puts iGaming businesses in a slightly difficult position. Some degree of friction in the customer experience is necessary (and welcome) to deter online gaming fraud, such as verifying funds or cards used, but 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 consumer. 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.
However, those committing first party misuse have passed the security checks and then initiate chargebacks either legitimately or maliciously. Therefore, it is essential that operators stay on top of technological advancement, industry regulations, card scheme rules and international law. This can seem intimidating, but partnering with industry experts to manage different facets of the business strategy can make it much more manageable.
PE: Assessing this further, is online gambling more likely to be impacted by chargebacks than its bricks-and-mortar counterpart?
ME: The gaming industry is a fast-moving space and the very nature of online gaming means that customers from anywhere in the world can access their services. And, as the market grows, so do the risks. The industry has a staggering prospective growth predicted for the next few years, so now more than ever online providers must stay on top of technological advancement, regulations, card scheme rules, international law and many other industry developments that will impact their business. While this can feel overwhelming, partnering with industry experts to manage different facets of your business strategy can make it much more manageable.
PE: As the threat of chargeback fraud evolves, why is it so crucial that gambling operators are flexible within their strategy?
ME: When it comes to online gaming and fraudsters, it’s like a moth to a flame – it’s simply much easier to attack an online operator than to rob a brick-and-mortar shop. It’s naturally a ‘high-risk’ industry, so fraudsters and bad actors are constantly on the lookout for loopholes in existing anti-fraud systems they can take advantage of.
However, as the security industry develops new, more advanced technologies to deter these bad actors, so too will the fraudsters continue to innovate and find ways to bypass them. That’s why it’s imperative that gaming operators keep fraud and security a top priority in their strategy and continue to evolve their systems.
PE: Many types of merchants are affected by chargebacks, but are gambling operators impacted more often and heavier than others?
ME: As an industry, the gaming sector tends to see a particularly high rate of fraud attacks and chargebacks. For example, rates reached 32% last year for those using mobiles to access gaming. When instances of fraud and chargebacks occur, businesses lose the value of the transaction, but that’s not all that’s being risked.
The higher the number of incidents and credit card disputes, the less reliable a partner they are seen to be by banks and processors. Once considered a high risk, online gaming providers can incur higher fees or penalties, or even close down the account. Unlike their bricks and mortar counterparts, the online gaming industry comes under more scrutiny from legal entities and regulators. Regulators can impose heavy fines against operators that ignore their standards and can even bring about legal proceedings.
Cases of fraud can also impact customer relations, from being less able to respond to legitimate customer concerns to distorting data, making it harder to spot trends and respond to them. It’s also important to provide and promote a secure environment for gamers, so it stands to reason that user numbers will deteriorate if fraud is rife.
PE: Is there a greater prevalence of gambling chargebacks in countries that allow credit cards as a payment method for betting?
ME: Yes. Any time you allow more options for online payment methods, there is an increased risk of receiving chargebacks, including those that are fraudulent or illegitimate. More ways to pay means more people can play. With merchants, we see many fraudulent chargeback claims from consumers for instances of buyer’s remorse, but unlike most products or services, bets and wagers are guaranteed to end with someone coming out on the losing side and possibly feeling regretful of their decision.
PE: Has the banning of credit card betting in the UK had any impact on the prevalence of chargeback fraud?
MEC: In 2020, the Gambling Commission enforced a ban on businesses allowing consumers in Great Britain to use credit cards to gamble. At the time, almost a quarter (22%) of online gamblers that used credit cards were classed as problem gamblers, with even more considered to be at ‘some’ risk of harm. The ban aimed to prevent problem gamblers from using money they don’t have, providing a substantial layer of additional protection to vulnerable people.
PE: Lastly, what advice would you give to operators looking to implement an effective chargebacks strategy?
ME: Authenticating users and providing a quality customer experience are key to preventing fraud and chargeback abuse. Online betting shops must strike a tricky balance, as it’s necessary to include some degree of friction in the customer experience to deter online gaming fraud; however, too much friction can turn away genuine users.
Separating positive friction points from negative ones is the only real way to accomplish this. For example, asking users to verify each addition of funds before finalising, offering mobile payments with two-factor authentication or verifying card CVV when connecting it to the user’s account are all good deterrents for fraud.
That being said, even after adopting positive friction points and eliminating negative ones, you’re still not guaranteed protection against fraud attacks, so ideally a provider will also work with a chargeback management service like the one we provide. We partner with merchants, acquirers, and processors operating in the gaming space to produce real, lasting chargeback reduction.
