A Guide to Preventing Online Gambling Fraud
Table of Contents
- How Does Fraud Affect Online Gambling?
- What Are the Most Common Types of Online Gambling Fraud?
- How Can Merchants Prevent Online Gambling Fraud?
Anyone who engages in online gambling understands that there’s a significant element of risk involved. Playing games of chance and letting the odds determine your fate always carries some danger that you’ll end up losing, but the rules you’re playing by are supposed to be fair.
Fraudsters upend this delicate balance by forcing themselves into online gambling scenarios where they can cheat, hack, and steal to take advantage of both the house and other players. How is fraud impacting the world of online gambling, and what can merchants to do get this problem under control?
Online credit card fraud is a huge problem for every merchant in e-commerce, from huge multinational corporations to small businesses serving niche markets. The total cost of cybercrime in the United States amounts to several billion dollars each year, and a significant portion of that financial burden falls directly on the merchants who sell goods and services over the internet. The costs of e-commerce fraud come back to bite merchants in multiple different ways.
The most direct cost is the revenue lost to online fraud, but it doesn’t stop there. Merchants also suffer damage to their customer relationships, as victims wonder, fairly or not, why the establishments they trusted didn’t do more to protect their money.
Merchants who process fraudulent transactions also get hit with added fees and higher processing rates by their acquirers and payment processors, and all of this takes place before chargebacks rear their ugly heads.
How Does Fraud Affect Online Gambling?
Online gambling is both increasingly popular and highly restricted. It’s one of the fastest-growing markets in e-commerce, with a CAGR of just under 12%, but most US states don’t allow online gambling. The legal and moral peripheries that gambling inhabits in the eyes of many have long made it appealing to fraudsters.
Most forms of online fraud involve the use of a compromised credit card belonging to an innocent third party. When the cardholder finds out they’ve been victimized by fraud, they can demand a chargeback to get their unauthorized transaction reversed. For the merchant, this results in both the loss of the transaction amount and the levying of a chargeback fee.
The credit card networks monitor chargeback activity and may require merchants with “excessive” fraud and chargeback rates to take concrete steps to bring their numbers down.
Merchants who are unable to do so may have their accounts terminated and be forced to contract with “high risk” payment processors. As online gambling merchants are often categorized as “high risk” by default, a chargeback problem can quickly limit their options for affordably and reliably accepting credit card payments.
In addition, merchants categorized as high risk are often given less leeway when chargeback and fraud rates climb too high. Visa, for example, imposes additional fines for merchants with high rates of fraud or chargebacks at two levels: standard and excessive. Merchants categorized as high risk, however, skip the standard level and are placed at the excessive level immediately, resulting in higher fees and fines.
What Are the Most Common Types of Online Gambling Fraud?
It’s always good to be wary of fraud that takes unexpected forms—fraudsters know the extent of the resources deployed to stop them and will often try novel approaches to get around these defenses. Certain fraud schemes, however, are seen time and time again.
Multiple Account Fraud
The most common way fraudsters try to give themselves an advantage in online gambling is by controlling multiple user accounts. Fraudsters often create multiple accounts using different devices and IP addresses to try to avoid detection. Once the fraudster controls several accounts, there are a number of common schemes they may engage in:
- Gnoming: This refers to the process of creating multiple accounts with the same bookmaker. In its least harmful form, gnoming may be used to circumvent maximum bet limitations. In other cases, these fake accounts may be used to more directly influence outcomes.
- Bonus Abuse: Fraudsters create numerous fake accounts in order to take advantage of special offers for new customers. Fraudsters will often withdraw funds and abandon these accounts quickly once they've served their purpose, making the threat of account closure negligible.
- Chip Dumping: A common method of fraud in online poker, where the fraudster controls multiple accounts at the same poker table in order to manipulate the game in favor of one of those accounts, thereby winning chips from the other players at the table.
Credit Card Fraud
It's extremely common to see fraudsters using stolen credit cards at gambling sites. If they can get the card to work, they can quickly and easily cash out, allowing them to launder cash from the large batches of stolen payment credentials that are readily available on the dark web.
Also known as friendly fraud, this is when a legitimate customer files a chargeback under false pretenses to get their money back. It’s often seen in online gambling, where someone who just lost a lot of money can simply call up their bank, claim that their card was used without their permission, and get reimbursed for their gambling losses.
How Can Merchants Prevent Online Gambling Fraud?
Identity verification services that look at a user’s IP address, geolocation, email address, device fingerprints, and other identifying data, along with strong passwords and two-factor authentication requirements, can ensure that you know who’s really using your site.
These services can be bolstered with fraud prevention software that conducts automated risk scoring, putting additional scrutiny and verification requirements on suspicious accounts without adding friction to the experiences of known and trusted users.
Ultimately, there’s no getting around the fact that online gambling sites are especially attractive to fraudsters.
That means that online gambling merchants often have no choice but to uphold higher than average standards of security and identity verification in order to reach the same levels of protection that the typical merchant enjoys.
When online fraud comes back to haunt you in the form of chargebacks, it’s important to choose your response carefully. While you can’t fight a true fraud chargeback, a vigorous defense is the best remedy against chargeback fraud. Don’t leave the outcome of these cases up to a twist of fate—with compelling evidence, a strong cover letter, and the facts on your side, you can fight and beat these chargebacks.