Gaming Chargebacks

Table of Contents

1. How Do Video Games Invite Fraud?
2. Pay to Play and Pay to Win Amplify Chargebacks 
3. Conclusion
4. Frequently Asked Questions

Online gaming is one of the biggest markets in retail. With the onset of COVID-19 and a sudden spike in online gaming, mobile and online gaming businesses are positioned to make serious money in 2021. For example, Steam in Chine reached 19.1 million users in February 2020, and Verizon reports gaming internet traffic on their network has increased 75%. Game streaming service Twitch also reports a 20% increase in traffic. 

What does this mean for merchants in the gaming market? It means an increased purchases.

Back in 2013, a pair of mobile game developers performed an experiment. They wrote a program that would create procedurally-generated slot machine game apps. Each game was essentially identical in terms of mechanics, but they’d have different sounds and graphics scraped from the web, depending on what keywords were fed into the generator.

These slot machine games were terrible. They were made to demonstrate a point, not to be fun to play. After five years on the Google Play store, they made their creators about $50,000. 

The point of that anecdote is to illustrate the fact that, in the ecommerce sector, gaming companies are extremely lucrative. If an experiment designed to produce bad games, with no marketing behind them, could generate that much passive revenue from ad clicks alone, it’s easy to see why there are so many mobile game companies publishing so many different games. The ROI on a successful release with in-game purchases can be tremendous.

The global gaming market is predicted to exceed $174 billion dollars within the next two years. It’s one of the fastest-growing ecommerce industries. And it is more prone to friendly fraud than any other industry.

How Do Video Games Invite Fraud?

What the gaming industry has working against it is that it depends heavily on subscriptions and microtransactions, two payment models that are highly susceptible to friendly fraud. Moreover, the demographics and other specific aspects of online gaming tend to create situations where friendly fraud is likely.

Let’s look at the classic example of a subscription-based game, World of Warcraft.

If you want to hunt monsters and search for treasure in the fantasy world of Azeroth, it’s $15 per month, which grants you access to pretty much everything in the game. Sometimes, Blizzard might release an expansion that you have to buy as a one-time purchase in order to obtain new content, but the basic model is a flat monthly rate.

Then there’s Candy Crush, still one of the most popular mobile games of all time. It’s free to download and play Candy Crush, but if you get stuck and fail to beat a level five times in a row, you have to wait for a timer to count down and restore your “lives”—unless you pay for an immediate reset. If you’re really stuck, you can spend a few more dollars to buy power-up items.

Both of these models have obvious vulnerabilities to friendly fraud. Subscription-based games are subject to the same issues other subscription services face.

Customers forget about their subscriptions, or find the cancellation process too bothersome, and they call their bank to force a cancellation via chargeback.

Microtransactions in games like Candy Crush, on the other hand, invite friendly fraud chargebacks in several different ways:

• The customer spent $500 just to overtake her archrival on the game’s leaderboards, and now she wishes she hadn’t.
• Ten minutes of playing with the iPad and somehow the customer’s preschooler managed to invest $900 in Clash of Clans upgrades. The customer’s decision to start his dispute with the publisher, Apple, or his bank is essentially made at random.
• After spending $100 to buy 50 loot boxes with a 1 in 500 chance of containing a rare item and not getting it, the customer files a chargeback, citing “deceptive marketing practices.”
• The customer starts playing without his reading glasses and accidentally buys the $99 booster pack instead of the $19 booster pack. When the error is realized, he turns to the bank to fix things.

We can shake our heads in disapproval at these customers and their thoughtless ways, but gaming companies need to take a hard look at their own role in fostering a wild-west atmosphere of online payments, where publishers and customers alike are trying to claim any advantage they can get away with.

The reason that these games attract fraud is much the same reasons that online transactions do: Card-Not-Present transactions. People can make purchases on these apps and games without having to physically present their cards at a gaming store like GameStop. Because of this, its much easier for fraudsters to make charges with stolen cards. 

Also, it's also much easier for accidents to happen. Children play games, they make accidental purchases, and their parents then want to reverse those charges. 

To wrap this all up, many online games, with small teams and even smaller customer service support, don't readily handle problems transparently. Customers that normally would have been satisfied with a refund instead work through their bank to reverse a charge to get satisfaction.

Pay to Play and Pay to Win Amplify Chargebacks 

Many game developers intentionally design difficult or time-consuming roadblocks into their games for the express purpose of putting the crunch on players—making them frustrated or annoyed enough to want to spend money just so they can progress forward. The Candy Crush countdown timer is a good example of this, but games can do it in very subtle ways, too. They may even ramp up the overall difficulty in real time if the player is “too good.”

Players can often tell when they’re being manipulated, and for many of them, that’s all the justification they need to try to dispute the charge once they’ve made the purchase and gotten past the “crunch.”

Other players just become disillusioned and quit.

Major gaming publishers—titans like Activision, Blizzard, Electronic Arts, and Sony—are losing gargantuan sums of money to chargebacks and customer retention issues. Maybe they can afford to, but smaller game developers absolutely cannot. Excessive exposure to friendly fraud chargebacks can trap you in a vicious cycle of lost revenue, rising chargeback rates, and increasing payment processing fees.

With too many chargebacks, gaming retailers can find themselves on the bad side of their payment processors. This could get them labelled as a high-risk merchant with even less opportunities to accept payments at large volume.

Conclusion

Friendly fraud chargebacks can be fought and beaten, but figuring out how to avoid them in the first place is the best tactic. Microtransactions may be here to stay for now, but online game publishers should implement a design ethos and policies that reduce the number of transactions that are likely to lead to chargebacks.

Gaming companies should strive harder to listen to their customers and harvest valuable customer satisfaction data whenever they can, including through the chargeback process. The path to more lucrative, sustainable, and customer-friendly revenue streams will not be forged by repeating the same bad practices as every other player in the industry and hoping that you catch more big-spending whales than fraudsters.

Chargeback data offers game publishers a wealth of information about the habits, pain points, and wishes of their customers. That’s the silver lining to being in an industry with high chargeback rates—you get an abundance of data to analyze and plumb for actionable insights. Game designers are creative, innovative people—we’re confident that they can come up with ways to expand revenue opportunities within games in ways that will be profitable for their industry and amenable to customers.

FAQ

Thanks for following the Chargeback Gurus blog. Feel free to submit topic suggestions, questions or requests for advice to: win@chargebackgurus.com