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Measures to reduce fraud in the internet gaming industry

The more sophisticated the technology used in the internet gaming industry gets, the more advanced the levels of fraud become. From card fraud to identity theft and misrepresentation, providers have had to adapt the way they manage their businesses, their customer identification procedures and their fraud prevention tools. Let’s examine the main challenges the online gaming industry faces when it tackles the issue of fraud. 

Fraud - a greater threat than ever before
E-commerce payments have seen a tremendous development in the past decade. During the last 15 years, the market matured and is still growing. The gaming industry, however, suffers from the lack of standardized online identity verification and authentication tools. Country specific rules and regulations add to the disorder. As a result, gaming and gambling sites are forced to introduce their own ‘know-your-customer’ (KYC) processes and fraud prevention tools that cost the industry hundreds of millions of euros. Regardless of efforts to stop criminal activities - such as money laundering, fraudulent deposits, chargebacks, cheating etc. - today’s sophisticated fraud rings pose a greater threat to online gaming providers than ever before. 

The financial impact of fraud 
The impact of not identifying fraudulent accounts in the gaming platforms on time has a tremendous effect on revenue, fraud expenses, operational effectiveness and is a threat to the online brand as such. A tattered reputation can destroy a product and an e-commerce business altogether. Gamers will cancel their memberships and retaining customer becomes extremely difficult. An online gaming provider suffering from high rates of fraudulent activities will find it hard to earn new business with both customers and advertisers. To prevent these scenarios from happening, gaming merchants have to make substantial investments in fraud detection tools and manual review processes which, on the other hand, create operational inefficiencies and require additional personnel for deeper investigation of risky accounts. 

Measures to reduce fraud 
The steps most gaming merchants follow to prevent cybercrime from happening starts with the gamer registration processes – the initial screenings – authentication and verification. These processes are performed to identify their customers and ascertain relevant information. This definition requires revalidation of their identity – knowing their gamers’ identity and not who they say they are. KYC is typically a policy implemented to conform to a gamer identification program to prevent identity theft fraud. To what extent this process is executed depends upon factors including jurisdiction, risk and resources as it involves a lot of manual work. Another common measure to identify their gamers is to use third party services such as address and age verification lists as well as credit scoring lists sourced from firms in the market. Hotlists, including the sorts of data sources used by banks to identify terrorists and public officials. Another emerging authentication and verification strategy is built on the most ubiquitous device of modern technology – the telephone. Phone verification and notification products can be used to protect the gamers and gaming merchants by automatically calling to validate transactions (such as purchases or top-ups) or actions (such as changes to personal information) on the gaming platform. 

Still very common are manual checks - agents flag cases they consider to be ‘suspicious’ based on risk alerts, customer tip-offs and unusual gaming and wagering play by customers. These risk alerts are typically pre-defined rules based on business knowledge and past experiences. Another way of preventing fraud is the limitation on the number of credit cards that can be used, limitation of payment methods on the other hand leads to the reduction of conversion. 

More sophisticated are device reputation models like device fingerprinting. They provide information about good, bad, and historical activities conducted from particular desktops and mobile devices. Furthermore, statistical profiling determines exceptions of transactional behavior through regression analysis. Risk scoring models incorporate these techniques for modeling and analyzing several customizable variables. Data is then checked against the rule parameters and external databases to determine its likelihood of being fraudulent. Advanced Analytics and artificial intelligence are creating predictive modeling techniques to assist the human thought process in detecting fraudulent trends. All these measures aim to accurately and swiftly detect, block and prohibit individuals attempting to engage in fraudulent transactions. This continuous need of an end-to-end monitoring system for online merchants created a whole industry around detecting and preventing online fraud. 

Risk management solutions combined with trusted e-identity and authentication mechanisms are needed. Consumers have more and more online identities of various natures. Initiatives to re-use these identities in the online commerce context, with security levels that can be adapted to the risk or the value of the transaction (basic security for low value, high level of security for higher values) are emerging. They vary from verified credentials (for example, bank passes) to unverified credentials with stored preferences (social media credentials such as Facebook). There are many benefits, including the improvement of the security of cards, credit transfers and direct debits. By using a similar international online identity solution for all payment types, the online gaming and shopping experience will be harmonized. This leads to a better experience, more trust and therefore more sales if implemented in a way that the consumer’s privacy is warranted. 

Buyers can store profile information (address, name etc.) and disclose them to merchants of their choice. This gives a merchant more certainty and leads to a better buyer experience (more conversion). All channels will benefit as an online identity improves all shopping experiences.



Comments: (1)

A Finextra member
A Finextra member 15 December, 2011, 15:43Be the first to give this comment the thumbs up 0 likes

Great article and definately on the money. As we do more and more online our risk increases and while we still have these KYC / AML challenges to deal with we are limited. 

This is exactly the pain we are trying to address with miiCard so any thoughts/ideas/comments would be very much welcomed!

If you COULD prove you are who you say you are and replace the photo ID checks purely online would this make a difference?