Game over fraudsters: how to fight fraud in online gambling and e-gaming industries

Friday 24 February 2023 10:31 CET | Editor: Irina Ionescu | Interview

We sat down with Tony Petrov, Chief Legal Officer at Sumsub, and reviewed the most common types of fraud emerging in the online gambling and e-gaming industries, as well as the efficient ways to deter fraudsters while remaining compliant.

How does fraud affect online gambling and the e-gaming industries?

The gaming industry is experiencing explosive growth and is forecast to reach EUR 140.05 billion between 2021 and 2026, with a compound annual growth rate (CAGR) of approximately 11% over the forecast period. And, with rapid growth comes greater exposure to different types of fraud attacks. 

Since gambling platforms aim to onboard more users as fast as possible, they can also neglect compliance and security requirements, allowing fraudsters easy access to their platforms. The most common AML failures and fraud attacks relate to ineffective threshold triggers and inappropriate controls, multi-accounting, credit card, and chargeback fraud. 

These failures caused a trend of increasing fines in recent years. For instance, the total amount of fines issued in 2021 exceeded GBP 40 million, and this year’s total has already passed GBP 44 million, with an enormous fine (or rather a settlement) of GBP 17 million issued by UKGC to British gambling platform Entain. 

We’re also seeing bigger fines due to social responsibility failures, such as companies being unresponsive to customers exhibiting indicators of harm. So, we can expect to see a continuing regulatory focus on the sector’s compliance agenda and more scrutiny when it comes to monitoring the operations of industry players.

What are the most common types of fraud merchants experience in these verticals?

The prevalence of fraud in gambling depends on its type. The most common is multi-accounting (when one person owns two and more accounts, registered for fake/ stolen IDs), which is used for gnoming (betting on the most probable outcomes of one game through different accounts), chip dumping (joining games from multiple accounts and deliberately losing money to one of those accounts), and bonus abuse (exploiting the bonus policy of the gambling company), which can lead to more than 50% revenue loss (Marketline, 2021). 

Credit card fraud and chargeback fraud are also quite common in the gambling industry. Nearly 90% of all chargebacks are considered friendly fraud, which results in direct revenue loss and payment processor fees, as well as reputational consequences. 

Money laundering is another problem in the industry, with perpetrators using the same methods mentioned above. ‘Dirty’ money is deposited on the gambling platform, the fraudster plays a couple of games and then withdraws the money, claiming it to be gambling winnings.

How can merchants stay compliant, ensure a smooth onboarding process, and efficiently fight fraud at the same time?

To stay compliant with regulations in your operating markets requires a strong in-house compliance and security team, as well as a partnership with a trusted, all-in-one verification provider that fights money laundering and fraud. Even one undetected case of fraud leads to fines unless you have robust verification policies and can prove that this specific case was just an exception within the margin of error. 

To reduce pressure on the user, verification checks should be allocated throughout the player lifecycle and inserting them at the right time without hurting the onboarding process. For example, bank card verification and biometric checks can be asked after initial onboarding, at the first deposit stage, or even the withdrawal stage. 

Gaming companies should also think in advance about anticipated user traffic spikes ahead of major events like the Olympics or the FIFA World Cup. Sumsub created an online calculator to help betting platforms estimate potential fraud losses during major sports events in 2022.

What role do international regulators play in fighting fraud in gambling? Would stronger regulations negatively impact customers’ overall experience?

Almost all national AML regulations follow FATF recommendations, and AML/CFT requirements do not differ significantly from country to country. The main aspects of AML compliance will always be customer due diligence (CDD) procedures, risk assessment, ongoing monitoring, and suspicious activity reporting. 

Structured compliance regulation would help weed out unscrupulous players from the industry and protect users. Otherwise, platforms with little or no KYC could expose clients to multiple risks. Users may lose their deposits and winnings. Even worse, their bank card or identity data may be compromised. Conversely, robust KYC procedures normally ensure that users experience no trouble with withdrawals and rest assured knowing their accounts are safe.

How can merchants prevent online gambling fraud? What about PSPs?

Building effective KYC flows that effectively fight fraud and meet the full range of regulatory requirements is a big challenge for gaming platforms. Each platform must develop a programme in accordance with its gaming and market specifics.

To stay ahead of the competition, it is vital to use the most advanced KYC/AML products on the market, such as transaction monitoring, or KYT (know-your-transaction). With KYT, gambling companies can successfully manage risks by monitoring and reporting suspicious activities, analysing user behaviour, and cross-checking KYC data. 

Recently, Sumsub published its first KYC guide for gaming companies in Europe and in North America, sharing detailed information on regulatory requirements and useful tips on how to build efficient user verification flow and keep onboarding rates high.

Are there any types of online gambling fraud that you see trending next year? What should merchants pay attention to in the upcoming 12 months?

Fraudsters constantly invent new ways of illegal enrichment. In terms of actual fraud schemes that might trend in 2023, I would bet on the multi-accounting for bonus abuse. Multi-accounting is the creation of several profiles by one person within one platform. Depending on the company's requirements for data for registration, fraudsters can use a fake email or fake documents and third parties to get access to the account. 

Since gambling companies offer bonuses for new users, fraudsters exploit this through multi-accounting. This is both a direct loss through excess bonuses and an indirect one in the form of inefficient spending on marketing and promotion. Therefore, it’s important to improve the data requirements for registration and ask for confirmation of the identity via technological solutions like Face Recognition. 

This editorial is part of The Paypers' Fraud Prevention in Ecommerce Report 2022-2023, the ultimate source of knowledge that delves into the world of fraud prevention, revealing the most effective security methods for companies to stay one step away from bad actors and secure their businesses.

About Tony Petrov

Tony Petrov was appointed as Chief Legal Officer at Sumsub in 2018. He is an experienced blockchain and fintech attorney with a focus on AML and KYC compliance, data privacy, and international regulator relations. Tony holds a master’s degree in Transnational Business Law from the University of the Pacific, McGeorge School of Law in Sacramento, California. A certified CySEC AML Compliance Officer, he is the author and host of the Sumsub for experts’ YouTube channel.

About Sumsub

Sumsub is an all-in-one verification platform that secures every step of the customer journey. With Sumsub’s customisable KYC, KYB, KYT, and AML solutions, you can orchestrate your verification process, welcome more customers worldwide, speed up onboarding, reduce costs and steer clear of digital fraud. Sumsub achieves the highest conversion rates in the industry—91.64% in the US, 95.86% in the UK, and 90.98% in Brazil—while verifying users in less than 50 seconds on average. With over 2,000 clients across the fintech, crypto, transportation, trading, and gaming industries, Sumsub partners with Binance, Mercuryo, Bybit, Huobi, Unlimint, DiDi, Poppy, and TransferGo.

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Keywords: KYB, KYC, eKYC, AML, identity verification, digital identity, fraud management, fraud detection, online fraud, fraud platform, gambling, multi-factor authentication, digital onboarding, compliance, Account fraud, biometric authentication, biometrics, behavioural biometrics
Categories: Fraud & Financial Crime
Companies: Sumsub
Countries: Europe, North America
This article is part of category

Fraud & Financial Crime


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