The online gambling industry is marred by several types of fraud. While most of them are carried out by seasoned bad actors, there is one fraud type that even legitimate users may resort to. It is called chargeback fraud or friendly fraud
In online gambling chargeback fraud, a player falsely disputes a legitimate transaction to get a refund from the bank or credit card company, while also retaining the purchase. Often players who lose a lot of money try to make up the loss by simply telling the bank that the card was used without their permission!
Online gambling chargeback fraud is rising
The growing number of players, increase in digital transactions, and the ability to play using multiple devices, are all contributing to the rise in online gambling fraud. The most common types of online gambling fraud include multiple account fraud, identity fraud, account takeover, bonus abuse, card fraud, and chargeback fraud.
The incentive to make quick money and the ease of initiating a chargeback may encourage otherwise legitimate users to engage in such deceitful activities. Because banks and credit card companies generally back consumers, it can act as an encouragement for players to engage in fraudulent behavior.
Furthermore, inadequate risk management and user identity verification are other pressing reasons fueling the rise in chargeback abuse.
Modus operandi
The usual modus operandi of online gambling chargeback involves a fraudster creating an account on an online gambling platform, with stolen or fake consumer information. Next, using compromised credit cards or fraudulently obtained online payment details, they deposit funds in the account. These funds are then used to play games or place bets. On winning the games or bets, they withdraw the earnings.
Once the deposited amount is exhausted and the winnings withdrawn, the fraudster disputes the original deposit and files a chargeback. The bank or credit card company temporarily refunds the disputed amount to the fraudster and initiates the chargeback process. The fraudster, having received both the refund and the winnings, can now effectively continue gambling for free!
Fraudsters follow this process across multiple gambling platforms to maximize profit and evade detection.
How does chargeback fraud affect online gambling platforms?
In addition to losing direct revenues in the form of disputed deposits and the winnings that may have been already withdrawn, online casinos also incur operational costs to manage disputes and prevent chargeback abuse.
Online gaming platforms that suffer frequent card fraud are likely to pay higher processing fees to payment processors. They also risk losing access to certain payment services if their chargeback rates exceed acceptable thresholds. Repeat incidents of online gambling chargeback not only degrade customer experience but may also result in the platform being considered ‘high risk’ and in worst cases have the license terminated.
Online gambling chargeback fraud damages the reputation of gambling platforms. Legitimate customers and financial institutions may lose trust in the platform, as it may appear unreliable or unsafe. This can impair future business prospects.
When operators fail to prevent online gambling chargeback fraud, they may attract legal action, fines, sanctions, or more stringent regulatory scrutiny, further damaging market reputation and business growth.
Tell tales of online gambling chargeback fraud
There are several telltale signs indicating online gambling chargeback fraud. These include:
- Numerous small deposits followed by a chargeback.
- Quick depositing of funds, placing bets, withdrawing the winnings, and initiating a chargeback.
- Spreading out fraudulent activities through multiple account fraud.
- A user with a higher-than-average number of chargebacks compared to their total transactions.
- Unusual or high-risk betting patterns, especially from new users.
- Mismatch between the IP address and the location provided by the user.
- Discrepancies in the personal information provided by the user.
Tackling online gambling chargeback fraud
To succeed in a competitive and fraud-infested industry such as online gaming, operators must implement stringent anti-fraud measures and rein in chargebacks. Some effective ways to fight online gambling chargeback fraud include:
User Verification:
Implement rigorous identity verification and KYC procedures to ensure users are who they claim to be, and prevent underage or restricted players from accessing the platform.
Advanced Fraud Detection Systems:
Use AI-powered solutions to monitor and address chargebacks before they assume significance.
Two-Factor Authentication (2FA):
Implement 2FA to add an extra layer of security, prevent unauthorized access to user accounts, and foil fraudulent transactions.
Transaction Monitoring:
Continuously monitor transactions and flag high-risk behaviors.
Descriptor:
Use a merchant descriptor to make the platform more recognizable on a statement.
Chargeback Representation:
Create a robust representation process including evidence such as transaction logs, IP addresses, and communication records, to dispute fraudulent claims.
Responsive Customer Service:
Swiftly address customer inquiries and resolve issues to prevent irate customers from initiating chargebacks.
Customer Awareness:
Provide clear instructions on disputing legitimate issues to prevent unnecessary chargebacks. Educate players about the consequences of online gambling chargeback fraud.
Blacklists:
Blacklist the users engaging in online chargeback fraud and block their access to the platform.
Audits:
Regularly review platform’s systems, processes, and software to identify and address vulnerabilities.
Collaboration:
Share information about blacklisted users and chargeback trends with peers, payment processors, and financial institutions, to reduce fraud.
Caf BetID for end-to-end protection
Caf helps operators proactively fight online gambling chargebacks. With a combination of best-in-class solutions, including BetID and a suite of proprietary user identity verification solutions, Caf accurately detects suspicious activities and monitors in-platform transaction patterns. This prevents fraudulent chargebacks and the associated financial losses, while maintaining a superior customer experience.
Leveraging its insights into the industry trends and evolving fraud tactics, Caf helps businesses preempt the challenges and take adequate measures to effectively foil any fraudulent chargeback attempts. Caf offers the flexibility to customize workflows according to specific business needs, enabling online gambling platforms to define thresholds, optimize fraud prevention systems, and streamline the chargeback dispute process.
Caf’s BetID helps online gambling operators strengthen the overall security of the platform, maintain a trustworthy environment for legitimate customers, and ensure compliance with evolving regulatory requirements. Learn more, here.