Online Gambling Friendly Fraud
There are an estimated 3.2 billion active gamers in the world, with nearly half spending money on games. Any time there is that much money flowing through an industry it is also ripe for fraud. While much of the fraud that occurs in online gaming may only account for less than a few hundred dollars in each instance, when you multiply that by several million users, that represents a significant loss of income to the industry. One of the more prevalent forms of fraud in the online gaming world is known as online gaming friendly fraud. Here is an overview of this practice, what it is, when it occurs and how to stop it.
What is Online Gambling Friendly Fraud?
Friendly fraud is most often considered by those that engage in it to be "innocent fraud" or "harmless" fraud. Friendly fraud is when players incur legitimate charges, but then dispute the charges with their credit card companies and receive a refund for legitimately purchased goods or services. In reality, this practice is called a chargeback and is highly damaging to businesses. Not only does it represent a loss of income to online companies, but it also damages their relationships with card issuers. In some cases, the merchant or gaming establishment will absorb the loss, but in other cases, the card issuer or bank has to absorb it.
When a credit card company or bank has to absorb too many chargebacks from one company or business, they can even refuse to continue their relationship with that business. In theory, friendly fraud only occurs when customers don't actually know what they are doing is committing fraud. Sometimes, customers simply consider this practice a different means of getting a refund. In some cases, they will not even attempt to resolve any type of dispute with a merchant but will instead immediately contact their card issuer for a "refund." In other cases, however, cardholders are actually committing outright fraud by disputing charges they knowingly and legitimately made. Although this is legitimate fraud, it is still considered "friendly fraud" because the charges were still made by the legitimate cardholder and were not the result of identity theft.
In some cases, friendly fraud may also be committed by a legitimate cardholder attempting to keep their activities from being discovered by another authorized cardholder. For instance, a husband, wife, son or daughter with a gambling addiction issue may dispute a charge they know is for an online casino to keep their parent or spouse from seeing it.
Why is Online Gambling Susceptible to Friendly Fraud?
Most online gaming establishments suffer from a number of drawbacks that make them more likely targets for friendly fraud. To begin with, most online gaming establishments are registered in countries other than where the cardholder resides. They are also generally registered under somewhat obscure LLC names, rather than in the name of their online presence. In many cases, the casinos themselves are owned by a consortium or a larger holdings group. When a customer disputes a charge made by a well-known brand or entity, the card company will often attempt to work the dispute out with the merchant or entity. When the charge is made by a somewhat nefarious company of unknown origins, the bank is more often than not inclined to simply side with the consumer, reimburse their account and refuse to pay the merchant - or in this case, the gaming company.
Online casinos, in particular, are especially vulnerable to friendly fraud when the cardholder resides in the U.S. Because online gambling in the US is illegal, many casinos actually do their best to try and make any charges look as anonymous as possible. While this helps them attract a large customer base from the U.S., it doesn't do a whole lot to protect them from friendly fraud.
How to Prevent Online Gambling Friendly Fraud
Even though casinos are still legitimate businesses, they are still illegal businesses in the U.S. As a result, there is not as much they can do to protect themselves from friendly fraud as other businesses might. In their case, unfortunately, the power lies with the consumer. While other online gaming sites may be legal, they may also suffer from some of the same issues as illegal sites. Many online gaming sites are of a nature that customers may not want others to know that they frequent. As a courtesy to their customers (and to keep them coming back regularly) they often create charges under an obscure or innocuous name. These sites will also sometimes have difficulty protecting themselves against friendly fraud.
For sites that are legal in the U.S., however, and have no need to protect their customer's reputation, they can protect themselves by clearly providing information about the business the charges were made to. Although the legal name of the company itself may have nothing to do with the name of the actual gaming site where goods or services were purchased, it is best to include that name in the vendor or merchant description. The more information credit issuers have to go on, the more likely they are to investigate rather than just automatically issuing a credit to the cardholder. In addition, the more information they have upfront about the nature of the business, the greater the chance the merchant will be reimbursed for the charges.
One thing to keep in mind is that card issuers, as a rule, tend to be more inclined to side with a cardholder than a merchant. More often than not, it will be up to the merchant (gaming establishment) to prove that the charges were legitimate, rather than the other way around. Most registered online casinos are required to authenticate the player's identity before paying out any winnings, which can also help protect them against friendly fraud. Other sites that do not verify the identity of users, however, may have a more difficult time protecting themselves.
iovation is a leading provider of online gambling fraud detection and prevention software solutions as well as advanced machine learning multifactor authentication solutions.
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