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IN-DEPTH 4 March 2016
Chargebacks911 CEO interview: Chargeback fraud is a big deal in the gaming industry
Gary Cardone, founder and CEO of fraud, risk management and loss prevention company Chargebacks911, talks about how the issue of chargeback fraud affects the gambling industry and why it needs to be addressed.
By David Cook

What was your professional background before co-founding Global Risk Technologies, parent company of Chargebacks911?
I’m not originally from the payments industry. I actually spent 25 years trading with the most volatile commodities on this planet – natural gas and electricity. I spent 15 years in the US helping reform and build markets. I was then in the UK from 1992 to 2002 working with both the electric regulator and natural gas regulator to make the markets over here work properly.

What was behind your decision to create Global Risk Technologies?
In 2007, my now COO dragged me to an internet show. I spent four days there and the parallels I saw between the online marketplace and what I had done for the previous 25 years were unbelievable. We just built this construct and we did a test where we took a product and white-labelled the branded product. We said: “Which one of these is going to sell more?” I did not know what a payment processor was or what a checkout page was. I didn’t know anything about payments at all. We sold $1.2m-worth in 90 days. This is from someone who didn’t know anything about the online market. People tell me it’s really difficult to make a living. This was in 2007 at the very bottom of the worst recession the UK and the US had seen in a long time. No one that is instrumental in building payments ever assumed that the online marketplace in 2015 would be 7.8% of all commerce on this planet, worth trillions of dollars.

We have shown through research that when a consumer does this and gets away with it, whether it’s a mistake or not, they are 50% more likely to do it again within 90 daysGary Cardone
How closely are you currently working with the real-money online gambling industry?
Some of our business is with gamers. We were at the ICE Totally Gaming show this year. We started developing our products for technology in 2009. We went live in 2011 and we started in a number of different verticals. As we have become more diverse and moved up the retail value chain, we are yet to find a vertical that doesn’t have a substantial problem. It is staggering. Every vertical has this problem. It doesn’t matter if it’s digital or physical. Whether it’s Amazon, Microsoft, Marks & Spencer, John Lewis, whatever brand you have, they are having fraud problems, because their online business is growing. If a consumer will file a $2 chargeback against Apple or iTunes and they claim it’s fraud, they’ll definitely do it for a $200 loss with a gaming site.

How does chargeback fraud apply to the gambling industry?
Issuing banks sometimes make mistakes. They have a consumer call up and say: “I’ve got a charge here that shows I paid x, y and z gaming companies.” The thing is the wife made the phone call. Her husband was out of town and she didn’t know he placed a bet last night. He lost £600 and she didn’t know about it. When she calls NatWest, for example, what is the person at NatWest supposed to do? This is an £8 per hour person who has been told to take care of depository accounts and says they will take care of the charge, no problem. We have shown through research that when a consumer does this and gets away with it, whether it’s a mistake or not, they are 50% more likely to do it again within 90 days. They don’t know there are penalties associated with this.

How exactly does the process of reclaiming chargebacks work?
I’d have to kill you if I told you that. There is a way to prevent these problems and then there’s remediation. If it’s a fraudulently-claimed file or dispute, there is a way for the merchant to get their money back. They’ve got to prove their case though and the problem with the online gaming market is that many merchants look at it and think they can’t prove anything, because it’s digital. This is a great myth in the payments industry.

What more can banks and gaming operators be doing to prevent the problem of chargeback fraud?
I don’t know anyone that doesn’t defend something when it is taken from them. Over the last decade, with nearly every vertical in payments, it has been the status quo to not fight chargeback disputes, because it’s a cost of doing business. Chargebacks are up 155% for the last four years and 41% in the last two years. We think the number of dollars paid out exceeds $200bn a year. It’s a massive problem. First off, you have to become compliant. Compliance is not having a fraud-filter on. Compliance is doing what you said you were going to do. Once the merchant has become compliant, why would he put up with friction from a system that has huge inefficiencies in it? If we are currently having this level of friction with 1.3 billion consumers, what is going to happen when we have 7.3 billion consumers? Gambling companies are telling me they are getting hit with fraud. You should ask them what kind of fraud it is. I asked a guy today: “How do you define fraud?” He couldn’t answer my question. The payments industry has not defined what fraud is. There’s real fraud, there’s soft fraud, there’s hard fraud. Let’s give these activities names and then once you give it a name, you will now be able to defend against it. When you just lumber it all into one bucket, you apply one or two tools to the same bucket and it doesn’t solve the problem. It’s like going to four different doctors with four different symptoms. They each give you medication, and a week later, you’re dead.
DISCUSS THIS ARTICLE
IN-DEPTH 16 August 2019
Roundtable: David vs Goliath – Can startups really disrupt the industry?

(AL) Alexander Levchenko – CEO, Evoplay Entertainment

Alexander Levchenko is CEO of innovative game development studio Evoplay Entertainment. He has overseen the rapid expansion of the company since it was founded in early 2017 with the vision of revolutionising the player experience.

(RL) Ruben Loeches – CMO, R Franco

Rubén Loeches is CMO at R. Franco Group, Spain’s most established multinational gaming supplier and solutions provider. With over 10 years working in the gambling, betting and online gaming industries, he is skilled in operations management and marketing strategy.

(JB) Julian Buhagiar – Co-Founder, RB Capital:

Julian Buhagiar is an investor, CEO & board director to multiple ventures in gaming, fintech & media markets. He has lead investments, M & As and exits to date in excess of $370m.

(DM) Dominic Mansour – CEO, Bragg Gaming Group:

Dominic Mansour has an extensive background of nearly 20 years in the gaming and lottery industry. He has a deep understanding of the lottery secto,r having been CEO at the UK-based Health Lottery, as well as building bingos.com from scratch, which he sold to NetPlay TV plc.

What does it take for a startup to make waves in gaming?

DM: On the one hand, it’s a bit like brand marketing; you build an identity, a reputation and a strategy. When you know what you stand for, you then do your best to get heard. That doesn’t necessarily require a TV commercial but ensuring whatever you do stands out from the crowd. Then you have to get out there and talk to people about it. 

AL: Being better than the competition is no longer enough; if you’re small, new and want to make a difference – you have to turn the industry on its head. Those looking to make waves need to come up with a new concept or a ground-breaking solution. Take Elon Musk, he didn’t found Tesla to improve the existing electric cars on the market, he founded it to create the industry’s first mass-market electric sports car. It’s the same for online gaming; if you want to make waves as a startup, you have to bring something revolutionary to the table.

JB: Unique IP is key, particularly in emerging (non-EU) markets. As does the ability to release products on time, with minimal downtime and/or turnaround time when issues inevitably occur. A good salesforce capable of rapidly striking partnerships with the right players is vital, as is not getting bogged down too early on in legal, operational and admin red tape.

How easy it for startups to bring their ideas to life? How do they attract capital?

AL: It depends on the people and ideas behind the startup. Of course – the wave of ‘unicorns’ is not what it used to be. Some time ago the hype was a lot greater in terms of investing in startups, but that’s changed now. Investors now want more detail – and even more importantly, to evaluate whether the startup has the capacity (as well as the vision) to solve the problem it set out to address. That’s not to say investors are no longer interested in startups – they certainly are – but now more than ever, it’s important for startups to understand their audience as well as dreaming big.

JB: To get to market quickly, you need a great but small, team. If slots or sportsbook, the mathematical engine and UX/UI are crucial. Having a lean, agile dev team that can rapidly turn wire framing and mathematical logic into product is essential. Paying more for the right team is sometimes necessary, especially when good resources are scarce (here’s looking at you, Malta and Gibraltar).

Building capital is a different beast altogether. You won’t be able to secure any funding until you have a working proof of concept and, even then, capital is likely to be drip fed. Be prepared to get a family and friends round early on to deliver a ‘kick-ass’ demo, then start looking at early-stage VCs that specialise in growth-stage assets.

How do you react when you see startups coming in with their plan for disruption?

RL: We welcome the innovation and fresh thinking startups bring. This is particularly the case in Latin America, with a market still in its infancy. One area we’d especially like to see startups making waves is in the slot development sector. Latin America is a young market that needs local innovation suited to its unique conditions – especially in regard to mobile gaming.

Operators eyeing the market have Europe‐focused core products, which creates a struggle to work to the requirements of players and regulators. To succeed there, it has become more important than ever to work with those with a knowhow of the local area to adapt products and games to besuitable from the off; we welcome the chance for local talent to develop and grow.

Do you think it’s easier for established companies to innovate and establish new ideas? 

AL: From a financial perspective, yes. It is without a doubt easier for incumbent companies to establish a pipeline of innovation via their R & D departments, as well as having the tools to hand for data gathering and analysis.

But it stops there. Startups hold court in every other way. Not only are they flexible, they can easily switch from one idea to another, change strategy instantly as the market demands and easily move team members around. Established companies know this – and this is why we’re seeing an emerging trend for established companies to acquire small, innovative online gaming start-ups. They have the right resources and unique ideas, as well as the ability to bring a fresh approach to businesses’ thinking.

RL: For me, it’s always going to be established companies. Only with the resources, industry experience and know‐how can a company apply technology and services that truly make a difference. Of course there are exceptions. But when it comes to providing a platform that can be approved by regulators across multiple markets – as well as suiting an operators’ multiple jurisdictions – it is simply impossible for a couple of young bright minds with a few million behind them to get this done.

DM: I actually think it’s harder for established companies. It’s key to differentiate between having a good idea and executing one. That’s where the big corporates struggle most. They’re full of amazing people with all sorts of great ideas but getting them through systems and processes is nearly impossible.

Is it essential to patent-protect innovative products?

AL: It’s a very interesting subject. If we take IT for example – patents can actually become a block to the evolutionary process within the industry. Of course, getting a patent future proofs yourself from the competition copying your concept but, having said that, if you’re looking to protect yourself from someone more creative, smarter and agile, you’ve probably lost the battle already!

In our industry everything is moving faster and research takes less time than the development itself. No matter how good you are at copy pasting, you can’t copy Google or Netflix. The most important thing is not the tech itself but rather its ‘use-case’ – or in other words, does it solve what it’s meant to solve? Competition is healthy and the key to innovation. If you spend your whole time looking behind you, you’ll never be able move forwards.

JB: Tricky question, and one that depends on what and where you launch this IP. It can be difficult to patent mathematical engines and logic, mostly because they’re re-treading prior art. Branding, artwork and UX is more important and can easily be copied, but the territories you launch will determine how protectable your IP will be once patented. US/EU/Japan is easy but expensive to protect in. But China/South East Asia is a nightmare to cover adequately. Specialised patent lawyers with experience in software, and ideally gaming, can help you better.

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