IN-DEPTH 14 July 2016
Friendly wager vs. Friendly fraud
Operators need to step up their game in tackling consumer fraud, says MiFinity Senior Sales Executive Kris Deyanov
By Gambling Insider
Around the globe, more than 25,000 (estimated) online wagering sites generate billions in revenue from their loyal players.
But because the legal and regulatory environment surrounding online gambling remains in flux (legal in some countries, but banned, with exceptions, in others) the industry is widely perceived as less credible and legitimate than more broadly regulated sectors.
The industry’s unique vulnerabilities to financial crime contribute to its “image problem”. As with all gambling, i-gaming’s heavy transactional nature makes it innately susceptible to money laundering (though the threat is relatively low in regulated markets such as the UK). And although thousands of upstanding citizens make friendly wagers legally and legitimately on licensed i-gaming platforms every day, consumer fraud issues plague the sector at large.
One of those issues is so-called “friendly fraud” which occurs when a player uses a credit card to wager but later claims that the charges from a gaming site are actually unauthorised.
The consumer simply lost money, but can win an undue chargeback by telling the card company that he or she did not sanction the payment.
Incidents of friendly fraud are commonly caught by i-gaming operators and card companies, but only after they happen – leading to expensive investigations by both parties. The potential for friendly fraud is just one reason vendors and financial institutions classify i-gaming operators as “high-risk merchants”.
The classification comes with consequences – chiefly in the form of hefty fees.
Yet it is hard to blame vendors for using fees to hedge their own bets about working with i-gaming operators. Amid the still-evolving legal and regulatory landscape of the industry, online gambling hasn’t matured as rapidly as it has expanded. The presence of unlicensed platforms (some of which support player anonymity) heightens the sector’s overall risk level.
Licensed or not, i-gaming platforms at large have yet to embrace self-regulation and comprehensive fraud prevention efforts, and it’s well past time for them to do so.
Protecting their platforms (and their players) from financial crime should be a priority of every company in the i-gaming sector, because high third-party fees – and a "Wild West" reputation – will continue to plague the industry until its stakeholders start mitigating their risk factors more effectively. Better technological protections are a smart place for i-gaming operators to start.
New solutions serving the online wagering space place a stronger emphasis on access and validation – eliminating player anonymity from the equation. Through digital wallet technology, platforms can require players to supply bank account or credit card information to an online “e-wallet” account prior to game play, bolstering fraud protections by creating a verifiable access trail of the card being loaded to the site. Since banking rules typically classify digital wallet transactions as electronic money rather than as regular merchant transactions, users are also prevented from claiming undue chargebacks.
The best digital wallet solutions tokenise cardholder information upon application in the digital wallet, thus injecting additional security into the transaction activity (tokenisation replaces the consumer’s original cardholder data with a randomly generated virtual card number, or “token”, bundled with business rules for its exact use – where, when, and by whom). Overall, digital wallets significantly lower gaming platforms’ vulnerability to fraud. So much so, in fact, that white-labelling an e-wallet solution into their sites can put operators in a stronger position to lower processing fees or renegotiate contracts with other third parties.
Ultimately, protecting their players from fraud and other financial crime threats is the best way for i-gaming platforms to protect their own bottom lines. As more and more upstanding wagerers enter the space to engage in legitimate gambling activity, they will increasingly segment to the platforms with the strongest, most credible reputations. The onus lies with every online gaming operator to ensure their sites are optimised for secure transactions and “friendly wagers” only – not for friendly fraud.
Kris Deyanov is senior sales executive at MiFinity (formerly NXSystems), a global payments provider that delivers secure, cost effective payment products designed to meet the complex needs of online gaming, travel, direct selling, and money transfer industries