High-risk merchants are automatically placed at an ‘excessive’ level, which comes with higher fines and fees

How to Prevent Online Gambling Fraud

November 15, 2021
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by Justt Staff

Gambling has been around for eons, but the first legal casino was opened in 1638 in Venice, Italy.  Online gambling started gaining traction in the 1990s. Today, the legal online gambling industry is massive and growing fast. The value of online wagers is expected to exceed $1 trillion by the end of 2021, according to Juniper Research. It’s even more impressive when you consider the numerous legal restrictions with which it contends. 

While gambling is risky for gamblers, it’s also risky for merchants who have to deal with fraud cases and costly chargebacks. Let’s examine the impact of online gambling fraud, chargebacks, and what merchants can do to control it.

How fraud affects online gambling

Fraud significantly reduces online gambling profits and taints the reputation of merchants. High levels of fraud  can even lead to the termination of merchant accounts. Many online fraud cases involve compromised credit cards belonging to third parties. When the third party discovers the unauthorized transaction, they file for a chargeback. For merchants, this means loss of transaction amount and incurring chargeback fees.

Generally, credit card networks track chargeback activities and require merchants with high fraud and chargeback rates to take steps to reduce the numbers. Merchants who fail to do so lose their accounts and are forced to deal with high-risk payment processors.

Moreover, merchants with high levels of chargeback and fraud cases receive extra fines from card companies at standard and excessive levels. High-risk merchants are automatically placed at an ‘excessive’ level, which comes with higher fines and fees.

Common Types of Online Gambling Fraud

Many online fraudsters know the resources, processes, and procedures used to deter them. Some of the schemes they use to bypass them can be quite creative. Other times their schemes are quite commonplace.

Multiple Account Fraud

Fraudsters give themselves an advantage in the online gambling industry by opening multiple user accounts. They use different IP addresses and devices to avoid detection. With multiple accounts, they can engage in:

  • Bonus Abuse – Fraudsters create fake accounts to take advantage of welcome bonuses. Fraudsters will withdraw these funds and abandon accounts negating the threat of account closure. 
  • Gnoming – it’s the process of opening multiple user accounts with the same casino. Gnoming is used to bypass max bet limitations. In other cases, fake accounts are used to influence outcomes. They do this by driving up jackpots and bonuses and reaping wins. 
  • Chip dumping – fraudsters join a game with multiple accounts and intentionally lose to one of those accounts. 

Card fraud

Fraudsters often use stolen credit cards on online gambling sites. If they get the card to work using stolen payment credentials, they can cash out fast. 

Chargeback fraud

Chargeback fraud occurs when a legitimate customer files a dispute under false pretense to recover money spent. This is common with gamblers who’ve lost money. 

Payment options users can chargeback

The chargeback process depends on the deposit method you use. If a gambler used an electronic or bank transfer, they could file a dispute with their banks directly. However, cryptocurrency deposits cannot be charged back due to the irreversibility of transactions on distributed ledger technology.

Note that gamblers have 120 calendar days from the transaction date to file an online casino chargeback. 

What merchants can do to protect against fraud

Providing excellent customer experience and authenticating users is crucial to preventing chargeback abuse and fraud. Unfortunately, to deter fraud, some friction in customer experience is needed. However, too much friction turns legitimate users away. 

Merchants strike a balance between authentication and customer experience; merchants should distinguish between negative and positive friction points.

Positive friction points include:

  • Asking gamblers to verify funds before deposit
  • Verification of card CVV when adding a new card
  • Requiring unique and complex passwords for new accounts
  • Using backend fraud tools like fraud engine scoring, IP verification, and geolocation
  • Mobile payment options with 2FA
  • Verifying age and locking out underage users

Negative friction points include:

    • Limiting payment methods
    • An excessive number of fields during funding and account opening
    • Broken or complicated site navigation
    • Deploying ineffective or outdated verification methods

Need Help?

Implementing positive friction points and eliminating negative friction points puts you in a better position, but it doesn’t protect you completely. The online gambling industry is fast-paced and requires you to remain updated with tech advancements, card company rules and industry regulations.

It can be daunting, but partnering with a chargeback mitigation solution like Justt can make the process easier. We work with merchants to recover up to 90 percent of revenue lost to chargebacks and charge only a success based fee.

Contact us if you’d like to find out more
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