Online Gaming Fraud: How to Detect and Prevent Scams

In 2021, video gamers, on average, spent about eight hours and 27 minutes each week playing games. This is an increase of 14%, up from 2020, according to a report by Limelight Networks. No wonder revenue in the online games segment is projected to reach US$175.10 billion in 2022. The number of users is expected to equal 3,197.7 million by 2026, so to state the obvious - gaming is a big business that is not going away!

Fraudsters are ingenious in their attacks, especially when thinking that the industry itself, through gaming platforms like Steam, Origin, Epic, and other similar streaming services, is partially defined by the concept of anonymity. It is, however, confirmed that because of the time and money spent on in-game purchases by players, the online gaming world has become the ideal place for fraudsters to operate and thrive. But as the industry thrives, with more and more companies that sell video games online, so do the fraudsters who prey mainly on gaming companies through the many unsuspecting gamers. 

The sale of gaming subscriptions, while highly profitable, carries unique challenges and an increased chargeback risk, leading to severe financial and reputational damage for your business, causing a significant inconvenience, and potentially seriously harming your customers' data privacy and finances. High-risk fraud is growing, and scammers are constantly developing new methods to cheat and steal. So it has become critical for gaming businesses to ensure they can detect and prevent scams. 

On top of chargebacks resulting from fraud, we are also witnessing the so-called friendly fraud, which is almost impossible to combat. This, too, has its own set of costly repercussions that should be noted. 

The truth is that fraud has expensive consequences and a high potential of breaking companies at a critical moment in their growth process. This is exactly why more and more SaaS companies choose to work with a Merchant of Record, a complete business model handling tedious operations, including fraud detection and prevention. 

We’re here to explain all the ins and outs of online gaming fraud to help you prevent the chances of dealing with these growing threats.

Top 6 Repercussions of Online Gaming Fraud on Businesses

1. Reduced Overall Profits

Fraud can set a series of events in place that lead to profound revenue loss for game developers, stunting or even crippling businesses. Money that should be channeled into your business from your users will fall into the open hands of fraudsters, unrecoverable, and go unnoticed.

2. Chargeback Losses

As mentioned earlier, chargebacks carry expensive repercussions. Fraud-triggered chargebacks are unauthorized transactions. This puts your business in a tough spot because investigating suspicious transactions is costly and time-consuming. Not only are you required to provide the user with a refund, but you are also required to pay chargeback fees. As this workload grows for your risk team and you become more vulnerable to opportunistic fraudsters, it becomes a logistical and financial burden. 

Worse yet, you could also end up on the suspicious activity lists of banks and card companies, putting your business at risk of losing the ability to process payments if the acquiring banks refuse to do business with you. For example, Visa and Mastercard’s claims resolution processes are becoming more stringent for businesses as the window of opportunity to dispute chargebacks gets smaller and the pressure to resolve these disputes increases. Under pressure for their reputation, online payment providers will increase processing fees before suspending and dropping specific platforms from offering card payments. 

On top of chargebacks resulting from unauthorized transactions, you will likely encounter chargebacks triggered by “friendly fraud”(a customer purchases with their credit card and then requests a chargeback from the issuing bank). This, too, generates costs, and to make it even more complicated, eliminating friendly fraud is impossible.

3. Squandered Marketing Efforts

Another type of fraud that can not only cause your marketing ROI to suffer but cost you time and money needlessly is affiliate fraud and bonus abuse. Affiliate fraud is a type of advertising fraud where corrupt activity is used to collect commissions from an affiliate marketing program fraudulently. Bonus Abuse is signing up for a service multiple times using marketing offers for new users. The resources you spent on attracting potential customers and onboarding them could be wasted on bad leads that never intended to convert.

4. Damaged Reputations

You don’t want your game to be associated with fraud for several reasons. Gaming is all about communities built around video games in the marketplace. And with the industry growing and changing so fast, the last thing you want is to be seen by users as an unsafe platform or, worse yet, by fraudsters as an easy target. You can imagine the profit losses damaged reputations are responsible for.  Gamers are heavy users of chat forums and review sites and aren’t afraid to use them to complain when they become victims of fraud. Your users will quickly abandon your game and continue to spread the bad news, leaving your reputation tarnished.

5. Loss of Trust From Users

Gaming users often invest hundreds of hours into their characters and gaming experience. This makes this type of account a gold mine for fraudsters. Game developers need to make sure they create a gaming environment that is both fun and safe. Players are unlikely to stick around if their gaming experience is compromised by bots and scammers. If they believe they can be easily exploited while playing your game, they’ll most certainly avoid it. High incidences of fraud can erode trust and loyalty, causing the business to take a hit financially.

6. Fines From Government Regulators

Although the online gaming industry isn’t heavily regulated in most countries, stricter regulations will likely come down the line from government agencies soon. You could end up with severe penalties and fines if your game is found to be harboring fraudsters and creating an unsafe environment for users. You must get out in front of this and strengthen your business against fraudsters. This, combined with greater transparency and accountability, will ensure that the regulators don’t come knocking on your door in the future with hefty fines for non-compliance.

The 6 Common Types of Online Gaming Fraud

1. Multiple Account Fraud

Multiple account fraud, or multi-accounting, is a common type of online gaming fraud where a fraudster uses multiple accounts at once to benefit themselves in a game. They’ll often use different devices and IP addresses to avoid detection. This technique is used frequently in online gambling. For example, a fraudster will join a poker game from multiple accounts, making themselves far more likely to win the game as they will make sure that the other accounts lose to their primary account. This is a form of what is called chip dumping.

Fraudsters can manipulate game results and force other legitimate players out of the game. Additionally, they can make easy money off the advantages they gain by accessing the game from multiple accounts.

2. Credit Card Fraud

This is often called "true fraud" and refers to the traditional way you might imagine fraud occurs. For example, a fraudster could steal your credit card details or obtain them illegally in several ways. They'll then create an account in a game, quickly build up the account's value with that credit card, buy in-game credit and skins, and then sell the account to a trading site, pocketing the money. These accounts can sell for anything between several hundred to thousands of dollars. And it can happen so quickly that the victim may not even know it has occurred. 

If all of that isn't bad enough, details of stolen credit cards are often bought and sold on the dark web, creating a real risk for gaming businesses. Additionally, stolen cards can be attached to newly created PayPal accounts. Unauthorized PayPal transactions will undoubtedly lead to chargebacks, which in return cause significant monetary losses. 

So, it's safe to say that your biggest enemy, apart from fraudsters, is the number of chargebacks generated by their actions, which have severe and costly consequences for the well-being of your business. Keep in mind that the repercussions can put a severe strain on your growth, perhaps even putting it on indefinite hold.

3. Chargebacks From Friendly Fraud

When fraudsters purchase within a game, claiming later that it resulted from fraud, the result is more chargeback fraud. The customer will then ask for a refund for the purchase they claim they didn’t make (after gaining other benefits due to that purchase), and the gaming business will refund them. They may even have finished the game and request a refund while moving on to the next round. As we mentioned earlier, this is also called “friendly fraud” and is common in eCommerce nowadays. Ironically, chargebacks were created to protect the customer but are now often used against the merchant itself.

Friendly fraud is complicated as it’s challenging to determine which claims are legitimate or fraudulent. A business wants to provide good customer service to legitimate customers, but as a result, often loses revenue to this type of fraudulent claims.

4. Account Takeovers

Kount found that 21% of online gamers were hacked last year. In this situation, a fraudster hacks into existing accounts after obtaining the login credentials from data breaches on the dark web. These days they can use automation software to phish through thousands of combinations until they find a username and password combo that works. This is sometimes also known as “credential stuffing” and can lead to hackers gaining access to multiple accounts.

Once the account has been hacked, they either sell that person’s in-game items for in-game currency, or they sell the entire account for cold hard cash. The victims of this fraud are often gamers who have spent hundreds of hours and many dollars leveling up in the game. The buyers for these kinds of accounts are often people who are new to the game or not as advanced and are looking for an easy way to win.

Fraudsters can also use a hacked account to spread spam and links to phishing sites, withdraw funds, and change account information. They can, and sometimes do utilize the user’s sensitive information for more complex identity theft. Like other types of fraud, this can cost gaming businesses many hours of manpower and the loss of trust of their loyal players. 

5. Bonus Abuse

Bonus abuse, as we mentioned earlier, is a more basic scam closely linked to multiple account fraud. A fraudster will open multiple accounts to take advantage of special offers. These could be referral programs for new customers or specific in-game bonuses like coupons or the ability to purchase rare items. They can then sell the item, withdraw the funds from the platform quickly, and abandon the accounts before the gaming platform even manages to identify the fraud and close the account. It’s free money for the fraudsters and can considerably cost gaming businesses lost revenue and waste marketing budgets.

This creates a complex situation where gaming businesses need to protect themselves from fraudsters with identity verification, which could create too much friction for legitimate users, who might want to take their gaming elsewhere. More on this later.

6. Affiliate Fraud

The gaming world relies heavily on affiliates for effective marketing. But this comes with its risks as we touched on earlier. Affiliate fraud refers to any deceitful action taken by a third party to derive personal benefit from marketing techniques such as pay-per-lead (PPL) or pay-per-click (PPC) campaigns. Affiliates can utilize marketing techniques through multi-accounting, bots, and more. For example, they can exploit multi-accounting so that you’re paying out rewards to non-existent players, or they are being paid for bad leads, including players who will never spend money on your gaming site.

8 Ways to Prevent Online Gaming Fraud

1. Understand Fraudster Behavior

How do you get into the mind of fraudsters? By collecting as much data as you can and then applying it to create a risk score for each user. Gathering information on users’ IP addresses, device data, allowing elements of payment data, and other types of datasets is the basic go-to strategy.

Combining these methods with velocity rules can give gaming companies a much better understanding of fraudulent behavior on their platforms. Use this information to create and implement your fraud prevention strategies.

2. The 8 Security Audit Questions You Need To Ask

Stay ahead of fraudsters and scammers by conducting regular audits on your security framework. This will help you identify any weaknesses before the criminals do.

3. Collaborate with a Reliable eCommerce Provider

The Payment Card Industry Data Security Standard (PCI-DSS) was established in 2006 to combat data theft. It is a set of security standards designed to ensure that all merchants that accept, process, store, and transmit credit card information, do so in a regulated way that minimizes the risk of payment fraud, data breaches, and data theft.

As with all game companies, you must ensure that your payment solution complies with PCI-DSS. These checks and balances go a long way in ensuring they are from legitimate users when payments are made.

However, given the innovative nature of gaming fraud, obtaining the PCI DSS level of protection provided by some payment service providers is certainly not enough in the long run. Combating fraud requires a more sophisticated approach. That is why it would be advisable to join forces with an experienced partner who has been fighting online fraud for a long time, having the expertise and technology needed to protect businesses.

4. Know Who is Accessing Your Game Through Foolproof Digital Identity Verification

Gaming companies need to gain as much information about their users as possible. Identity verification services look at a user’s IP address, geolocation, email address, and other data. This, along with strong passwords and two-factor authentication, can ensure that gaming companies know who’s using your site.

5. Make Use of Data Enrichment Processes

Another way to enhance security is through data enrichment processes ‒ which means you are tracking beyond just a user’s identity information. You can monitor device fingerprints and email profiles and conduct phone and IP analyses. For example, a fraudster generally creates a new email address to register an account. Legitimate users would usually use an email address that is older and linked to other apps or social media. The system will flag an unlinked email address due to the probability it was just created for fraudulent purposes. Another red flag is a desktop using mobile data with no call history. This and other information will help you stop fraudsters from getting onto your platform. 

6. Use Strong and Adaptable “Know Your Customer” (KYC) Verification Checks

As we’ve said, verification is vital. You need to know who your customers are and which ones have suspicious profiles.  Unfortunately, the risk here is that legitimate customers might grow impatient with too many verification checks, which could send them to your competitors.

Not all customers require the same level of verification. And this is where adaptable KYC checks come in. Your fraud detection software should be able to run a digital footprint analysis on users and identify which ones require light KYC and which ones require heavy KYC. Soft KYC methods are riskier but rarely result in any churn. More serious methods require more user information (for example, document identification) but will weed out most fraudsters. This process can be automated, saving time by cutting out the manual verification review process.

7. Monitor Regularly For Suspicious Activity

Regular site monitoring can help businesses protect themselves from potentially suspicious activity that can snowball into quantifiable fraud in the future. Collecting as much information as possible to train and refine the fraud detection algorithms to respond faster to potential fraud attempts should be in place. However, remember that your efforts to secure gamers should not add more friction for your users.  Legitimate users can become impatient when their user experience is being compromised, so keeping a balance in this regard, though difficult, should be the ultimate goal.

8. Use Data to Enhance Your Protection

As a gaming business trying to protect your revenue and customers against fraud, your most potent weapon is your data. The more data you acquire, the better you can detect and stop fraudsters. Keep your security, payments, and identity data up to date and leverage it to fight fraudsters. Always use AI and ML technologies for their huge data harvesting capacity.

2 Easy Steps To Detecting Gaming Fraud

1. Work with an experienced eCommerce solution

Protecting your game and customers from fraudsters is much easier with a complete eCommerce solution, capable of providing professional fraud detection and prevention services.  The solution needs to be able to conduct risk assessments based on users' browser activity and then flag suspicious users and activity. Check that your provider offers, among other business processes, expertise working with large organizations if need be, loyalty fraud management, policy abuse protection, automated decisions, and also the manual review of suspicious flagged transactions.

2. Use Artificial Intelligence (AI) to Do the Time-Consuming Work

AI has grown increasingly popular, being used in the majority, if not all industries, to some degree. Artificial Intelligence, taking different forms, has proven to be of great use in gaming fraud or online fraud in general. However, it is essential to mention that AI without high-volume data has no real power. That is why it is crucial to collaborate with a trustworthy partner strongly rooted in this industry. After being part of the market for over a decade, PayPro Global is successfully employing AI mechanisms to combat fraud due to the impressive bulk of data collected. Here is how AI plays an active role in tackling gaming fraud:

Separate Fraudsters From Other Users

Your AI can be designed to establish the level of identity trust for every interaction, allowing you to:

You want your program to be able to analyze new accounts and label a user as fraudulent or not fraudulent. This frees you up to work with the data on fraudsters specifically or isolate your legitimate gaming accounts to improve your service to them.

Track Users in Real Time

As you can imagine, live tracking all your users is very difficult. But fraud detection tools using AI do the hard work for you. This kind of software can reflect all of the movements of your users on one dashboard in real-time, detecting fake accounts and ultimately monitoring your income

Use Device Intelligence Technologies

Device Intelligence includes:

These methods allow businesses to collect detailed device information from users. Device Intelligence identifies a device and flags abnormalities each time a user logs onto your game.

Maximize Machine Learning To Predict Fraudulent Behavior

It’s not hard to imagine that methods to commit fraud are evolving and changing rapidly. Your fraud detection software needs to be able to learn every time fraud is detected so that you can stay ahead of any corrupt activity. It must utilize the latest technology, specifically AI and machine learning. This ensures that with every successful fraud identification, it is learning how to protect you better.

How Can PayPro Global Help?

Providing game developers with the needed tools to sustain their international expansion, PayPro Global’s complete eCommerce solution will help your gaming business expand and grow. Not only do we offer a unified point of communication for global sales strategy, tax compliance, fraud, and risk management, as well as complete subscription and billing handling, eliminating the need for other third-party integrations, BUT we can help protect your business! Using our state-of-the-art fraud prevention and detection platform, covering cross-game analytics, blacklisting, and tailored blocking technologies, you can count on us to efficiently eliminate the risk of gaming fraud, saving you time, money, and peace of mind.