Understanding and combating online gaming fraud

By Mohini Sahu, marketing executive at IDcentral

The world of online gaming is booming, with millions logging in daily to battle, build, and explore. But alongside the fun comes a dark side: fraud. Fraudsters are as creative as game developers, constantly concocting new schemes to exploit players and gaming companies alike.

This blog delves into the world of online gaming fraud, exploring the factors contributing to its rise, the different types of scams plaguing players and developers, and the essential steps you can take to stay safe.

The exponential growth of online gaming: A breeding ground for fraud

The online gaming industry is experiencing explosive growth. A recent report by Newzoo estimates the global gaming market to reach a staggering $218.7 billion by 2024. This growth is fueled by several factors:

• Accessibility: The rise of mobile gaming has made participation more accessible than ever. Players can now access their favorite games on the go, further blurring the lines between the real and virtual worlds.
• Free-to-Play Model: Many popular games adopt the free-to-play model, where basic gameplay is free, but in-game purchases fuel additional features, cosmetics, or progression. This model attracts a wider audience but also creates a lucrative black market for virtual goods.
• Evolving In-Game Economies: Many games feature complex economies with virtual currencies, tradable items, and character customization options. These economies hold real-world value, making them attractive targets for fraudsters.

The sheer volume of players and the financial value associated with in-game assets create a breeding ground for fraud. Between 2022 and 2024, fraud in the online gaming sector increased by 64% year-over-year. Fraud losses for mobile casinos and betting platforms alone totaled $1.2 billion between 2022 and 2023. These fraudulent activities not only result in direct financial losses but also lead to reputational damage and increased scrutiny from regulators​.

Exposing weaknesses in online gaming

Several factors contribute to the vulnerability of online gaming platforms to fraud:

• Account Security: Weak passwords, phishing attacks, and a lack of two-factor authentication can leave player accounts vulnerable to takeover. Once compromised, fraudsters can steal valuable in-game items, disrupt gameplay, or even sell the account on the black market.
• Payment Systems: The convenience of in-game transactions can also be a double-edged sword. Fraudsters can exploit weaknesses in payment processing systems to steal credit card information or use stolen details to purchase virtual goods.
• Botting: Bots are automated scripts that can perform repetitive in-game tasks. While some bots might be used for harmless purposes, malicious bots can unfairly dominate matches, farm in-game currency, and manipulate the virtual economy.
• Chargebacks: The ease of initiating chargebacks on digital purchases can be abused by players who dispute legitimate transactions. This can lead to significant financial losses for game developers.
• Unregulated In-game Marketplaces: Some games allow players to trade virtual items with each other. These marketplaces can become breeding grounds for scams, with fraudsters selling fake items or using stolen accounts to make transactions.

These vulnerabilities highlight the diverse range of threats players and developers face in the online gaming landscape.

Case studies of online gaming fraud and prevention strategies

Here are some detailed case studies of online gaming fraud that illustrate the various methods fraudsters use and the measures companies have taken to combat these threats:

Sportsbet’s fraud reduction

Sportsbet, an Australian online betting company had to tackle its high fraud rates. By integrating advanced fraud detection tools, Sportsbet reduced fraud losses by over 80% and chargebacks by more than 82%. The strategy involved using real-time insights to distinguish between legitimate and fraudulent activities without disrupting the user experience. This approach combined strong customer authentication, payment optimization, and sophisticated fraud and abuse prevention measures​.

Gamer arena’s risk intelligence

Gamer Arena, an esports platform in Turkey, faced significant challenges with users creating multiple accounts to exploit sign-up bonuses. By implementing advanced device fingerprinting and risk indicators, Gamer Arena was able to identify and block users who were using proxy servers, automated scripts, and anti-fingerprinting tools to create fake accounts. This not only protected their sign-up bonus system but also enhanced overall platform security​.

Money laundering in online games

Online games have been used for money laundering due to their virtual currencies and in-game items that can be exchanged for real money. For instance, Linden Lab’s Second Life required all users to register with its subsidiary Tilia Inc., a money service business, to comply with anti-money laundering (AML) regulations. This case highlights the necessity for gaming companies to implement robust KYC (Know Your Customer) and AML controls to prevent financial crimes​.

Common types of fraud in online gaming

Fraudsters employ a variety of tactics to exploit online gaming platforms. Here’s a closer look at some of the most common ones:

• Account Takeover (ATO): Fraudsters trick or coerce players into revealing their login credentials or exploit weak security measures to gain access to their accounts. This constitutes a form of identity theft, granting them unauthorized access to a player’s virtual identity. Once in control, they can steal valuable in-game items, disrupt gameplay, or even sell the account for real-world money.
• Phishing Scams: Phishing emails or messages disguised as official game communications are a common way to steal login credentials. These messages often lure players with promises of free in-game items or exclusive content, tricking them into clicking on malicious links or entering their login details on fake websites.
• Payment Fraud: This involves the unauthorized use of credit cards or other payment methods to purchase in-game items. Stolen credit card details can be used to make fraudulent purchases, or compromised accounts can be exploited for the same purpose.
• Chargeback Fraud: This occurs when players initiate a chargeback on a legitimate transaction, claiming they did not authorize the purchase. This can be particularly damaging for game developers, as they may lose revenue and incur fees associated with disputed transactions.
• Virtual Item Scams: Fraudsters may advertise or sell fake in-game items through unofficial channels. These items may not exist, or players may receive worthless substitutes after paying real-world money.
• Match Manipulation: This can include throwing matches for betting purposes, colluding with opponents to fix the outcome, or using hacks and exploits to gain an edge. These actions not only ruin the competitive integrity of the game but also erode trust within the gaming community.

The future of online gaming: A collaborative effort against fraud

The booming online gaming industry, fueled by mobile accessibility, free-to-play models, and complex virtual economies, presents a double-edged sword. While these factors contribute to its popularity, they also attract fraudsters. Players face a range of threats, from account takeovers to fake item sales. Developers grapple with botting, chargeback fraud, and match manipulation.

However, the future of online gaming isn’t written in stone. By working together, we can create a more secure environment for everyone. Players can take proactive measures like using strong passwords, enabling two-factor authentication, and remaining vigilant against scams. Developers can implement robust security measures, educate their player base, and collaborate with payment processors to combat fraud.

KYC verification: A cornerstone of security

Verifying user identities during account creation remains a cornerstone of online gaming security. KYC (Know Your Customer) verification strengthens this foundation. Automated KYC checks and AI-powered document verification ensure real people are behind the accounts, significantly reducing the risk of account takeovers and fake profiles. This translates to a safer and more trustworthy environment for players, fostering a loyal and engaged community. Remember, a secure platform not only protects your players’ virtual assets but also builds trust and loyalty – key ingredients for a thriving online game.

About the author

Mohini Sahu is a digital and content marketing executive at IDcentral, a Subex company.

DISCLAIMER: Biometric Update’s Industry Insights are submitted content. The views expressed in this post are that of the author, and don’t necessarily reflect the views of Biometric Update.

Article Topics

biometric authentication  |  biometrics  |  digital identity  |  fraud prevention  |  gaming  |  IDcentral  |  KYC