Gaming the system: How iGaming companies can outwit fraudsters

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Fraud concerns for iGaming operators extend beyond just basic KYC and AML issues. Tamas Kadar, co-founder and CEO of SEON, a company that provides fraud prevention solutions for gaming companies and beyond.

Photo of SEON CEO Tamas KadarEver since the Supreme Court of the United States overturned a federal ban on sports betting in 2018, the nation’s iGaming sector has witnessed phenomenal growth. Around that time, the American sports betting market was an unknown quantity. Fast forward only three years and revenues had hit more than $4 billion, with Morgan Stanley predicting this number will continue to rise, potentially eclipsing $7 billion by 2025. As of 2023, a total of 36 states in the US have legalized sports betting, with others, such as California now giving the idea serious consideration.

This growth has helped to fuel the rise of businesses like FanDuel and DraftKings while also providing customers with new and exciting ways to engage with their favorite sports. However, this growth has also been beneficial for online criminals, who have been able to target online sports betting operators with concerted and effective fraud attempts. Now, as the sector looks to take the next step in its exciting growth journey, it’s essential that sports betting operators, as well as the broader iGaming sector, are implementing adequate countermeasures to protect themselves.

A growing threat

For the last few years, I’ve been working with iGaming businesses across the US and beyond, to help implement measures that meet these criteria. As such, I have a good idea of what effective anti-fraud solutions look like in this world, as well as the specific challenges that businesses in the space need to protect themselves from. Like anything online, fraud within iGaming is evolving at pace, but there are some general principles the sector can rely on to help it deal with the problems it faces, and to tackle the challenge of iGaming fraud as efficiently as possible.

I want to examine some of these issues in finer detail, exploring the challenges that have come to the fore in the iGaming sector in recent times. Let’s start with bonus abuse, which is the process of signing up to a service multiple times using marketing offers normally intended just for new users. It’s an issue that affects multiple industries, but one that has really plagued sports betting, casino, and poker sites in recent years. It’s a difficult problem to tackle, especially with fraudsters increasingly using synthetic IDs to facilitate it.

Synthetic IDs pose a significant challenge

Potentially rivaling the growth of the iGaming sector in recent years has been the explosion of synthetic IDs across the internet. These IDs are a major problem, as they combine fake and real-person data together to form a new identity. Unfortunately, the real information used in these IDs is often stolen and used without the victim’s consent. Fraudsters mix this information with generated data to create new, synthetic, and totally fake identities, which they can use to open accounts, often bypassing basic know your customer (KYC) checks incredibly easily.

According to the Federal US Reserve, the usage of synthetic IDs grew by 85-95% in 2019 alone. As mentioned, fraudsters are leveraging these documents to take advantage of promotional offers, and in doing so, engaging in bonus abuse. It might be simple, but it’s extremely damaging, especially as many iGaming providers have leveraged sizeable bonus offers in recent times to try and attract new users. In fact, we published a research paper last year, which highlighted that up to 15% of the online gaming industry’s gross revenue is currently being lost to bonus abuse.

More than money

Many of the same issues are also apparent in another pervasive form of fraud affecting the sector, which is referred to as self-exclusion fraud. This involves players who have self-excluded from a particular site or platform, but then use fake identities or proxy servers to continue playing. On the face of it, self-exclusion fraud is not as immediately costly for iGaming providers from a monetary perspective, but the damage it can cause to the individual gamer, as well as the reputational damage it can inflict on the industry as a whole is potentially far more significant.

Given the inherent controversy of the iGaming sector, providers are required by regulators to ensure that individuals with problematic gaming habits can exclude themselves from sites. If these systems are easy to overcome, confidence in the sector could be undermined, which may lead to retaliation from regulators in response. Sadly, many of the KYC systems currently used by iGaming businesses are weak at identifying self-exclusion fraud and bonus abuse, as they are often unable to detect whether a single person has multiple accounts on a platform.

The future of fraud

Up until now, many iGaming businesses have relied on manual verification processes when accounts have flagged as potential fraud risks. Often, this has involved ringing a customer, or using a form of photo or video verification to ascertain whether an individual is who they say they are. Sadly, the rapid development of AI-technologies, such as deepfake video and audio is rendering many of these approaches ineffective. While these solutions are yet to be widely adopted by fraudsters, there’s little doubt they will soon be, so it’s important to be prepared.

In preparing for this new dawn in fraud, iGaming operators would be advised to redouble efforts to improve existing KYC and identification verification checks, and to ensure robust anti-money laundering (AML) performance too. Of course, such provisions must be managed in line with the overall customer experience, and providers must be careful not to laden onboarding processes with undue friction, however it’s clear that more must now be done to tackle this pronounced and evolving issue. Thankfully, with the rise of new solutions built for this challenge, such as the one we provide at SEON, my bet is that iGaming operators will provide protection.