Credit card fraud and license agreement violations top the list of types of fraud targeting the online gambling industry

OPR Q&A: Tamas Kadar Of SEON On Growing Online Gambling Fraud

Online gambling is starting to attract more fraudsters.

Such a rise in online gambling fraud makes sense. That’s because “fraudsters tend to seek out industries that may be seeing an immense growth in transactions.”

So says Shai Cohen, the SVP of global fraud solutions at Chicago-headquartered TransUnion.

“Growth in transactions” may be an understatement. During 2021, just the top three legal online casino states – Michigan, New Jersey and Pennsylvaniagenerated more than $1 billion each in gross gaming revenue. None of them cleared that bar in 2020, and the Michigan market wasn’t yet live at that point.

Meanwhile, New York has already shattered US online sports betting records since its launch on Jan 8. New Yorkers bet more than $1.6 billion in 23 days, reported PlayNY.

US online casinos, as well as those around the world, are growing through fast-paced legalization efforts and increased use of digital channels during pandemic-related school and business closures.

As a result, TransUnion reported in August 2021 that the US gaming industry saw a 262% increase in fraud attempts from Q2 2020 to Q2 2021.

To give online gambling insiders a better idea of what’s going on, Tamas Kadar, CEO and co-founder of Budapest-based SEON, spoke with OPR about this trend.

He’s already a known entity in the online gambling industry. 888 Casino, Kindred Group (operating Unibet in the US) and Playtech are among the companies using his fraud prevention platform.

Across-the-board growth in the digital channel

Kadar and Bence Jendruszak founded fraud prevention platform provider SEON in 2017 to meet their own needs. They’d founded a cryptocurrency exchange, but noticed it was “constantly under attack by online fraud.”

So, they founded SEON to fight back. That proved to be good timing.

On Jan. 20, 2022, New York-based Winterberry Group published 2021’s total US online marketing spend. Winterberry said that during 2021, digital marketing expenditures grew 36% to more than $240 billion. Plus from 2018 to 2021, spending in the channel grew more than 23.5%, even as offline marketing budgets declined nearly 6%.

Marketing expenditures follow consumers. Wherever the consumers are, marketers will be there too.

So, demand for fraud protection grew as well.

Now, Kadar’s company serves “any online business.”

TransUnion reported in August 2021:

“Across industries, the rate of suspected digital fraud attempts rose 16.5% globally when comparing Q2 2021 to Q2 2020. In the US, the percentage of digital fraud attempts increased at a similar rate (17.1%) during the same time period.”

That brings us to online gambling.

Online gambling becomes a target for fraud

In 2019, TransUnion found that a plurality of iGaming fraud reports in the US – 42% – fell into the credit card category. In 2021, the only online gambling figures were global, with policy/license agreement violations responsible for the 36.2% rise in fraud reports. That figure compares Q2 2021 with Q2 2020.

Still, online gambling operators are doing a better job of combatting fraud attempts than what TransUnion terms the “gaming” sector, which saw a 262% increase in reported fraud tries during Q2 2021.

However, that category includes forms of gaming other than just real-money gambling. Indeed, the top type of fraud in the category is “gold farming,” an activity that arises in the world of massively multiplayer online games, or MMOs.

Overall, TransUnion classifies gaming providers as:

  • Online sports betting providers
  • Platform providers
  • iGaming operators
  • Casinos
  • Daily fantasy sports

Here’s what Kadar had to say to OPR. Bolded lines are OPR’s questions, and Kadar’s responses are presented verbatim.

Why is gambling fraud increasing? Is it mainly online gambling? Which vertical is most targeted?

It’s predicted that by the end of 2023, the iGaming industry will generate a global revenue rate of $92.9 billion, with major markets such as the US, Germany and Spain all recently legalizing online gambling. As the access to online gambling platforms increases, so does the opportunity for fraud.

Fraudsters don’t necessarily care about the format, as long as the cash out is easy or alluring – that’s why they are drawn to online gambling. One of the most alluring fraud tactics is a high signup bonus, where fake accounts benefit from new signup bonuses, coupons and other attractive offers.

We see that sports betting and casinos are most targeted because it’s relatively easy to pull off, instead of poker, where they need to be more sophisticated because it’s peer-to-peer. Collusion is a fairly common tactic, as are poker bot farms.

If you have statistics on offshore online gambling fraud, how are you tracking that?

We don’t. We partner only with legitimate operators.

How much of this fraud is happening in the US and Canada? Who are the perpetrators and targets?

The US landscape is quickly changing as gambling is legalized in more and more states – and a surge in fraud follows suit. These simply mean more opportunities from a criminal’s point of view: more targets to hit. As to who, it’s hard to say: You get a mix of both domestic criminals and international crime rings.

What are the most common types of gambling/gaming fraud? How can operators tackle them?

Synthetic identity fraud is the fastest-growing – mixing and matching other people’s personal details to open accounts to commit fraud. Most leaked details are from US citizens; therefore, this market has endless opportunities for identity theft.

Already in 2020, some 49 million Americans were affected with an estimated $56 billion in costs. The primary fraud method in gambling is organized bonus abuse, and criminals can quickly scale the network to cash out as much as they can from an operator. We believe that you need to run extensive background checks on your signups (not just ID verification) and be aware of connections between your users – either via their devices or “in the real world,” if you can verify that.

What can the US can learn from the EU regarding risks and compliance?

Affordability checks – meaning whether or not the gambler can afford to lose what they’re losing – is something that the industry probably should be proactive about before consumer protection lawsuits come down the stream.

How are fraudsters targeting the US from a global reach?

As identity details of US consumers are easy to get, your best line of defense is having the best-in-class method of analyzing the user’s device/connection. It’s essential to verify if they access your service from the state they claim to be in or spoof their location. The real trick here is to do so in a way that’s not intrusive or frustrating for your everyday users.

How can operators prevent unique gambling, auctions fraud?

A lot of the most cutting edge or grey gambling sites like these [sports betting, LootCrates, or treasure hunting online] also target regions where it is grey where licensing is required, like APAC, for example. They are also first to be non-domiciled and target the US customer base with plenty of appetite and demand. While this is something that we’re concerned with, it is growing as these more unique gambling opportunities become available.

What else should Online Poker Report readers know?

It is not easy for gambling operators and online casinos to monitor and prevent fraud, with the platforms relying on user trust and building relationships with the players. This is why these platforms need to get one step ahead of preventing fraud and showing players that you are working for them and with them seamlessly to garner a happy community of users.

- Heather Fletcher is the lead writer with OnlinePokerReport. She's a career journalist, with bylines in The New York Times, Adweek and other publications. Reach her at [email protected]
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