Gambling is not something that started a few decades ago. If we look at its history, we will know that its origin dates back to the Paleolithic period, approximately 2.5 million years ago to 10,000 B.C.
Undoubtedly, the online gambling industry is growing rapidly, but it is also facing some challenges. Every year, many gambling businesses fail as they fail to combat online gambling fraud and ID verification issues.
Most online casinos and lotteries are at risk of online fraud, resulting in inadequate user responses.
Today, gambling sites integrate identity verification checks to safeguard companies from multiple account creation, money laundering, and identity fraud.
These are Know Your Customer (KYC) checks that help guarantee that players are verified and match the identity they claim to have in the first place. Let’s get into more detail below.
The History of Gambling
We can say in different periods, gambling had various forms. From betting on fighting animals to playing cards, lottery games, and casino games, gambling has changed over the years. This is how the industry evolved in different ages:
- Mesopotamia. In this historical Western Asian region, the earliest six-sided dice was made about 3000 B.C. In China, playing cards were first noticed in the 9th century. Though card games are unidentified, cards resemble those used today.
- The UK. Here, betting on horseracing was a widespread recreational activity for over three centuries.
- Modern gambling around the world. Today, gambling is a significant recreational activity in various countries across the globe. However, due to technological changes, the way we play games has changed too. Online gambling, or iGaming, is a new trend in the industry that is growing faster than land-based gambling.
Related: The Importance of KYC in Gambling and Casinos
The Importance of Identity Verification for the Gambling Industry
There is no doubt that the gambling industry is thriving. However, online gambling platforms are vulnerable to AML fraud (anti-money laundering fraud) and online scams. Nowadays, fraudsters increasingly employ stolen identities or fake documents to create or access accounts. They exploit unsuspecting victims by siphoning money from their bank accounts and withdrawing it elsewhere.
Gambling sites, to prevent fraud and ensure consumer protection, must adhere to anti-fraud regulations such as Know Your Customer (KYC) and Anti-Money Laundering (AML).
These regulations outline strict measures for the operation of gambling sites and apps in various jurisdictions. These measures also obligate them to safeguard players from excessive gambling and promote responsible gaming.
Consequently, ensuring that players are genuinely who they claim to be and are of the appropriate age to gamble is essential. Simultaneously, leveraging data intelligently and using automated ID verification is key to minimizing customer friction in the gaming experience.
Common Types of Fraud that the Online Gambling Industry Faces
Since the first-ever online casino, InterCasino, launched in 1996, hackers have started inventing tricks to defraud online users. Numerous times, cybercriminals have presented severe risks to online casinos.
For example, in 2019, a group of Chinese hackers hacked some Southeast Asia-based online gambling and betting websites. According to a report, hackers stole the company’s database and source code but not money, suggesting that the hackers’ aim was espionage.
Some common fraud types the online gambling industry is dealing with include:
1. Multiple Accounts
Criminals are creating multiple accounts on gambling sites using fake credentials. These different accounts are formed for different plans. The aim is to make one account win while making the others lose intentionally. In general, multiple account fraud impacts various industries, including iGaming platforms or e-commerce sites.
Typically, fraudsters focus on high-end products or high-risk financial institutions due to the potential for significant rewards. Criminals often prioritize services or products with easy fund movement or credit offerings, as the higher the financial risk, the greater the potential reward for them.
2. Money Laundering
Every year, hundreds of online casinos lose their licenses because they don’t take the necessary steps to prevent the use of their platforms to launder money. Online Gambling companies must make sure that their platforms are not being used to launder ill-gotten money.
As gambling firms deal with vast sums of money, it makes it convenient for money launderers to use this platform to hide their illegal money from the public eye. For example, a fraudster can use the laundered funds to engage in additional gambling activities, possibly winning or losing more money in the process. This step helps integrate the illicit funds with legitimately earned winnings, making it challenging to trace the source.
Related: Examples of Money Laundering and Prevention Methods
3. Credit Card Fraud
Like in various other online businesses, credit card fraud is also quite widespread in the gambling industry. Online fraudsters steal credit card information to pay for their bets and buy luxury items. In poker sites, fraudsters use stolen credit cards to fund their fake accounts and lose funds to friends’ accounts. This is a common fraud scheme in poker sites as well as other iGaming platforms.
4. Chargeback Fraud
Also known as friendly fraud, chargeback fraud happens when a genuine account holder contacts their card issuers or bank to deny making a charge to an online gambling site. Fraudsters abuse chargebacks knowingly because they know that most online gambling firms don’t fight back against chargeback abuse. After all, getting excessive chargebacks can damage their reputation and relationship with card issuers.
How Can Gambling Platforms Solve the Growing Number of Fraudulent Attacks?
Understanding the methods and implications of fraud is essential for online gambling platforms to develop effective countermeasures and maintain the integrity of their financial transactions.
Some of the most popular measures to overcome security challenges and prevent fraud for online gambling sites include:
- Enhanced ID verification. Implementing robust identity verification processes during account creation and fund deposits can help mitigate the risk of chargeback fraud.
- Transaction monitoring. Using advanced monitoring systems to track unusual betting patterns and high-risk activities can aid in identifying potential fraud.
- Collaboration with payment processors. Establishing close collaboration with payment processors and sharing information about known fraudsters can enhance the overall security of the platform.
- Educating players online. Providing clear information to users about the consequences of chargeback fraud and the platform’s policies can act as a deterrent.
Related: How to Build an Effective AML Program?
How Identity Verification Can Help Gambling Companies Detect and Prevent Fraud
Like online financial firms, gambling companies are required to comply with KYC and AML directives. Ignoring these instructions might cause hefty fines to the company. The Gambling Commission of the United Kingdom charged an online gambling company a $10 million fine for not complying with the KYC process.
Identity verification is not only a legal requirement for gambling firms but can also play a significant role in preventing fraud and scams in the gambling industry. When a robust identity verification solution is used to conduct KYC checks, it naturally clamps down the potential for fraud.
Identity verification helps you determine if a person’s identity matches the one that it is supposed to be. Besides this, you also know the exact age, physical address, and other important information about users via an automated ID verification solution. Thus, you can better monitor fraudsters and prevent them from using your platform for illegal activities.
So, it’s safe to say that proper identification enables gambling firms to have sound KYC and onboard new users with genuine identities.
If you’re looking for a trustworthy identity verification partner as an online gambling firm, you can rely on iDenfy. We offer KYC, KYB and AML RegTech solutions. To know more about our automation services, feel free to contact us.
This blog post was updated on the 28th of June, 2024, to reflect the latest insights.