KYC in Online Gaming (iGaming Guide 2024)

Online gaming companies are part of the regulated iGaming industry, where there are many strict Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. Sports betting, online casino, video game or poker betting platforms must verify the user’s identity, their source of funds and location. Learn more.

Know Your Customer (KYC) is a vital process that’s used by different industries to establish and validate the identity of their customers. And the online gaming industry is no exception. Here, compliance is a crucial way to prevent money laundering, fraud, and other illicit activities. 

Over the past few decades, online gaming (iGaming) and internet-based gambling have been present in various jurisdictions to some extent, the widespread use of digital means has accelerated the iGaming industry on a global level. 

Betting on horses and virtual roulette is only a tiny piece of this popular sector. With over one billion people using online gambling sites and apps globally, its popularity continues to increase. Such rapid booming pushed regulators to create stricter laws, which we’ll get right into. 

What is Online Gaming (iGaming)?

Online gaming, also known as iGaming, is the practice of using the internet to play gambling games, which can take place on mobile apps or websites. While different jurisdictions have slightly legal terms, online gaming is often referred to as online gambling.

The main forms of online gaming include:

  • Video game betting (eSports)
  • Casino gaming
  • Sports betting
  • Fantasy sports
  • Online poker

The Supreme Court made a significant decision by overturning the Professional and Amateur Sports Protection Act of 1992 (PASPA) in 2018.

This law had previously banned sports betting in the US, with only a few states exempted. With the overturning of PASPA, individual states gained the authority to decide whether they wanted to legalize sports betting within their borders.

The global online gaming market reached a value of $63.53 billion in 2022, and experts anticipate steady growth with an annual growth rate of 11.7% from 2023 to 2030.

KYC and AML Regulatory Landscape in iGaming

Online gaming companies must verify their users’ identity, age, location, and the source of their funds as part of the KYC/AML process. These checks are crucial in preventing fraudulent activities like money laundering and ensuring that gaming services are not being exploited by malicious individuals.

However, the gaming landscape didn’t have that many rules years ago. Let’s look at the main laws and regulations applicable to this industry today:

The Bank Secrecy Act (BSA)

The Bank Secrecy Act of 1970 was the first set of anti-money laundering laws in the United States. It initially targeted traditional financial institutions like banks or credit unions. However, the list kept getting longer, and in 1985, casinos were included in this category, which also extended to online gaming operators. 

CTRs and SARs

To stay compliant with the BSA, online gaming companies must conduct monitoring, which includes monitoring user activity. Whenever a customer engages in transactions amounting to at least $10,000 within a single business day, the gaming operator must file a currency transaction report (CTR). They must also submit a suspicious activity report (SAR) if any user’s actions suggest potential money laundering or other financial activity.

Customer Due Diligence (CDD)

Online gaming operators must conduct customer due diligence (CDD) processes to verify the identity of their customers. This part of the CDD is known as KYC verification. To stay compliant, operators must collect and validate personal details like name, address, date of birth, and other relevant details from their customers.

Additionally, CDD measures should also involve verifying the source of funds used by customers and identifying the beneficial owners of legal entities associated with the transactions.

Why is KYC in Online Gaming Important?

There’s nothing new about buying personal data on the dark web and using it for fraudulent purposes. So, unsurprisingly, criminals or curious underage individuals are tying their luck by using stolen identities or fake IDs for their online gaming accounts. With stolen login credentials, fraudsters can gain unauthorized access to users’ accounts. They can then exploit these accounts for various purposes, including using the victim’s funds or making fraudulent transactions.

And as we consider these things, there’s no longer a single doubt why companies that operate in the gaming industry are legally obliged to verify a user’s age, identity, location, and source of funds. Additionally, KYC in gaming offers advantages not just for businesses but also for customers. 

How KYC Helps the Online Gaming Industry

Just as reputable companies must ensure fair games and a secure gaming environment, they must also reassure users that their personal information is treated with care and protected. 

As a result, gaming platforms need to demonstrate to their users that their KYC processes aim to:

  • Prevent the gaming platform from being a source of money laundering.
  • Ensure that all online gaming practices are fair and transparent.
  • Stay compliant with regulations while delivering a seamless, user-friendly experience.
  • Protect minors from getting involved with this age-restricted activity.

Furthermore, customers who fail to comply with KYC requirements and refuse to provide the necessary documents may encounter delays in their withdrawals or may be unable to withdraw their winnings altogether. In severe cases, their accounts can be removed entirely. Individuals caught using fake IDs may face significant penalties or criminal charges for this illegal activity.

Reasons Why iGaming Operators Require KYC

The main reason why gaming operators ask users to complete a KYC check is to prevent fraud. One of the biggest challenges behind such fraudulent activity on gambling platforms is multiple accounts using fake IDs. 

Fraudsters create these fake accounts deliberately and set them up to lose, benefiting one of their primary accounts. Certain players can also abuse the bonus system through multiple accounts and try to claim welcome bonuses by repeatedly creating new accounts. KYC verification is implemented to deter these gamblers from exploiting such promotions. 

Types of Fraud in the Online Gaming Industry

Furthermore, some criminals resort to using stolen credit cards to register in online casinos and fund their accounts. They may exploit their bank and their chargeback policies, also known as “friendly fraud”. Fraudsters seek unwarranted refunds, resulting in financial losses for the online gaming platform. As a consequence, casinos that accept credit cards implement strict KYC processes to combat such illicit practices.

Apart from that, the gaming industry requires KYC verification in order to prevent minors from accessing their age-restricted services. The legal gambling age varies from country to country:

  • The US. The legal age for accessing online gaming platforms can differ in each state due to state-regulated laws. While most US online gambling sites require players to be at least 21 years old, there are states where the minimum legal gambling age to enter casinos is 18.
  • The UK. Individuals who are 18 years old or older can access and participate in casinos and other online gaming establishments. Regulated by the Gambling Commission under the Gambling Act of 2005, it is crucial to protect children from engaging in any form of gambling activity.

To achieve this, online gaming operators must be very careful when conducting age verification. Submitting IDs to gaming platforms helps determine whether the player is underage or not. Operators will cross-check names against the electoral registers or rely on a third-party KYC service provider to verify the legitimacy of the person’s ID and to confirm that they are of the legal age to sign up on their platform.

Related: 🇺🇸 AML Laws in the US & 🇬🇧 KYC Requirements in the UK

KYC Requirements for the Online Gaming Industry

To comply with global and local regulations, gaming operators and gambling platforms must establish a KYC compliance system. It requires data collection and proper risk assessment that helps understand each and every one of their users, consisting of three vital stages:

1. User Identity Verification 

To verify a user’s identity, online gaming operators gather personal information such as the user’s name, date of birth, or address. Identity verification is typically done by requesting the user to provide a photo of their government-issued ID, like a passport or a driver’s license.

In more high-risk situations, the user might be required to take a selfie during the account opening process on the gaming website. Often, it will then be cross-checked with the ID document to ensure that the account is being opened by the rightful owner of the document. 

Throughout the identity verification process, gaming operators use the collected data for screening against various databases and lists to determine if the user poses a significant risk to the online gaming site. These checks typically include the screening of sanctions and Politically exposed persons (PEPs) lists, watchlists, and self-exclusion lists

Self-exclusion lists are frequently used by people who are struggling with gambling addiction. By enlisting in these lists, they intentionally make it harder for themselves to open new gaming accounts. Naturally, data obtained during identity verification helps in identifying such individuals and prevents them from accessing various gaming sites. 

2. Source of Funds (SoF) Verification 

To prevent illegal activity and prevent problem gambling, online gaming operators must verify the user’s source of funds (SoF). SoF verification procedure enables gaming operators to take action if a certain spending threshold is exceeded.

Online gaming sites face challenges with problem gamblers. To help individuals who have struggled with compulsive or irresponsible gambling, they must be prohibited from signing up on online gaming platforms.

The source of funds can be verified through different methods, such as income statements or pay stubs. Gaming operators scrutinize users’ accounts for any irregular income patterns to monitor potential money launderers who might be exploiting their platform for illegal activities.

Source of funds verification usually occurs during the account setup phase and is also conducted whenever the user makes significant deposits or withdrawals or exhibits any behavior that could suggest potential money laundering. 

3. Address Verification

Since online gaming regulations vary from state to state and country to country, address verification, also referred to as proof of address (PoA) verification, is essential to ensure that the user is physically present in a region where online gambling is legal.

Utility bills are typically used as PoA documents. Certain online gaming sites are limited to serving customers from specific geographical regions and do not accept players from other countries or states. As a result, they need to verify the user’s location.

Online gaming operators ask users to upload a recent utility bill for any of the following:

  • Water
  • Gas
  • Electricity
  • Council tax
  • Landline
  • Credit union statement

Verifying a user’s address also helps with AML efforts, as it enables gaming platforms to determine whether funds are originating from a high-risk area known for prevalent money laundering activities. Additionally, gaming operators can verify a user’s location by collecting digital signals like the user’s IP address and geolocation data from their device.

KYC Requirements for Online Gaming

The Benefits of KYC Verification for iGaming Companies

iGaming operators see major benefits in implementing KYC verification measures. To sum it all up, the key advantages that identity verification presents in online gaming include:

  • Proper prevention of money laundering activities.
  • Age verification and minors protection. 
  • Identification of potential problem gamblers. 
  • Overall protection of the iGaming operator’s reputation.

Demonstrating a commitment to compliance and responsible gaming helps build trust with both customers and regulators, ultimately fostering increased customer loyalty and revenue in the iGaming landscape.

The Challenges of KYC in the Online Gaming Industry

From the end-users point of view, KYC can be a time-consuming process, especially since they want to access the gaming platform and enjoy their favorite games ASAP. 

Gaming operators face the challenge of finding a balance between safeguarding players’ assets and improving the overall customer experience. Naturally, as a business, they must ensure future growth and retain player loyalty. To meet players’ expectations for a frictionless online gaming experience, KYC checks must enable gaming sites and apps to verify players and their ID documents quickly. 

So, no matter how inconvenient identity verification checks may seem, these fraud prevention measures are set in place for a reason. And at iDenfy, we know how to build a seamless KYC process without taking the most important part out of the picture, which, obviously, is security and convenience. 

Here, we offer flexibility. Adjust the level of friction based on the customer’s risk profile and tailor your KYC flow to match your gaming platform’s needs. 

Book a free demo to try out our identity verification solution and check out how it performs in action.

This blog post was updated on the 4th of January, 2024, to reflect the latest insights.

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