Combating Online Gambling Fraud: How Can Identity Verification Help?

At a glance, there are other considerable challenges gambling operators should address.

With an annual growth rate of 6.46% worldwide, the projected market volume is $133.6 billion. The big revenue and the legalization of online gambling in more countries contribute to the increase in competition in the market. 

While competing with many in their niche, gambling companies have to comply with decentralized regulations. For instance, in the US, where this type of business became legal in recent years, each state approaches legalization differently. 

Still, fraud affects both gambling operators and their customers. Even non-players often become victims of fraudsters. Bad actors may use their stolen personal information to bet on sports or play online poker. Such stories often go public, turning into popular threads on social platforms, such as Reddit, where users mention companies’ names and share their negative experiences without any censorship.

Second, identity theft laws vary from country to country. Sometimes, the company associated with the fraud case, not the user, is liable for debts and unauthorized payments. In the UK, identity theft victims can reduce their responsibility after they tell the creditor that someone else has obtained their security details. 

Some countries, like Belgium, go further to protect customers. Recent amendments to Belgium's Gambling Act include sanctions for identity theft for establishments that allow it to happen.  

As a result, gambling companies may end up with additional costs and penalties, as well as a spotty reputation. The worst case is license suspension.

Therefore, online gambling fraud should be the main focus of attention for industry players.

Online gambling fraud can take many forms, but this article will focus on the types related to identity fraud, where a new player attempts to impersonate someone else or engage in other deceptive practices. Understanding these types of fraud is the first step toward effective prevention.

Account takeover occurs when fraudsters gain control of legitimate user accounts. They often achieve this through phishing. For example, a fraudster might send an email disguised as a gambling site requesting users to verify their accounts by logging in, thereby capturing their credentials.

Once they have control, fraudsters can engage in unauthorized transactions, withdraw funds, and misuse the account for further fraudulent activities. Online gambling platforms often prevent account takeover attempts by implementing strong password policies, using multi-factor authentication (MFA), and employing continuous monitoring to detect suspicious activity.

Bonus abuse involves fraudsters exploiting promotional offers provided by gambling sites. These offers, usually designed to attract new players, can be claimed repeatedly. For example, a fraudster might use different email addresses and fabricated identities to sign up multiple times, taking advantage of welcome bonuses, free bets, or other promotions.

This type of fraud not only leads to financial losses but also undermines the effectiveness of promotional campaigns. Effective onboarding procedures, such as identity verification and IP address monitoring, can help prevent bonus abuse by ensuring that each account is unique and legitimate.

Multi-accounting is the practice of creating multiple accounts to manipulate odds and bonuses. In addition to abusing the promotional offers mentioned above, fraudsters can use this technique to hedge bets or increase their chances of winning. For example, a fraudster might create several accounts to place conflicting bets on the same event, ensuring a win regardless of the outcome.

This fraudulent activity disrupts the fairness of the gambling platform. Businesses can prevent multi-accounting by using identity verification solutions that cross-check user information across accounts, coupled with device fingerprinting to detect multiple accounts originating from the same device or IP address.

Payment fraud encompasses various tactics, including the use of stolen credit cards and chargebacks. Fraudsters might use stolen card details to deposit funds, place bets, and then request a chargeback, claiming the transaction was unauthorized. This not only causes direct financial losses but also increases the risk of regulatory scrutiny.

Preventing payment fraud requires a multi-layered approach, including real-time transaction monitoring, implementing 3D Secure authentication for card payments, and using identity verification to ensure that the person making the payment is a legitimate account holder.

The presence of underaged players on gambling platforms poses significant legal and ethical challenges. For instance, an underaged player might use a relative's identification documents to create an account, bypassing age restrictions.

Allowing underaged players on a gambling platform can lead to severe regulatory penalties and damage to the business's reputation. Proper age verification measures with document and biometric checks are essential to prevent this form of gambling fraud. Typically, a robust identity verification solution includes age verification so it can help ensure that only eligible players are allowed to participate.

Implementing an identity verification (IDV) solution can address and reduce most types of online gambling fraud. While helping detect scammers through ID document verification and data cross-checks, a robust IDV system also contributes to the creation of safe and fair online gambling platforms. 

For example, one online betting company submitted a report to the UK Gambling Commission, enabling law enforcement to reveal a large-scale identity fraud scheme. Within 12 minutes, the company received two  UK passports with the same holder’s image but different names. 

It turned out that the offender possessed more than 5,900 scans of passports, identity cards, utility bills, and bank statements relating to people from the US, Canada, Australia, New Zealand, and Europe. The bad actor used these assets to create false ID documents and get bonuses as a new client on multiple online gambling platforms. 

As a result, the fraudster was jailed for three years, while the betting company saved its money and reputation. 

Let’s take a look at modern IDV technologies that gambling companies currently use to protect themselves and their customers from identity theft and fraud:

Document verification is an integral part of KYC procedures. It involves checking the authenticity and validity of identity documents submitted by users during the registration process. 

While verifying documents manually is feasible in some cases, it is time-consuming and prone to human error. Automating this process can increase both efficiency and accuracy. 

For example, Grand Casino Luzern in Switzerland implemented automated customer ID verification and data entry in its online platform. Their app, powered by Regula Document Reader SDK, recognizes the identity document type, finds the data fields, checks if they contain valid information, and also facilitates compliance processes by automatically verifying customers’ age, country of residence, and other attributes that might prevent them from accessing the online casino. 

This automation not only speeds up the verification process but also helps in fighting identity fraud by immediately spotting abnormalities and inconsistencies. If the system flags a document as suspicious, it alerts the casino’s specially trained experts, who then conduct a manual examination to prevent illegal users from gaining access.

Biometric verification uses unique biological characteristics, such as facial biometrics, to verify a user's identity. This method provides a high level of security and is difficult for fraudsters to bypass.

The main benefit of biometric verification is ensuring that the person presenting an ID document is actually its rightful owner. This method is particularly effective in preventing impersonation fraud, including attempts by underaged users to access gambling platforms.  

For instance, a gambling site might implement facial recognition technology to verify users during login or to confirm high-value transactions, thereby avoiding unauthorized operations. Users would need to provide a live selfie, which is then matched against the stored biometric data from the ID document used at registration to confirm their identity. 

Facial recognition also enables online gambling operators to verify users’ age. For example, Regula SDKs calculate how old an individual is by capturing their date of birth from their ID and comparing it to the estimated player’s age in the selfie. 

This not only enhances security but also streamlines the user experience by making the process quick and user-friendly.

In online gambling, the customer journey can’t end after a successful sign-up covering the KYC basics. Continually monitoring what players are doing on the platform is a must if a company wants to avoid money launderers, scammers, and users from territories where the gambling site isn’t legally authorized. 

Even if most customers play by the rules, one bad case can ruin everything. This is why it’s critical to properly authorize each and every customer. 

MFA schemes involving several user identifiers, such as passwords, one-time-codes, and biometrics, as well as customer’s devices and location, disable fraudulent attempts to skirt the system and take over someone else's account.  

This practice is now actively supported by local regulators. For example, the state of New Jersey requires all users of online gambling sites while in the state to set up two-factor authentication. However, Fanduel, one of the operators, calls for using the option by all their customers emphasizing that this is a great way to protect their online accounts across the country and around the world.

To effectively combat online gambling fraud, businesses should consider the following steps:

1. Transition from manual to automated checks: If your current workflow involves manual verification processes, there's significant room for improvement. Automating checks can lead to instant improvements in both speed and accuracy, reducing the risk of human error and freeing up resources for other critical tasks. 

2. Implement a layered security approach: The more security methods you combine, the better your defense against fraud. A layered approach might include MFA, document verification, biometric verification, and continuous transaction monitoring. This comprehensive strategy makes it more difficult for fraudsters to succeed, as they would need to bypass multiple security layers.

3. Continuous monitoring and assessment: Verification should not be limited to the onboarding process. Regular re-verification of users, particularly during high-risk activities, can help detect and prevent fraud before it escalates. Re-verification can be a part of multi-factor authentication on the platform, especially when it includes biometrics, such as a facial scan. 

4. Seek expert advice: If you're unsure where to start or need guidance on securing your platform, reach out to a trusted identity verification provider like Regula. Expert advice can help you identify the touchpoints that are most vulnerable to fraud and implement the necessary measures to protect your business.