By Ron Mendelson, Fast Offshore Founding Partner

How AI is being used to mitigate fraud in online gambling

Ron Mendelson describes several ways that artificial intelligence integration can help online gaming sites mitigate the risk of fraud. 

Ron Mendelson is the Director of Costa-Rica based International Business & Corporate Services consultancy firm, Fast Offshore. With over 24 years of real-world experience in iGaming Licensing and Payments, Regulatory Compliance, Tax-Efficient Corporate Structuring, Incubator and other Hedge Fund Licenses, Blockchain and Cryptocurrency related services, he advises a number of international clients on their business needs in the Americas, Europe, and beyond.

Reading time 3:15 min
The expert says fraud is on the rise, driven mainly by an increase in online gambling sites traffic, and he explains the two main kinds of payment fraud in online gambling: friendly fraud and identity theft. He notes AI is speeding up verifications, detecting patterns of suspicious behaviour, and weeding out criminals before they are of detriment to the business. AI is now being used also for customer service and dealing with issues and complaints.

One of the biggest headaches for online gambling and casino providers is dealing with fraud. Any business that works online and with money, has to be cautious for fraudulent activity and to put in place measures to detect and prevent it. After all, it’s a billion-dollar industry with hundreds of millions of customers.

According to the Federal Trade Commission (FTC), complaints due to fraud reported $117 million in losses only during the first half of 2020, while overall losses in 2019 accounted $134 million for the entire year. 

Thankfully, technology is coming to the rescue. This time, artificial intelligence is speeding up verifications, detecting patterns of suspicious behaviour, and weeding out criminals before they are of detriment to the business. 

Fraud in iGaming

There are two main kinds of payment fraud in online gambling; friendly fraud and identity theft. 

Friendly fraud costs gaming operators a fortune. This is where gamblers will make a deposit with their credit card and then ask for a chargeback from the card issuer or bank. They claim that they don’t recognise the transaction and often the bank will reclaim the money without investigating. Not only does this cause loss for the online gambling provider, but it impacts the chargeback ratio with their payment processor.

Identity theft can occur in several different ways. Firstly, an account is created with the identity of an individual who is unaware that their identity and card details are being used. Other forms of this fraud include account takeovers, where individuals hack a legitimate players account and use it to gamble. Lastly, BIN attacks are where criminals find a valid BIN code and date and then attempt to guess other card details which they then use to gamble on online sites.

Sadly, fraud is on the rise, driven mainly by an increase in people visiting online gambling sites. But artificial intelligence is being heralded as a technology that can help to solve, or at least significantly reduce the issue.

How AI can help

There are several ways that AI integration can help online gaming sites mitigate the risk of fraud. 

Firstly, AI can be used in the onboarding process to accurately verify identification documents, selfie videos, and other documents. This ensures the quick and thorough onboarding of clients without any room for human error. 

In terms of account takeover, AI is already being used to analyse and score players when they log in. The technology looks at their behaviour, device, location, and IP address parameters to examine whether there is an increased risk of fraud and that the account needs to be flagged. Based on the results, ongoing monitoring of an enhanced nature can be applied.

Bonus abuse is another form of fraud that causes losses for operators. AI can be used to identify suspicious sign-ups such as a quick succession of email addresses and credit cards that can be used to abuse bonus systems. Analysis of this data then allows the platform to accept or deny future transactions from that user. It is also being used to identify devices that are engaging in fraudulent behaviour. Anonymous proxy servers, transaction locality, and device irregularities can be monitored by AI.

In terms of chargeback fraud, AI is being harnessed to analyse customer behaviour and to identify chargeback fraud as it happens, rather than several weeks later. Machine learning is also being used to analyse where, when and why chargebacks occur. This information can improve security and make changes internally to avoid further issues. Some software packages use AI to identify which of your customers have initiated chargebacks elsewhere, or who may be likely to do so. This allows operators to put a stop to the issue before it even happens.

AI in other areas

But it’s not just in preventing fraud that AI has found use cases in the iGaming industry. AI is now being used for customer service and dealing with issues and complaints. While there will always be a need to employ human customer service agents, AI such as chatbots can screen and funnel enquiries to the relevant departments, to deal with minor issues and queries, and to answer FAQs. This allows operators to provide a greater level of customer service without having to employ an army to man the phones 24-7. 

Fast Offshore has been working in iGaming for over 22 years and has experience helping operators mitigate the risk of fraud. For information relating to compliance, fraud reduction, policies and procedures, and recommendations of measures you can take, reach out to us today.

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