The term online gaming covers several types of online game industries.
Firstly there is the online gambling industry, which includes games such as online poker, online slots and online table games. This industry is firmly targeted at adults.
Then there is the video game industry, which can include online fantasy sports, multiplayer games, and mobile app or casual games. These industries can target children as well as adults.
The online gaming industry has expanded rapidly over the last decade or so, and has become so much more than just a casual hobbyist pastime. Professional gamblers can now enter tournaments online instead of traveling to casinos. And there is now an industry dedicated to professional video gaming, known as esports, where games are played competitively for monetary and other prizes, either in teams or individually. Esports events involve high profile sponsors and large cash prizes in very popular spectator events. Professional gamer is a relatively new occupation that can be very lucrative.
And let us not forget the incredible variety of childrens and casual games that so many of us have on our mobile phones and tablets, games that just happen to have the potential to charge us for in-app purchases.
With the online gaming industry now looking so accessible and mainstream, why is it considered high risk for banks and payment processors?
Well, there are quite a few considerations that contribute to this, in this article we will look at some of the contributing factors.
Sheer volume of transactions.
The more volume you do as a merchant, the higher the risk to the providers. Any industry or merchant that does an extremely high transaction volume is considered high risk, regardless of the actual business.
International and multiple currency transactions.
Fraud and chargebacks are more likely to occur from international payments, with some countries and territories considered especially high risk for fraud. Most online games will accept payment from anywhere.
Subscription based business models.
Many online games work on a subscription basis, which is a model that is inclined to incur more chargebacks. Subscription based businesses are considered high risk as a rule.
High percentage of chargebacks.
Online gaming industry has a very high percentage of chargebacks, for several reasons:
- The buyer may not recognise the name of the vendor on their statement and mistakenly think that the charge is fraudulent
- The customer may be charged for a canceled subscription, or they may not remember that they do have a valid subscription for a game
- The charge may be fraudulent, using a stolen card
- Unwitting or mistaken in-app purchases made on devices that have stored credit card information for a game
- So called “friendly fraud”, where the customer may be unhappy about the game they have purchased, or spent large amounts of money “in the heat of the moment” and subsequently had buyers remorse, or simply did not like the outcome of an online gambling session
- The gamers account may have been taken over by a third party, accessing the account username and password fraudulently, and then making in-game purchases with the customers payment details
Chargebacks from purchases made by children.
This is such a massive problem in the gaming industry that it deserves its own section. Game producers want in-game purchasing to be as easy and as impulsive as possible, often with a single click. Many games simply store credit card information for future purchases, without requiring any additional authentication whatsoever. As a result it is common for children playing on devices with stored payment information to rack up massive bills without understanding the concept of money being involved. Chargebacks are frequently requested by mortified parents for purchases made by children in these circumstances. Some issuers may allow these chargebacks, so do not, and some have no clearly defined policies for these cases.
Stolen card testing.
When a criminal obtains a stolen credit card number, they cannot be sure if it is going to work – it might have already been reported as stolen by the owner and canceled, or it may even be maxed out. The only way to find out is to test the card out. Mobile games are popular for this type of activity, as the amounts are very small and very little customer information is required. Because the charges are so small and numerous, these transactions very much fly under the radar of the gaming companies at the time. If the card works under these circumstances, the criminal will then use it for larger purchases.
Online gambling and gaming are targets for money laundering. In many countries the industries are unregulated, or highly diverse in regulations, and thus attractive for criminals. Cybercrime relating to online gaming includes DNS attacks, theft of login information and the buying and selling of virtual assets to launder money
So what does all of this mean for the online gaming industry? Despite a large burden of risk, it is still indeed very possible to trade and thrive in these verticals, you just need the right partners. Banks may offer you a high risk merchant account, and there are high risk payment providers that specialize in these industries. Of course you pay high fees for these services, but it is worth it for a quality provider that can adapt to ever changing operational, technical, regulatory and security requirements. If you are thinking about getting into the online gaming market, why not contact us at Baer’s Crest? We offer solid advice and solutions for high risk merchants in a variety of industries, including gaming. Talk to us about payment solutions for your business.