Bonus abuse – the burning issue for wallets, operators and….affiliates?

In any successful relationship, each party should strengthen the other and align on the most important issues. This applies to B2B relationships as well as personal ones, and this unity has a huge bearing on whether the relationship lasts long term.

In the egaming industry, sadly, not all relationships are like this. Take payments, for example, the most business-critical part of online gaming. There are payment operators whose own interests and commercial objectives are completely misaligned with their egaming clients. I’m talking here specifically about the issue of bonus abuse. Ewallets have repeatedly failed to clamp down on fraudulent user behaviour that costs gaming operators millions every year; and they actively encourage it by virtue of how they’ve created their services. Worse still, affiliates can easily throw gasoline on the problem by exploiting the shortcomings of these payment services.

Operators have been fighting these fires for a long time, taking steps to limit bonus abuse and even abandoning these highly effective campaigns altogether. Thankfully, a growing school of thought in recent years has become “what if we can prevent these fires to begin with?”

I believe operators are coming around to the idea that they no longer have to rely on wallets and affiliates in the traditional mould. They’ve been burnt too many times.

Understanding the problem

First and foremost, it’s important to understand the scale of the bonus abuse issue and how the unhealthy connection between wallet operators and affiliates spurs this fraudulent activity.

In gaming, new user acquisition has become increasingly challenging due to rising costs, advertising restrictions and a growing dependence on third parties. An effective and attractive way to acquire new users has been to offer generous bonuses on first deposits. However, these deals are now frequently targeted by fraudsters, with the help of ewallets, rather than genuine new users. This costs the industry millions every year while blunting one of the industry’s most reliable methods of attracting new users.

The bonus abuse problem all stems from why wallets were first created and why they were adopted by egaming. Ewallets act as a vital conduit for players to withdraw their winnings and for operators to receive funds. However, they were always designed to put the needs of their users first. Features such as privacy, attached pre-paid cards, real-time funding and movement between gaming accounts are unique to ewallets, but they are all user-centred.

As to how this relates to bonus abuse, unfortunately these features enable fraudsters to scale up their activity easily and quickly. Multiple ewallet accounts can easily be created from just a single device, funded without any transparency to the operator. Consequently, operators cannot know the true identity of the users behind these accounts, nor how to treat them. They may be legitimate gamers, first-time fraudsters, or even repeat offenders who have been banned numerous times before but are able to open new accounts by proxy. Quite simply, the deck is stacked against any operator trying to clamp down on bonus abuse.

Returning to the fire analogy from before. Imagine a scenario in which firefighters, the people responsible for putting out and preventing fires, are paid more for every new fire and are incentivised to allow these fires to start and continue to spread. This situation exists in the egaming payments space. Theoretically, wallet operators could stand to benefit through the substantial additional transaction fees generated by bonus abuse. Their core features easily allow bonus abuse to scale, and cashback incentives encourage users to make frequent, churning transactions with operators to achieve their set churn goals. Wallets have minimal incentives to eliminate bonus abuse, but plenty of reasons to turn a blind eye.

This is where affiliates come into the equation. Affiliates are meant to connect players and operators, but ultimately most don’t care who signs up to their operators’ bonus campaigns. Quantity beats quality in this game, and there is very little due diligence to ensure that legitimate players, not fraudsters, are being signed up. Indeed, fraudsters frequently use affiliate sites like bulletin boards for new bonus deals, from which they can choose their favourites.

Fireproofing egaming

I’ve explained how bonus abuse starts, the damage it causes and who is giving it the oxygen it needs to spread, but how do we stop these fires from starting in the first place? The commercial model of wallets charging for every transaction naturally creates churn and encourages fraud – as does the privacy offered by wallets. As such, the industry could adopt a new commercial model for wallets and be more transparent about their users. This would sever some of the unhealthy connections between wallet operators and affiliates.

Starting with the hidden identity issue. The most common form of bonus abuse relates to deposit bonus whereby new accounts are created which often don’t even need to be verified to use. Wallets can easily put the brakes on this  by using a more difficult to obtain unique element (like a mobile phone number) as their primary identifier, which is far harder to obtain than a free email address. Think about a world where ewallets are linked to a single app or device. The cost of scaling bonus abuse suddenly becomes prohibitive – it is simply too hard and too costly. This should also be coupled with device-based fraud prevention to limit multiple accounts, as well as ID verification prior to P2P transfers. Ewallets providers could also be a lot more transparent with operators and allow for data matching between wallet and gaming accounts for operators and regulators to shine a light on fraudsters.

As for the commercial incentives driving fraud, the status quo today is not healthy, nor is it sustainable. I think operators will increasingly look to payment partners that approach transfer fees a different way from traditional wallets, who have proven themselves time and time again not to be an ally in the fight against fraud. I think we have reached a tipping point where wallets need to make significant changes to prove to operators that they can be trusted to take this issue seriously.

As we head into 2020, it is vital that a healthy relationship between operator and payment partner is restored. The industry needs these relationships to be as strong as possible as other challenges and opportunities come into view. Bonus abuse has been a problematic issue for far too long, and it’s high time that everyone moved on.

Jens Bader has more than 20 years of experience in the online and mobile payments industry. Bader is the co-founder of MuchBetter, an FCA-licensed Fintech group that develops and operates second-generation electronic money services servicing online and offline merchants.