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Common Types of Fraud in Online Gambling

July 24, 2020 3271 0
Common Types of Fraud in Online Gambling

Online gambling being inherently risky and prone to fraud is part of the thrill. Over time, it has become one of the most lucrative industries on the internet. Advancements in technology make online gambling games more accessible and comfortable to play. As a result, many first-time, unlikely gamblers try their luck in this ever-growing industry. Be it poker, horse racing, bingo the lottery, sports betting, casinos, or mobile gambling, you’ll surely find something for you. 

With the boom of online gambling, the Chinese only need to log into a website to play typical casino games like slot machines, roulette, and poker. That is even though gambling is illegal in China. The communist government heavily opposes it, and as a stern warning, authorities have intensified crackdowns.

But the quick rise of online gambling has also had an impact on online merchants. It has become necessary for them to support more online payment methods. These include plastic card payments, wire transfers, certified checks, electronic checks, cryptocurrencies, as well as money orders. With the variety of payment options available, it is not surprising to see a high rate of fraud within the industry.

External vs. Internal Fraud

Online gambling operators must be aware of two main types of fraud: External and Internal. External fraud is committed against established internet gambling enterprises. Due to the rapid growth in the online gambling sector, a point of differentiation for several international operations has been to market themselves as secure sites without fraud issues. 

External fraud artists target such types of establishments. They will prey on subscribers and clients via card purchase cloning, identity theft schemes, phantom-bounced transactions, rolled card transactions, mirrored transactions, and time-delayed transactions. Fraudsters do that even before the victims start spending their money. Like other rapidly growing industries, the online gambling sector is highly susceptible to fraud. It is losing billions to external fraud.

Meanwhile, internal fraud is less common but still damaging. It can also result in significant monetary losses. Someone inside the company perpetuates this type of fraud. An employee will exploit their knowledge of the company and the underlying system to devise a scam. Alternatively, a group of employees could conspire with an outside organization. 

Protection against online gambling fraud is essential to any business. Despite the initial costs, it is worth the investment. Online gambling fraud is flourishing at an uncomfortable rate for online merchants in the gambling industry. Merchants have to take precautions, create a plan, and ensure they are protected.

Common Types of Online Gambling Fraud

The risk for online gambling operators takes a different form than for its customers. While fraudsters always come up with new ways to exploit the system, there are several traditional attacks. 

Bonus Abuse

While it is hard to determine the exact figures, about 2,000 online gambling sites are competing for players. Many online casinos offer various bonuses to lure and keep customers. These include signup bonuses, bonuses to frequent players, referral bonuses, and several others. Casinos sometimes offer a free bonus or match a certain percentage of the initial deposit. Bonuses often come with rollover requirements. Meaning, the player needs to wager the amount of the bonus a certain number of times to withdraw the bonus. 

Players commit bonus abuse by creating several accounts to get multiple bonuses. Numerous fake accounts benefit from coupons, signup bonuses, and other handsome promotions. While these offers effectively attract new players, handing out too many of them could make a platform run at a loss.


Collusion is when an individual uses multiple accounts or when two or more players conspire to manipulate a specific outcome. The most popular target of collusion schemes is online poker. However, it can also happen in other card games such as Blackjack. Sometimes, players collude to commit bonus fraud. For example, two players register and make a $500 deposit to receive a $50 signup bonus. They can lose to each other until they reach the rollover requirements. Upon meeting the conditions, both players can cash out, and each walks away $50 richer.

Sometimes, players may sign up for a new account and start all over. Collusion may also occur as a way to win a large pot in a poker tournament. It is also possible that players self-collude by opening two or more accounts, then utilizing one account to win over another. 

Chip Dumping 

Another form of collusion is chip dumping. Criminal elements use online casinos to pay for black market services or launder money. Gambling winnings are legal earnings so players can deposit them in a bank. It is impossible for criminals who get enormous sums of money from illegal enterprises to enter the bank and deposit their income without looking suspicious. So instead, they hire individuals to gamble online and lose to a single person. Once that person cashes out, the money will appear as legally earned. Chip dumping can also be a way to pay for illicit or black market services. 


Impersonation is when a player acts on behalf of somebody in a nonconsensual manner. They do that using stolen accounts. Moreover, fraudsters would look for proxy servers using SOCKS5 VPN and RDPs. There, they can conduct impersonation and other fraudulent activities. Impersonation can also happen with consent, like in an affiliation scheme. An experienced player uses an account to play on behalf of a newbie. They will enjoy their perks and fraud online gambling sites for profit percentages.  

Credit Card Fraud

Considering the increasing number of high profile data breaches, credit card details, and financial information are becoming easy to acquire. Of course, data monetization is a different story. Some cybercriminals utilize stolen credit card details to buy luxury items or gift cards. That is particularly true with the rise of digital currencies. Most crypto exchanges prohibit users to purchase Bitcoin with credit or debit cards due to chargeback abuse. Cybercriminals can use a stolen credit card to top up an online casino account. From there, they can withdraw in cryptocurrency. 

Chargeback Abuse

Also called a “friendly fraud,” chargeback abuse is when a legitimate account holder contacts their card provider or bank and deny making a charge to an online gambling site. Since several online gambling establishments operate abroad or are unregistered businesses, the card issuer will most often reverse the charges. That leaves the casino holding the bag. Gambling establishments may counter the onslaughts. However, if they receive too many chargebacks, it could result in damaging their relationship with card providers. Being unable to support payments from a major card issuer can basically cost them their business. More often than not, just swallowing the loss is more practical than fighting it. 

How to Prevent Online Gambling Fraud

Betting and gambling companies are in the news a lot lately. Many are blaming the industry for being unable to prevent or combat fraud. Online gambling operators do not face an easy task when it comes to fraud prevention. Basically, they operate as a digital wallet. Therefore, they will run into several risk factors that necessitate advanced tools to analyze and flag data. But similar to many other industries, executing even a simple solution could be helpful. 

Unfortunately, many of the procedures in place that require firms to detect gambling addiction and verify the source of funds are self-regulated. That creates an evident conflict of interest. Technology to detect fraud and problem gambling is available. However, it is expensive. And to this day, there has been little duty for operators to shed this type of money. 

It is essential to follow a good Know Your Customer practice to prevent online gambling fraud effectively. That involves several steps, including the basics during user registration. Identity verification services can save gambling operators hefty costs from data theft and lawsuits. Monetary aspect aside, identity verification helps establish confidence in the gambling community. Verified profiles help eliminate bad actors. They also contribute to the whole online gambling experience. 

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