Europay Addresses I-Gaming Fraud

The European arm of MasterCard is proposing new security measures, for both online gaming operators and consumers, to cut down on increasing fraud conducted through Internet casinos and sports books.

Europay released figures Thursday showing that £411 million of fraud was committed in 2001 through Internet gaming. That figure represents one-fifth of the total amount of money lost to fraud online. The amount is also double the cost of fraud in 2000 that was lost through online gaming sites.

"Fraudsters tend to migrate to the areas that have the weakest controls. A lot of this is about developing the best practices and making sure they are adopting around the world."

- Paul Lucraft
Europay

The company is proposing a host of measures for both players and operators to consider to help reign in the cost of fraud. The suggestions come just days after the U.K. government decided to go forward with a plan to ratify the entire gaming industry. The overhaul will include regulating online casinos in the United Kingdom and marks the first time casino gambling law has been updated there in more than 40 years.

Paul Lucraft, a general manager at Europay who played a key part in studying the fraud committed at online casinos, feels the interactive gaming in Europe, and elsewhere around the world, is a unique industry to try and self-police.

"It is an interesting sector cause in some markets businesses aren't even allowed to operate," he said. "When we analyzed what was happening there seemed to be significant problems. But there seems to be a good side of the business as well. We are trying to help legitimate merchants and card holders and protect them from fraudsters."

First-party denial, rogue merchants and money laundering were the biggest sources for fraud in the online gaming industry, according to Lucraft. "There are people doing all sorts of scams," he said.

Lucraft said Europay is hoping to increase awareness among merchants and consumers. Some of the measures they hope to see added from both ends of a transaction include address verification and card verification. He also said a handful of other more secure means of testing the transaction have been introduced.

"There is always a danger in any competitive industry to take a short-term approach, but generally [the Internet gambling] industry has been good in looking at fraud long-term."

- Lucraft

Card organizations have responded by promising to add microchips to all cards and scrap signatures in favor of a four-digit pin code entered at the register. MasterCard and Visa have also introduced security measures for the Internet and remote payment.

"Essentially we are trying to use a stick-and-carrot approach and move things in the proper direction," Lucraft said. "We do feel that there is a disproportionate amount of fraud in this area for the size of the business. We just don't want it to get totally out of proportion."

Lucraft said Europay would continue to work with industry group and gaming operators in guiding them to cut down on fraud. He said a new regulatory approach by the U.K. government to ratify the gaming industry, and regulate online gaming for the first time ever, will increase the amount of business done in the United Kingdom, but he is hoping fraud won't increase.

"It is expanding a good business, but we don't want to let all the crooks in either," he said. "Fraudsters tend to migrate to the areas that have the weakest controls. A lot of this is about developing the best practices and making sure they are adopting around the world."

Credit card fraud in the United Kingdom has been growing rapidly, Lucraft said, with losses rising most rapidly online and from counterfeit cards. Organized gangs, including the Russian Mafia, have been moving in, he added.

He said there are enough legitimate operators and trade groups that want to make sure the industry has a good reputation to keep less desirable operators from becoming a majority.

"There is a lot of interest around the world in raising the standards and making sure that everybody is protected," he said. "There is always a danger in any competitive industry to take a short-term approach, but generally this industry has been good in looking at fraud long-term."

Money laundering continues to be a serious issue for the online gaming industry as well, according to Lucraft, and he said Europay will continue to work with operators and trade associations to cut down on the rising cost of fraud.