The growth of the gaming market in recent years has been astronomical.
The numbers tell the story better. Analysts estimated the gaming market to be worth $198.40 billion in 2021. And they expect the industry to reach a value of $339.95 billion by 2027, registering a CAGR of 8.94% over 2022-2027.
One of the most significant drivers of this quantum of growth is nationwide lockdowns implemented because of the pandemic. Many people turned to game platforms to pass the time and drive some dopamine. Thus, these platforms attracted thousands of new visitors to online traffic, which resulted in a massive surge in players and revenue.
According to Statista, there will be three billion video gamers by 2023. That means almost 40% of the world's population play video games.
Booming industry with significant risks
The online gaming industry is growing incredibly with the progressive integration of competitive video games into popular culture. Estimates from Insider Intelligence show 29.6 million monthly esports viewers in the U.S this year.
However, the online gaming industry has been a significant target for fraud. The uptick in payment disputes resulting in chargebacks has become a substantial drawback to the rise in global presence and rapid growth of the gaming industry.
How big is the problem?
Well, one survey of gaming compliance managers found that 93 percent of managers anticipated growth in the number of chargebacks due to the pandemic. The gaming industry is an easy mark for chargeback fraud.
Chargebacks affect both game publishers and video game Live Streamers. And because streamers earn their revenue from product sales and fan subscriptions, they often get hit harder as those are traditionally prone to chargebacks.
Online gaming chargebacks take different forms, such as account takeover (ATO), carding attacks, or cyber shoplifting. Carding is a scheme whereby a fraudster makes a small purchase using stolen credit card details to test if they can use such a card for larger purchases on other sites.
Although some gaming chargebacks are the result of actual fraud, like account takeover, research shows that most digital gaming chargebacks are illegitimate. And we shall examine that further below.
Causes and sources of illegitimate online gaming chargebacks
Understanding why the video game industry is prone to fraud will help you make a better decision on how to navigate such drawbacks. Let's review the most commons cause and sources of digital game chargebacks you should know.
#1: Buyer's remorse leading to friendly fraud
The design and evolving business model of digital games make it easy for users to commit friendly fraud.
Digital games usually provide gamers incentives for completing complex game goals. Such forms of micro reward often lead to buyer's remorse once they've hit the goal and the adrenaline rush of attempting the task is gone.
Many publishers know this. And they programmed their games to milk that addictive behavior of chasing the adrenaline rush, causing prospects to make constant in-app purchases beyond their plan.
When the game is over, buyer's remorse sets in. Instead of going for a refund on the transactions, the user files a chargeback.
#2: Family fraud
Family fraud is when a family member or relative makes an unauthorized purchase, and the credit card owner eventually realizes that and files a chargeback.
For example, a child uses their parent's phone or the child's phone associated with the parent’s payment information to make in-app purchases. When the parent receives the billing statement and sees the charges for those purchases, they file a chargeback.
A famous case study of family fraud is an 11-year-old girl who made over 300 in-app purchases in five days on Roblox, the online games platform, resulting in a £2,400 bill on her mother's PayPal account.
As Guardian narrated, her mother was in ICU recovering from a 15-hour operation to remove a brain tumor. Incapacitated and without access to her phone, she could not authorize or monitor this spending.
The little girl managed to make 48 separate purchases, totaling almost £250, in a day. Roblox, Apple, and PayPal refused to refund the money until the case went to the media.
Family fraud is a well-known topic for game developers.
#3: Online shoplifting, a.k.a chargeback fraud
Cyber shoplifting is when a user makes a transaction (such as purchasing items and boosts, unlockable elements, or eliminating an ad wall for a fee) with the intent to file a chargeback later and avoid paying for the purchase.
The difference between chargeback fraud and friendly fraud is in the user's intent. Unlike friendly fraud or family fraud, online shoplifting is an intentional behavior - the user planned that from the onset. They want to get something for nothing.
Unless the publisher blocks the perpetrator, industry records say online shoplifters will repeat their actions at least three times.
#4: Poor customer service
Some games often don't have an excellent customer support process. When a user has an issue and can't get the help they need, their next resort is to file a chargeback.
Unresponsive customer service can also lead to chargebacks due to long subscription charges. Since many games are subscription-based, some users often forget they made such subscriptions. And if the customer service unit does not provide notice of impending payment, users file a chargeback when they see ongoing deductions they don't recognize.
Now that we've cleared the air on the sources and causes of online gaming chargebacks let's look at essential tools to help your plug susceptibility to digital game chargebacks.
How to fight and prevent online gaming chargebacks
There is no single hack for fighting the different forms of online gaming chargebacks. It would be best to have an informed solution to deal with each digital game fraud or chargeback as they happen.
Stop true fraud and cyber shoplifting by increasing site security.
The sure bet to securing your users' data from ATO attacks is by increasing the security of your website. Having more protracted, complex passwords and two-factor authentication starting points to consider.
Another option is to integrate velocity checks that examine transaction volumes initiated from a buyer with a particular IP address to help block carding attacks. You can set a specific number of transactions and block users that exceed that number of transactions in a given time frame.
These can help curtail the occurrence of cyber shoplifting. But because online shoplifters and genuine customers look alike at the beginning of the transactions, there are no tools to identify a shoplifter ahead of time with reliable accuracy.
Prevent family fraud by identifying each user.
Having access to robust data that can help you validate user ID at every point of their transaction is crucial to stopping family fraud.
Here's where the payment authorization prompt comes into a great benefit. You can use a mixture of payment data and a one-time password (OTP) or PIN or even biometric information to authenticate in-app purchases from users.
One other crucial strategy in mitigating family fraud is to have your users validate an email receipt of a transaction. If a child makes such a transaction, an email validation prompt will alert the parent about such an unauthorized purchase. At that point, you can effectively refund the charge and prevent a chargeback.
Again, occasionally reminding your customers about parental controls to limit third-party transactions is worthy of note.
Stop friendly fraud by eliminating frictions and confusing outcomes.
If someone is an addict and can't stomach the charge after enjoying the benefits of the game, the best way to deal with such users is to ensure they understand your refund policy. And be sure they acknowledge the terms of service when making a purchase. If they eventually file a chargeback, you have compelling evidence to fight the chargeback.
Another crucial step in preventing unintentional friendly fraud is to be transparent with the purchase outcome. Setting unrealistic expectations is often a recipe for injury.
Further, you need excellent customer service, as we stated earlier. Be available when needed, respond to emails, social media mentions, and messages, and use chatbots to enhance customer relations. That will go a long way to ensure users talk to you before talking to their bank.
Fight and prevent gaming chargebacks with automation.
The beauty of chargeback automation is that you can pull from multiple data points to build an effective strategy instead of relying on "the best of knowledge." Insightful data is the soul of every future-focused business.
With the constant changes in regulatory requirements and fraud patterns, artificial intelligence and machine learning has become reliable resort where mechanical chargeback prevention falls short.
And Chargeflow ticks all the right boxes with advanced security, integration with extensive payment processing services like PayPal and Shopify, accessible user interface, and you only pay once we successfully dispute your gaming chargebacks.
The fact is, the complicated, litigation-based chargeback representment process leaves little room for merchants to win. And the opportunity cost of manual chargeback mediation processes is well known.
Savvy e-commerce entrepreneurs use Chargeflow to gain insight from over 50 data points and recover revenue on autopilot without lifting a finger.
Our automated return on investment calculator shows you how much you can save from gaming chargeback disputes if you want to see things for yourself before you make any commitments. Or you can sign up with our success-based pricing and ONLY pay when we put you ahead. Win-win.
How can I dispute a chargeback related to online gaming?
You can dispute a chargeback by providing evidence that the transaction was valid, such as a receipt or proof of delivery. You should also include any relevant information about the transaction, like the date and amount. Contact the issuing bank or credit card company, who will review the case and make a final decision.
What are the consequences of a chargeback for online gaming merchants?
Consequences of chargebacks for online gaming merchants can include financial loss, as they may have to refund the transaction amount and may be charged additional fees. They can also result in merchant account termination, in case of too many chargebacks.
Are chargebacks more common in online gaming compared to other industries?
Chargebacks are a common issue in the online gaming industry, as it is an industry that relies heavily on digital payments. With the ease of making purchases online, there is an increased risk of fraud and chargebacks. This can be due to lost or stolen cards, players taking advantage of addictive behavior in-game, children making purchases without permission or even intentional abuse of the chargeback system by payment cardholders.
How does the process of chargeback for online gaming transactions differ from chargebacks for physical goods?
The process for disputing a chargeback for an online gaming transaction may be similar to the process for disputing a chargeback for a physical good. However, the evidence required to contest the chargeback may be different, for example for physical goods a tracking number or signature would be asked, for a digital good it could be a screenshot of the delivery.
How do streamers deal with chargebacks on their transactions?
Streamers may have to deal with chargebacks in the same way that any other online merchant would, by disputing a chargeback with the issuing bank or credit card company and providing evidence that the transaction was valid. They may also want to consider implementing fraud prevention measures and having clear refund policies in order to reduce the likelihood of chargebacks occurring.