From Declined to Approved: Transforming Gaming Revenues with Smarter Fraud Detection

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As a seasoned crypto investor with a background in gaming and payments, I can confidently say that the issue of fraud in the gaming industry is not just a nuisance, but a significant threat to both revenue streams and player satisfaction. Having witnessed the meteoric rise and subsequent plateau of gaming revenues over the past decade, it’s clear that game publishers are now seeking new avenues for growth. Approving legitimate transactions that have been incorrectly declined by existing fraud detection systems would go a long way in restoring these revenue streams.

Behind the scenes though sits another game of sorts, one that is of vital importance for publishers, marketplaces, and others in the gaming ecosystem. Storefronts and marketplaces are where players purchase their swords, shields, and nitro engines that don’t just power themselves up, but the game companies behind them as well. Unfortunately, fraudsters are increasingly lurking right before the finish line, turning seemingly legit revenue into unrecoverable losses.

In the world of digital gaming, fraud has become more than just a nuisance. In 2023 alone, Roblox faced a staggering $110 million in chargebacks due to fraud. It’s estimated that around 10% of all digital gaming transactions might be fraudulent. To shield against this, most gaming marketplaces and in-game purchases rely on traditional fraud detection systems, often rejecting anything deemed suspicious. Sadly, about 25% of legitimate transactions are wrongfully declined each year, not only impacting revenue but also annoying and driving away players.

Most gaming firms view the lost income as an inevitable expense associated with their operations. They’ve thrived due to the explosive growth of gaming during the 2010s and even through the COVID era, raking in substantial profits. However, gaming revenues have plateaued recently, forcing publishers to seek alternative income sources. Allowing legitimate transactions that were previously rejected by fraud detection systems could significantly boost revenue streams for gaming companies. Enhancing fraud detection accuracy not only helps minimize losses but also transforms a potential business risk into a profit-generating opportunity, maintains player satisfaction, and prevents the company from missing out on potential earnings.

The High Cost of Fraud

As a researcher delving into the realm of gaming, I’ve come to realize that fraud poses a two-pronged challenge, affecting both financial profitability and player contentment. When genuine transactions are erroneously classified as fraudulent and rejected, our company misses out on potential income. These instances of mistakenly identified fraud, or false positives, often deter new buyers from returning after being inappropriately declined. Beyond the loss of a single transaction, the forfeited lifetime value of these customers is substantial.

In the meantime, seasoned gamers who anticipate a smooth gaming journey often seek alternative markets and gaming sites to invest their funds. Once transactions are declined, attrition rates tend to be high, with industry predictions suggesting that around 40% of these players will switch to new platforms or marketplaces.

Inaccurate alarms (false positives) can happen for multiple reasons. Traditional payment methods primarily rely on rule-based monitoring to detect fraud, such as when someone uses a newly issued credit card. Digital goods payment systems might flag transactions automatically if a new card is used for a gaming purchase, as they perceive the transaction as high risk and decline it.

Traditional fraud detection systems can identify deceitful activities, but they aren’t very efficient due to their limitations. Outdated systems evaluate each transaction individually, judging their authenticity based on the digital identity of the buyer. However, since 80% of fraud originates from verified users, this approach is flawed and should be phased out. Instead, it’s the genuine customers who often face rejections during transactions. These players, who have invested time in selecting skins, items, and premium features, feel frustrated when their choices are rejected by a payment system. This undermines their trust in the game.

Rather than relying on individual transactions, sophisticated anti-fraud measures examine numerous factors, even the slightest indications suggesting a pattern, as these behaviors constitute the identity. While each transaction may appear legitimate on its own, when viewed collectively, they might now be part of a large-scale attack.

Monitoring Transactions with AI

Artificial intelligence (AI) is revolutionizing the way we identify fraudulent activities. Unlike traditional methods that rely on fixed rules to decide whether a purchase is suspicious, AI learns and evolves to recognize patterns of both existing and emerging fraudulent transactions. It scrutinizes each transaction not only for obvious discrepancies but also searches for subtle anomalies that might suggest fraud.

“AI systems can scrutinize various datasets like transaction history and keystroke patterns to flag potential fraud. If a user manually enters credit card details instead of using autofill and the connection comes from an uncommon IP address, this could suggest fraudulent activity.

Artificial Intelligence (AI) offers exceptional precision, resulting in fewer mistaken rejections and a seamless shopping experience for genuine customers. By lowering the 25% decline rate by as much as 90%, AI can boost incremental profits by 10% to 15%.

Eliminating Scalable Fraud with Adaptive AI Drives Revenue Streams

As a crypto investor, I’ve noticed that AI plays a pivotal role in enhancing transaction approvals while minimizing fraudulent activities. This transformation not only shifts the focus from a costly burden (fraud prevention) to a profitable asset but also boosts customer satisfaction. Legitimate transactions flow more smoothly due to AI-driven fraud prevention, which is a game-changer for us investors and users alike.

Through analyzing extensive data sets, AI systems can adjust to changing fraud trends, thus maintaining a balance between security and user-friendly experiences. This equilibrium keeps gaming companies’ customers loyal, resulting in increased transactions and long-term financial growth.

Zach Nass serves as the Head of Gaming and Prepaid at nSure.ai, a role where he spearheads projects aimed at boosting the financial success of digital businesses through intelligent AI-powered anti-fraud payment systems. With a background that includes stints at Coda Payments, Google, Riot Games, and Bain, Zach offers extensive knowledge in various areas such as payments, digital transactions, technology, and gaming.

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2024-11-26 04:54