Chargebacks in iGaming: Impact and Prevention Tips for Operators

Reading time: 6 Minutes

February 4, 2025

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Imagine an online casino that just had a great week—players are actively betting, deposits are flowing in, and engagement is at its peak. 

However, by the end of the month, the operator sees an alarming trend: a significant part of the revenue is disappearing. The reason? Chargebacks. 

Players who lost their bets resorted to disputing transactions, claiming fraud, unauthorized payments, or technical issues. The casino not only loses the money but in addition to that, pays a lot of penalties for each disputed transaction. 

This situation is an everyday challenge in the iGaming industry, making chargeback fraud prevention a top priority for operators.

What Are Chargebacks?

A chargeback is a payment reversal requested by a player disputing a transaction due to fraud, unauthorized use, or dissatisfaction. The payment processor investigates and refunds the amount if the claim is valid.

Chargebacks cost iGaming operators lost funds, fees, and potential penalties. High rates can trigger provider or regulatory action, making fraud prevention essential.

Chargebacks process

Understanding the Chargeback Process in iGaming

The chargeback process involves several key steps. Here’s a list.

  1. The player initiates a Dispute: A player reports an issue with a transaction to their bank, claiming reasons such as unauthorized payments, technical glitches, or unfulfilled withdrawals.

    For Example –  A player deposits $500 into an online poker site, loses the amount, and then claims they never made the transaction, requesting a chargeback.

  2. Bank Reviews the Claim: After the player reports, the bank will temporarily reverse the transaction and investigate the claim. Card networks like Visa, Mastercard, etc. may impose additional verification steps based on chargeback analytics to assess transaction legitimacy.

  3. Operator Responds to the Chargeback: During the investigation, the iGaming operator has the opportunity to present evidence like betting history, login activity, and KYC verification to dispute the claim.

    The casino can provide proof that the player logged in from their registered device completed the transaction voluntarily, and had full control over the activity. This may include IP logs, device identifiers, and transaction timestamps to support the validity of the transaction and refute fraud claims.

  1. Final Decision by the Bank: After the investigation is complete, if the chargeback is approved, the player will get his amount refunded. The operator loses the transaction amount and then has to pay the high penalty fees. On the other hand, if the chargeback is denied by the bank then the operator retains the funds.

Common Reasons for Chargebacks in iGaming

Chargebacks in iGaming occur when players dispute transactions, leading banks or payment providers to reverse the charges. These disputes can arise due to fraud, misunderstandings, or dissatisfaction with gaming services. 

Below are the most common reasons for chargebacks in the iGaming industry:

1. Fraudulent Transactions

Fraud remains one of the biggest causes of chargebacks in the iGaming sector. It usually involves unauthorized use of payment details or account takeovers.

  • Fraudsters use stolen card details to deposit funds and gamble. Once the real cardholder notices unauthorized charges, they file a chargeback to reclaim their money.
  • Cybercriminals hack into a player’s gaming account, deposit funds using stored payment details, and use the money to place bets. When the legitimate account owner detects the breach, they dispute the transaction.

2. Friendly Fraud (First-Party Fraud)

Friendly fraud occurs when a player knowingly or unknowingly files a chargeback for a legitimate transaction. This is a major challenge for iGaming operators as it often involves customers who intend to deceive payment processors.

  • Some players dispute transactions by falsely claiming they didn’t authorize them, even when they did. This often occurs when a player regrets their gambling decisions, particularly after losing a bet. In an attempt to recover their money, they may file a chargeback, stating that the deposit was unauthorized.

  • In other cases, players fail to recognize the gaming operator’s name on their bank statement and mistakenly dispute the charge. This confusion often arises due to unclear transaction descriptors or unfamiliar payment processing names, leading to unnecessary chargebacks.

3. Bonus Abuse and Promotion Fraud

  • Some players exploit casino promotions and bonuses to gain an unfair advantage, leading to chargebacks. Players create multiple accounts to claim welcome bonuses and then withdraw the funds before disputing the deposit transactions.

  • On the other hand, a player deposits funds, uses a promotional bonus to increase winnings and then files a chargeback to recover the initial deposit while keeping the winnings.

4. Unclear or Unfavorable Payment Policies

  • A lack of transparency in payment processing can frustrate players, leading them to initiate chargebacks. When withdrawals take longer than expected, players may assume they won’t receive their funds and file a dispute.

  • Similarly, unexpected processing fees on deposits or withdrawals can result in chargebacks, as players may claim they were not properly informed about the charges.

5. Technical Errors and Payment Processing Issues

  • Glitches in payment processing can lead to chargebacks, even when the iGaming operator is not at fault. In some cases, a player may be charged twice for a single deposit due to a payment gateway error. 

6. Problem Gambling and Self-Exclusion Disputes

  • Some players with a gambling addiction may file chargebacks to recover lost funds, especially if they believe they should not have been allowed to place bets. Those who have self-excluded might dispute transactions, claiming they were unfairly charged or permitted to gamble.

  • Others may contest legitimate transactions after losing large sums, arguing that they were not in control of their actions. These disputes often arise from regret rather than actual fraud, leading to challenges for iGaming operators.

Impact of Chargebacks on iGaming Operators

Chargebacks do more than just reduce revenue — they impact operations in multiple ways:

  • Financial Losses – Each merchant chargeback results in a direct loss of funds and an additional processing fee (ranging from $15 to $100 per dispute).

  • Reputation Damage – A high chargeback ratio can lead to banks flagging the operator as high-risk.

  • Risk of Blacklisting – Excessive chargebacks can cause payment processors to restrict services or impose higher transaction fees.

  • Operational Disruptions – Handling disputes requires dedicated fraud prevention teams and legal resources.

Impact of Chargebacks on iGaming Operators

Chargeback Fraud Prevention Strategies

iGaming operators can reduce disputes by leveraging chargeback analytics and implementing effective fraud prevention measures:

1. Strengthen KYC (Know Your Customer) and Fraud Detection Systems

  • ID Verification for High-Value Transactions:
    Players need to verify their identity before making large deposits or withdrawals to ensure they are the actual account holder. This step adds an extra layer of security by preventing fraudsters from using stolen card details to make high-value bets or withdrawals.

  • AI-Powered Risk Assessment Tools:
    Implementing advanced artificial intelligence systems can help detect unusual patterns in player behavior, such as sudden large deposits or gambling sprees. These tools can flag suspicious activity in real-time, allowing operators to review transactions before they turn into disputes.

2. Improve Customer Support and Dispute Resolution

  • Proactive Customer Support and Escalation Management:
    Offering quick and accessible support options, such as live chat, helps address player concerns before they escalate. 
  • For example, if a player experiences a delayed withdrawal, customer service can proactively reach out to resolve the issue, preventing it from turning into a chargeback dispute. An efficient escalation process ensures that more serious issues are addressed promptly, reducing the likelihood of players resorting to chargebacks to resolve their grievances.

3. Implement Chargeback Alerts and Prevention Services

  • Early Warning Systems (Ethoca, Verifi):
    Services like Ethoca and Verifi provide iGaming operators with early notifications when a chargeback or dispute is filed. This allows operators to address the issue directly with the customer before the chargeback is finalized. Being alerted early helps resolve disputes proactively, reducing the overall chargeback rate.

  • Impact of Chargeback Alerts:
    By using chargeback alert services, merchants can reduce dispute rates by up to 30%, improving customer satisfaction while protecting revenue.

4. Transparent Payment Policies and Responsible Gambling Tools

  • Clear Communication of Policies:
    Transparency is key in preventing disputes. iGaming operators should clearly communicate their deposit and withdrawal policies to players upfront. This includes providing details on transaction timelines, fees, and conditions for account verification. When players understand the process, they’re less likely to misunderstand or dispute legitimate charges.

  • Responsible Gambling Tools:
    Offering players tools to manage their gambling activities—like self-exclusion options, deposit limits, and spending caps—helps reduce the risk of compulsive gambling, which can often lead to chargebacks. By allowing players to control their spending, operators foster a safer and more responsible gaming environment, decreasing the likelihood of disputes.

Conclusion

Chargebacks are a constant and costly problem for iGaming operators, affecting their money and daily operations. Fraudulent activities, friendly fraud, and unclear payment policies contribute significantly to the growing number of disputes. 

However, by implementing robust fraud prevention measures, enhancing customer support, leveraging chargeback alert systems, and promoting responsible gambling, operators can significantly reduce chargeback rates and protect their revenue. 

As the iGaming landscape continues to evolve, proactive strategies will be essential in ensuring sustainable business operations while maintaining trust and transparency with players.

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Tushar Singh

Tushar Singh is a Content Writer who create insightful content aimed at engaging readers and delivering value across various digital platforms.

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