Device reputation is an important component of best practice fraud management – 2009 was a difficult year for business, but one trend that emerged was an increased visibility into how valuable device fingerprinting and reputation solutions can be as part of any sophisticated fraud prevention architecture. Some of our articles on this topic:

• The First Five Benefits You Will See From Device Reputation
• Not All IP Addresses are Created Equally
• Device Fingerprinting Techniques – Several Choices

Online retailers are under attack – Online retailers continue to find themselves under attack and we touched on this topic a number of times this year. Here are some of the highlights:

• Online Merchants Are the Real Victims of Identity Theft
• Interview with Merchant Risk Council Executive Director, Tom Donlea
• Fighting Friendly Fraud With Device Reputation

Online games continue to attract attackers – Massively Multiplayer Online (MMO) games continue to be a favorite target of hackers. Financial fraud coupled with theft of accounts, virtual assets and exploitation of in-game economies through gold farming all pose serious threats to the online gaming industry. Some of the highlights:

• iovation Interviewed at Casual Connect on Protecting MMOs from Fraud
• Virtual Money is the Most Popular Digital Good
• Fighting MMO Fraud and Abuse isn’t Child’s Play

Online dating scams threaten virtual communities – Online romance scams are a prevalent and serious threat to online dating sites. Stopping scams and preserving the customer experience are necessary in order to ensure a healthy future for online dating industry as a whole. Some of our articles on this topic:

• Online dating scams, the biggest threat to a growing industry
• Social networks and malware, a potent combination
• Online Dating – Blocking the Bad Guys

Fraudsters and scammers continue to organize – Fraudsters are working together more than ever to defraud online businesses. We have touched on this topic a number of times throughout the year:

• Exposing Online Fraud Rings – Untangling the Web
• Botnets – Propagating Threats, DoS, and Identity Theft
• Conficker Starts Up Botnet to Enable Online Fraud

We hope you have found some (or all) of these posts interesting and valuable. We look forward to exploring many new topics relevant to the fight against fraud in 2010.

In order to shed more light on the trends in virtual goods purchasing, market researcher VGMarket, along with Playspan, conducted a survey in July of this year, asking players what kinds of virtual goods they were buying and in what kind of games. The findings of the survey, summarized in a recent article posted on VentureBeat, show that over half of all virtual goods transactions occur in free-to-play games.

In the past year, 58% of the players in free games made purchases of virtual goods, on average making 12 separate purchases over the course of a year, with a median total expenditure of $75. By comparison, in Massively Multiplayer Online (MMO) games, 34% of players purchased virtual goods, for a median expenditure of $60 over the course of a year.

These numbers support the trend of an increasingly popular business model in the online games industry, based around micro-transactions and the sale of virtual goods. Given the success of this model so far, likely, we will continue to see an increase in both the number of free online games and the amount of virtual goods being purchased. However, there is a downside. Like any venture involving online payments, fraud has to be a concern. Stolen credit cards are used to make all kinds of purchases, including the purchase of virtual goods.

And while you might assume that the theft of virtual goods wouldn’t have a noticeable financial impact—unfortunately, it can. Despite the fact that virtual goods may be nearly free to produce, the revenue from these in-game additions often ends up subsidizing the entire cost of producing and hosting free games, which can be significant. Also, high fraud rates drive up the cost of payment options and, if severe enough, can limit the type of payments a business can accept, in turn causing a decline in overall purchases.

In the ongoing conversations we have with our online gaming customers, the toughest part of dealing with fraud, especially as it relates to the purchase of virtual goods, is catching repeat offenders and those fraudsters that are working together. Because while fraud teams can ban a single account once it has been identified as fraudulent, it is really the individual behind the account who needs to be stopped.

Device recognition, coupled with device reputation, however, provides a valuable solution to this problem by identifying the computer, and thus the individual, behind a bad account. With the additional ability to see into relationships between individual computers and accounts, fraud rings and other organized crime can more easily be identified and stopped. This innovative approach to fraud management is something for current and emerging gaming companies to consider: as the trend in favor of virtual goods continues, how best to protect against the fraud that will inevitably follow?

The gaming industry has been fighting fraud and abuse ever since games went online and it goes way beyond simple payment fraud. Here are a few of the problems we help our customers address:

• Credit card fraud – Using stolen identities and credit card numbers is a problem in the games industry, as it is for any online business. Whether sites support a subscription-based payment model or take micro transactions, finding repeat offenders who use stolen identities and credit information is a huge challenge.
• Account takeover and virtual asset theft – Many online criminals have learned to take advantage of the booming market in virtual goods and currency. One of their standard practices is to steal account credentials and then transfer and sell the virtual goods from the online characters.
• Gold farming – MMO games have resulted in the creation of a whole new industry called Real Money Trading (RMT) that maintains an exchange rate between real currency, like dollars, and game currency, i.e. gold. However, selling game currency for real money is against the terms of service for many online games, and the use of accounts to “farm gold” is strictly forbidden because of its negative impact on game-play and the in-game economy.

In order to effectively combat these types of fraud, online gaming sites need the right tools. The companies we’ve worked with have found that employing device recognition and device reputation makes a big difference. By being able to recognize and re-recognize a device, online sites can track device and account activity and expose the associations between accounts and devices that often help identify organized fraud rings and repeat offenders. By identifying the devices being used to commit these types of fraud, gaming sites can deny entry to fraudsters and ultimately protect the reputation and quality of their games.

For any gaming companies interested in learning more about our device reputation service, we will be at Austin GDC from Sept 15-18. If you are at the show please visit our booth (#304). We’d love to see you.

The reality in the online games environment is that even many of the best anti-fraud tools simply don’t provide effective results. Time and again we at iovation have seen significant uplift over existing tools to reduce fraud for our customers in the MMO industry: in the case of BattleClinic, as dramatic as a 95% reduction. What seems to be particularly compelling about theresults we’ve seen in this industry is our ability to quickly establish the relationships between player accounts that were previously hidden. Not only does this result in dramatic reduction in fraud, it also significantly reduces the amount of time spent on trying to manually search for associations and patterns in personal data.

iovation is committed to the gaming industry and frequently attends and presents at gaming conferences. We will be at both the Casual Connect Seattle conference, July 21-23, and the Austin GDC conference, Sept 15-18, if you would like to meet with us in person.