Online Gambling Fraud Is Rising—How Platforms Can Stay Ahead

The digital gambling industry is expanding quickly, drawing in millions of users through sports betting apps, online poker rooms, and virtual casino games. But as more legitimate players enter the space, fraudsters are joining too. These bad actors don’t rely on luck. Instead, they manufacture their own outcomes by taking over accounts, creating fake identities, and extracting money through increasingly sophisticated schemes.

The scale of the threat is growing. In 2024, fraud attempts in Canada’s online gambling and sports betting sectors rose by 79 percent, according to TransUnion. With 9.6 percent of all transactions flagged as suspicious, gambling has become the most targeted industry in the country.

The issue is no longer whether gambling platforms are at risk. The real question is why fraud is rising so sharply and what platforms can do to stop it. This article explores the rise of gambling fraud and how privacy-focused identity solutions can help platforms respond without compromising speed or trust.

Why Online Gambling Platforms Are a Prime Target for Fraud

Every transaction on a gambling platform involves real money. Unlike traditional games that use points or in-game tokens, gambling platforms transfer actual funds with each bet, spin, or play. This steady movement of money makes them high-value targets. Fraudsters only need one weak point to exploit a system at scale.

Here are three key reasons gambling platforms face such high fraud risk:

1. Weak Identity Checks Leave Platforms Exposed

Many platforms still rely on basic verification during sign-up, such as email or phone number confirmation. In some cases, users can begin gambling without submitting any official identification. While this keeps onboarding fast and frictionless, it also lowers the barrier for fraud. With fake details or stolen credentials, bad actors can create multiple accounts, impersonate real users, and gain access to funds with minimal resistance.

2. Instant Payouts and Crypto Make Money Hard to Track

Speed is a major appeal in online gambling, especially when it comes to withdrawals. Many platforms now offer near-instant payouts and accept cryptocurrency. But that same speed can work against them. Once funds are withdrawn—especially through crypto or other unregulated channels—they are extremely difficult to trace or recover. In many cases, by the time fraud is detected, the money is already gone.

3. Outdated KYC Processes Fail Against Modern Threats

Some platforms still rely on outdated Know Your Customer (KYC) procedures that use manual document reviews or static database checks. These methods often fail to detect modern fraud techniques, including AI-generated IDs and synthetic identities, and other forms of KYC fraud that bypass superficial verification checks. As a result, fraudsters pass through the system undetected, while legitimate users face unnecessary delays and friction. This not only puts the platform at risk but also erodes trust among real players.

Most Common Types of Online Gambling Fraud 

Fraudsters rarely rely on just one tactic. Once they find a way into a gambling platform, they often combine methods to exploit weaknesses, bypass security, and maximize their gains. The fast pace of online gambling, paired with minimal user friction, creates ideal conditions for abuse.

To understand where platforms are most vulnerable today, here are five of the most common types of fraud affecting the online gambling industry in 2025:

1. Account Takeover (ATO)

Account takeover begins when criminals obtain login credentials through phishing attacks, data breaches, or dark web marketplaces. Using automated tools, they quickly test thousands of usernames and passwords across gambling platforms. Once inside, a fraudster might drain a user’s wallet, place unauthorized bets, or redirect winnings to an external account. In some cases, they even change the login details to lock out the original user. These compromised accounts can then be resold, used for further fraud, or serve as money laundering vehicles.

2. Synthetic Identities

Synthetic identity fraud involves creating a fake persona by blending real and fabricated data. For example, a fraudster might use a valid Social Security number with a made-up name and address to build a digital identity that appears legitimate. Over time, they can establish credit history and online activity around this fake profile. On gambling platforms, synthetic identities are often used to bypass age restrictions, create multiple accounts, or rejoin a platform after being banned. Because many verification systems rely on static data, these profiles can go undetected for extended periods.

2. Bonus Abuse

Welcome bonuses and promotions are intended to attract new users, but they are also one of the easiest targets for fraud. In fact, bonus abuse made up nearly 70 percent of fraud in the iGaming sector during the first quarter of the year.

To understand how this works, consider a hypothetical scenario. A single fraudster could use burner emails, fake names, and spoofed IP addresses to create, say, 50 gambling accounts in a single night. Each account is used to claim a $100 welcome bonus, place a low-risk bet—such as wagering on both sides of a game to guarantee a return—and withdraw any winnings before the platform detects the activity. Some even link fake accounts through referral programs to collect additional rewards. While this may sound extreme, tactics like these drain marketing budgets, distort user metrics, and undermine fraud detection systems.

3. Chargeback Fraud

Chargeback fraud occurs when users dispute transactions after depositing funds and gambling. A typical scheme involves someone making a legitimate deposit, losing the money through normal gameplay, and then contacting their bank to claim the charge was unauthorized. This forces the platform to refund the money and eat the processing fees. In some cases, repeat offenders use this method systematically, exploiting consumer protection policies to recoup losses. While not as common as other fraud types, chargebacks still made up over 5 percent of gambling-related fraud losses in early 2024 and can damage a platform’s reputation with payment providers.

4. Location Spoofing

Online gambling platforms must comply with regional laws and licenses, often restricting access based on a user’s physical location. Fraudsters use VPNs, proxy servers, or GPS spoofing tools to trick platforms into thinking they’re logging in from a legal jurisdiction. For example, someone located in a country where online gambling is prohibited might use a VPN to appear as though they’re connecting from a region where it’s allowed. This not only violates compliance rules but also exposes platforms to legal and regulatory penalties. Location spoofing is frequently used alongside other tactics, such as bonus abuse or multi-accounting, making it harder to detect.

The Limits of Traditional Identity Verification in Online Gambling

As platforms scale, many still depend on outdated identity checks that can’t keep up with modern threats. These systems often frustrate real users while failing to stop bad actors. The result is a process that creates friction for the right people and blind spots for the wrong ones.

Here’s why traditional verification methods fall short:

1. Manual reviews can’t keep up with transaction volume

Some platforms still depend on human reviewers to check IDs or documents during sign-up. But when thousands of new accounts are created every day, this approach quickly breaks down. Delays pile up, mistakes happen, and users are left waiting. While automation helps speed things up, basic tools without safeguards can open the door to new risks rather than closing old ones.

2. Email, IP, and document checks are easy to spoof

Many platforms rely on simple checks—like verifying an email address, scanning a document barcode, or confirming an IP address. But these methods are easy to get around. A fraudster can use disposable email addresses, VPNs to mask their location, or high-quality fake IDs to pass basic verification. Without deeper layers of security, these tricks often go unnoticed.

3. Fragmented regulations allow fraud to slip through

Online gambling laws vary widely from one region to another. A user banned in one country can often move to a platform based in another with looser rules. This lack of regulatory consistency makes it harder to enforce effective identity checks across borders. As SOFTSWISS has noted, this fragmented oversight creates loopholes that fraudsters exploit to stay ahead.

4. Clunky onboarding drives users to less secure platforms

Lengthy or confusing sign-up processes can push legitimate users away. In a competitive space, players won’t wait around if it’s too hard to get started. But if a platform makes onboarding too easy, it risks letting in bad actors. The challenge is finding a middle ground—verification needs to be strong enough to catch fraud, but smooth enough to keep real users engaged.

How Gambling Regulations Are Changing Identity Verification Requirements

Regulators are paying closer attention to how gambling platforms verify their users. In response to rising fraud and uneven compliance, many jurisdictions are implementing stricter rules that raise the bar for onboarding, monitoring, and player protection. These updates are reshaping what effective identity verification looks like for the industry.

Here’s how identity requirements are evolving across key regions:

1. European Union

In the EU, gambling operators must comply with strict Know Your Customer (KYC) and anti-money laundering (AML) laws. Verification typically includes confirming a user’s name, age, and location using a government-issued ID, proof of address, and sometimes real-time authentication tools. In Spain and Italy, users are blocked from depositing or betting until verification is fully completed. These requirements are driven by the EU’s Anti-Money Laundering Directives (AMLD), which treat gambling platforms similarly to banks. Recent enforcement actions in Germany and the Netherlands show that regulators are willing to impose fines or suspend operations for platforms that fall short.

2. United States

Gambling regulation in the U.S. varies by state, creating a patchwork of rules that operators must follow. States like New Jersey and Pennsylvania require identity, age, and geolocation checks during registration. Nevada has gone further by investigating suspicious activity under the Bank Secrecy Act. Nationally, the Council on Problem Gambling has introduced 82 Responsible Gambling Standards that cover areas such as KYC, self-exclusion, and user protections. But implementation is uneven. On average, states comply with just 32 of the 82 standards. Even well-regarded jurisdictions like Connecticut and Virginia don’t meet them all. This inconsistency complicates fraud prevention and raises the risk of regulatory exposure.

3. Latin America 

In Latin America, countries are developing new legal frameworks to support the growing online gambling market. Brazil, for example, passed Law No. 14,790/2023, which legalizes fixed-odds betting and mandates strong KYC procedures. These include verifying official IDs, reviewing users’ financial profiles, and enforcing age limits. Argentina and Colombia are also rolling out local regulations requiring identity checks and anti-fraud safeguards. These changes aim to reduce financial crimes, such as tax evasion and money laundering, while building user trust in licensed platforms.

4. Asia

In Asia, regulatory approaches vary widely, but several countries are tightening identity verification rules. The Philippines now requires real-time identity checks through government databases for all licensed operators. This involves verifying names, birthdates, and national ID numbers before users can place bets. In Singapore and South Korea, gambling sites must check player data against exclusion lists and monitor for risky behavior over time. These countries are moving toward layered identity systems that make it harder for fraudsters to slip through undetected.

Key Practices to Prevent Gambling Fraud

Meeting regulatory requirements is just the starting point. To effectively combat fraud, gambling platforms need tools that adapt to real-time risks while keeping the experience seamless for genuine users.

Here are some key practices that help prevent gambling fraud effectively:

1. Verifying Real People at Sign-Up

Strong identity checks during account creation are essential. Instead of relying only on document uploads, platforms can use tools like liveness detection to ensure a real person is present. These tools prompt users to perform simple actions, such as blinking or turning their head, which are easy for humans but difficult for bots, deepfakes, or stolen media to replicate. This added layer helps stop fake accounts before they gain access. The liveness check can be built directly into the sign-up flow using a user’s phone camera, requiring no app download and minimal friction.

2. Building Multi-Layered Security Systems

Relying on a single check creates blind spots. Platforms should combine tools like document verification, device fingerprinting, behavioral analysis, and geolocation to create a layered defense. If a user passes identity verification but logs in from an unrecognized device or a suspicious IP address, the system can flag the event or require additional checks. These layers communicate with each other in real time, giving the platform a fuller picture of each user’s risk level without slowing down legitimate users.

3. Using Behavior Analytics to Spot Unusual Patterns

Fraud detection systems can analyze how users behave on the platform, looking at factors like mouse movement, typing speed, or the timing and structure of bets. For example, if ten accounts place identical bets within seconds of each other or navigate the site in exactly the same way, it may indicate bot activity or a coordinated scheme. By scoring these anomalies, the system can flag high-risk users for review or trigger security protocols automatically.

4. Triggering Extra Checks for High-Risk Activity

Step-up authentication adds security only when needed. If a user tries to withdraw a large amount of money, update payment information, or log in from a different region, the platform can prompt for biometric confirmation or a one-time code. These extra steps only appear during sensitive actions, helping protect the account without adding friction to regular use. Over time, platforms can learn which behaviors signal risk and adjust their step-up triggers accordingly.

5. Preventing Multiple Accounts with Identity Matching

Rather than allowing users to create several accounts under slightly different names or fake details, platforms can enforce uniqueness using facial matching, verifiable credentials, or cross-checks against existing profiles. For example, a user’s face scan can be matched against previous accounts, or a verified credential can ensure that a government-issued ID hasn’t already been used. This makes it harder to exploit referral programs or bonuses through duplicate accounts.

6. Blocking VPN Use and Enforcing Geolocation Rules

Fraudsters often use VPNs or GPS spoofing tools to bypass regional restrictions. Platforms can use geolocation software to verify a user’s physical location and detect signs of location masking. When someone logs in from a region where gambling is restricted, or if the IP address doesn’t align with the device’s GPS data, the system can flag the session, request a secondary location check, or deny access entirely. This helps platforms remain compliant with licensing rules and avoid regulatory penalties.

7. Securing Accounts with Trusted Devices

Device binding allows users to link their accounts to specific devices. Once verified, a user can log in easily from their trusted device without repeating the entire verification process. If someone attempts access from an unfamiliar device, the platform can trigger re-verification or send an alert to the user. Over time, this builds a stronger trust profile around the account and reduces the chance of successful takeovers or shared credentials.

How Privacy-Preserving KYC  Helps Stop Gambling Fraud

Protecting users doesn’t have to come at the cost of their privacy. New approaches to identity verification now make it possible to confirm who someone is without collecting more data than necessary. By adopting privacy-first tools, gambling platforms can reduce fraud while building long-term trust with their users.

Two core technologies are enabling this shift: Verifiable Credentials and Decentralized Identity Wallets.

1. Smarter Verification with Verifiable Credentials

Verifiable Credentials (VCs) allow platforms to confirm specific details about a user without requiring full documents. Instead of uploading a driver’s license or passport, a player can prove they’re over 18 or located in a legal jurisdiction with a cryptographically signed credential.

This method, known as selective disclosure, helps reduce fraud while protecting user privacy. During sign-up or when accessing restricted features, the platform simply asks for a VC confirming the required attribute. No need to manually review documents, store sensitive data, or risk errors. And because credentials are tamper-resistant, they are harder to fake or manipulate.

2. Reducing Risk with Decentralized ID Wallets

Decentralized ID wallets take privacy one step further. Rather than storing identity data in a central database, users hold their credentials on their own devices. When verification is needed—such as during account creation, large withdrawals, or setting changes—the platform sends a request, and the wallet responds with the relevant credential.

This model minimizes the amount of sensitive data a platform needs to collect or store. It lowers the risk of breaches, simplifies compliance, and gives users more control over their identity. At the same time, it allows platforms to reverify users without repeating the entire onboarding process, making the system more efficient and secure.

Integrating Identity.com Into Online Gambling Platforms

For platforms looking to improve fraud prevention without adding complexity, Identity.com offers tools designed to make privacy-first KYC both practical and scalable. Its open-source protocol allows gambling operators to issue, request, and verify verifiable credentials in a decentralized way.

The process starts with identity verification and a built-in liveness check to confirm the user is physically present. Once verified, the player receives a credential—such as proof of age or location—stored securely in their wallet. That credential can then be reused across the platform. Whether the user wants to access restricted features or initiate a sensitive transaction, the same credential can be presented instantly, without uploading new documents or exposing extra information.

This approach protects against fake IDs, bonus abuse, and account farming. It also eliminates the need to store sensitive data, lowering regulatory exposure and operational risk. By integrating Identity.com, platforms can deliver a smoother experience for real users while locking out bad actors.

Learn more: identity.com/gambling-identity-verification

Conclusion

Gambling platforms are operating in one of the most targeted and fast-moving digital environments today. Fraud tactics are evolving quickly—and so are the tools to stop them. The real challenge isn’t just reacting after fraud happens; it’s staying one step ahead.

Platforms that treat identity verification as more than a formality are in a stronger position to protect users, meet compliance requirements, and maintain trust. With tools like verifiable credentials, it is possible to confirm what matters without collecting more data than necessary. It’s not just about stopping fraud—it’s about doing it in a way that keeps the experience smooth for real players, proving that security and user experience don’t have to be a tradeoff. The platforms that adapt early will be the real winners.