Covid-19’s effect on Digital Gaming and E-Gifting and the rise of PayPal fraud

The new reality everyone around the globe is getting accustomed to in the shadow of the deadly Covid-19 virus is quite sobering. The global economy is slumping, unemployment is at an all-time high, and everyone seems to be somewhat depressed.

There are two industries, however, that are thriving and hitting record numbers – Digital Gaming and E-gifting.

Here are some easy-to-find quotes from leading media outlets that are covering this phenomenon:

“Gaming is one of those areas that people are diverting to from other activities that they would have done in a normal world,” said Mat Piscatella, an analyst at the N.P.D. Group, which tracks the sales of video games. “The game sales that are coming out are breaking franchise records.” [1] 

Overall, video game sales in March approached $1.6 billion, representing a 35-percent year over year increase, according to NPD. [2] 

In the US, Verizon reported that gaming internet traffic has gone up 75% since quarantine came into effect. [3] 

Consumers are buying and using gift cards more as they have shifted to staying and working from home during the Covid-19 crisis. New research from Blackhawk Network finds e-gift sales are up 44 percent year-over-year and e-commerce sales are up 43 percent year-over-year. Also, gift card e-commerce sales are up 54 percent year-over-year on Blackhawk’s partners’ channels. [4] 

In short, it sounds like a great time to be in the digital goods space – and it really makes sense, as millions around the world are currently either unemployed, furloughed, or at least working from home, with more time on their hands and not going to traditional brick and mortar stores to purchase goods.

It’s not all roses though. Along with the record transaction count, we at nSure.ai, a fraud protection platform that specializes in protecting Digital Gaming and E-Gift Card retailers, have seen unprecedented fraud pressure – especially via the beloved payment method for Digital Buyers, PayPal.

Digital gaming and E-Gifting have long been dubbed as “fraudster attractive”, but due to the current widespread pandemic, digital goods have become even easier to resell – while a large spike in purchase volumes make it even more difficult to weed out the fraudsters from the legitimate buyers.

Many Digital Retailers are seeing enhancing fraud-pressure across all of their payment methods, but it seems that PayPal has been hit especially hard.

Here are three different cases of companies that have reached out to nSure.ai as a result of extreme PayPal fraud pain:

• One leading gaming company that also sells e-gift cards initially approached nSure.ai pre-pandemic (just a few months ago) with a relative high fraud rate – which has since doubled (!) in the following months to well above the network threshold for acceptable fraud-rates.

• Another digital retailer that has approached nSure.ai had to shut off all payment options through PayPal for multiple days as a result of the fraud pressure, following which they still needed to restrict first-time buyers from making purchases via PayPal.

• A third Digital Goods retailer, as a result of the elevated fraud-pressure via PayPal, only accepted users who have verified PayPal account, verified PayPal address, IP match with PayPal account country in their local markets (bordering countries), who also need to complete an SMS verification in their system.

Needless to say, raising the barriers to make purchases on your platform via the most popular payment method, and adding friction to the payment flow during a time of unprecedented traffic and purchase volumes, is less than ideal.

Some quick tips to manage high fraud-pressure on PayPal:

• Limit Paypal transaction exposure to deviations from your average order value
• Consider applying synthetic delayed delivery for virtual goods on risky transactions
• Partner with a leading AI based Fraud Protection platform that has extensive experience managing the high fraud-pressure that comes with selling digital goods via PayPal.

Note – All rules or additional friction will help limit your fraud risk exposure, but will also likely create a significant rise in your false-positives (declining of legitimate buyers).

[1]https://www.nytimes.com/2020/04/21/technology/personaltech/coronavirus-video-game-production.html

[2] https://www.washingtonpost.com/video-games/2020/05/12/video-game-industry-coronavirus/

[3] https://www.prnewswire.com/news-releases/video-gaming-reaches-an-all-time-high-since-covid-19-lockdown-initiation-reports-tbrc-301052766.html

[4] https://news.cardnotpresent.com/news/covid-19-crisis-pushes-egift-and-ecommerce-sales-up