Security of the Game: How AI Improves KYC Casino Verification

2 january 2024

Experts of the CASEXE studio explain how artificial intelligence is transforming risk management and customer identification processes on gaming sites. You will find out about the benefits of AI and how the implementation of this technology is regulated by law.

KYC system in online casinos: general info

Identity Verification on the Digital Platform

The gambling industry is one of the most regulated sectors of the economy, which demonstrates the critical importance of the KYC system for online casinos.

Know Your Customer is a set of procedures aimed at checking visitors to gambling sites. Operators are obliged to make sure that there is a real and adult person on the other side of the screen and not a bot or fraudster.

How Identification Mechanisms Work

The KYC protocol is usually launched at the time of registration on the resource. Players must not only come up with a username and a password but also go through verification.

Casino portals request the following data:

  • full name and age;
  • identification documents (ID card, passport, driver's licence, or residence permit);
  • information about the user’s place of living.

Based on these facts, synchronisation with databases of problem customers is carried out. This makes sure that clients do not suffer from ludomania.

In some countries (for example, Germany or France), the KYC system is activated when the initial deposit is made. Until such a moment, gamblers simply get acquainted with the website, the product range, and available payment methods.

There are also jurisdictions (for example, some states of America) where verification takes place at the time when the prize money is withdrawn to the player’s bank account or card.

History of KYC Development

The introduction of this tool was first discussed in 1970 when the Bank Secrecy Act was passed in the US. Initially, the requirements applied only to financial institutions. In 1985, the procedure became mandatory for land-based casinos as well.

In the mid-2000s, iGaming platforms also started to carry out client verification.

Today, digital entertainment portals must also check customer due diligence (CDD), given the high risks of fraud on the Internet.

Within the framework of CDD, entrepreneurs are required to:

  • verify the person’s identity and age;
  • find out whether the provided documents are legitimate;
  • check the source of funds used by the player;
  • identify beneficiaries of legal entities associated with online casino transactions;
  • determine risk factors (ludomania, the launch of slots from countries where entertainment for money is strictly prohibited, etc.).

Why iGaming Platforms Implement KYC Mechanisms

KYC mechanisms on gaming sites: features

Compliance with identification requirements gives operators a competitive advantage.

Effective Fight Against Fraudsters

Casino games are more susceptible to aggressive actions of criminals than other sectors of the economy:

  • The TransUnion audit firm states that digital fraud increased up to 33%. Online establishments suffer the most from identity theft, manipulations with payments, and account takeover.
  • According to the Ravelin report, in 2022, 71% of operators faced bonus abuse. 67% of respondents noted an increase in the number of chargebacks, which is a part of money laundering schemes.

The decision to add KYC mechanisms to digital casinos allows entrepreneurs to identify fraudsters at the stage of registration. Most of them are eliminated automatically. It protects operators from multi-accounting, as well as theft of rewards and confidential information.

Compliance With Industry Standards

Availability of KYC is one of the main requirements of any regulator. Even at the stage of filing an application for a permit, project owners are obliged to describe all stages of comprehensive identity verification in detail. Otherwise, the commission may refuse to issue a certificate.

Entrepreneurs must also adhere to CDD principles: identify clients in a timely manner and automatically block problem users.

KYC is the main mechanism for verifying the age and location of gamblers. It helps filter out minors and those clients who place bets from countries where entertainment for money is prohibited.

Owners of iGaming sites are legally responsible for compliance with laws on anti-money laundering and anti-terrorism financing. It is even theoretically impossible to fulfil these requirements without CDD algorithms. Online casinos process thousands of transactions per day. Their careful evaluation is ensured, thanks to KYC.

Profiling of Players

Primary data collection takes place during the registration and verification procedure.

Based on the information received, operators group clients according to the following criteria:

  • individual characteristics (age, region);
  • gaming preferences;
  • risk levels;
  • payment services, etc.

Detailed profiling improves interaction with the audience and increases the effectiveness of marketing campaigns that are aimed at attracting and retaining clients.

Artificial Intelligence and KYC

AI and KYC in online casinos: key advantages

AI technology made a revolution in the Know Your Customer system since it can conduct predictive analysis, monitor the behaviour of users, and quickly identify anomalies or suspicious actions of players.

Let us consider why more and more business owners are using KYC together with AI.

Automatic Check

Both solutions are similar in many ways. They rely on patterns in data sets that are represented as multi-layered files of disparate information.

Such a symbiosis instantly reveals hidden relationships between variables that are difficult to notice during a single KYC verification. Thanks to this, authentication in online casinos takes a few seconds and does not require the operators’ physical intervention.

Manual labour is completely replaced by AI. Entrepreneurs can concentrate on strategic tasks, as well as business development and scaling.

How automatic KYC verification is carried out:

  1. Comprehensive analysis of documents. The program compares photos of players to ensure their similarity with government IDs. These are passports, identity cards, and residence permits. AI also scans different types of papers issued by various jurisdictions in real time. This feature is critical for international iGaming platforms that accept traffic from all over the world.
  2. Detection of forged documents. This is achieved thanks to in-depth analysis of fonts, logos, and security aspects. If a user, for example, decides to change their year of birth, the software will automatically reveal this mismatch. AI checks how customers' names, addresses, dates of birth, and other information correspond with different sources.
  3. Biometric data recognition. These include fingerprints, voice samples, and facial features. This option, together with AI, provides a more reliable authentication procedure that is difficult to deceive. Computer vision algorithms analyse photos from documents and compare them with the customers’ selfies or videos in real time.

Advanced Risk Assessment

AI guarantees high-quality examination of all possible problems:

  1. Study of the interconnection between customers, accounts, and transactions. The program instantly identifies suspicious activity and blocks those punters whose payments are questionable.
  2. Assessment of the amount of risk. To do this, AI algorithms request location, transaction history, account balances, information on the used device, and other data. Profiles of gamblers with a higher risk level are sent for additional confirmation.
  3. Detection and prevention of money laundering. This is achieved by identifying abnormal transaction patterns, atypical transactions, and an increase in the number of chargebacks.
  4. Continuous monitoring of client activity. Based on the obtained data, risks are reassessed, taking into account changes in the behaviour of players.

Repeated KYC Procedure

This is an integral part of any compliance program which is aimed at already existing customers.

The most common situation is when a casino visitor places bets on several legal platforms simultaneously.

If one of the virtual establishments includes a specific gambler in the register of persons with an increased risk of developing ludomania, restrictions on the size of bids, the number of spins, and the time spent on the website should be applied to such a user.

AI algorithms ensure instant synchronisation with government databases. Operators see that their competitor has included the player in the state register and automatically apply the necessary measures to such a client.

Anti-Money Laundering

Artificial intelligence can track money transfers in real time and detect fraudulent activity or violations of AML procedures.

The technology helps in remittance monitoring by providing the following aspects:

  1. Detection of inconsistencies between transaction history and the user’s profile. This may be a sudden burst of activity, unusually large or frequent transfers, and payments from geographical locations that differ from the usual ones.
  2. Identification of patterns between unrelated accounts or settlements. Very often, it indicates money laundering.
  3. Assessment of the risk level of transactions. The program prioritises the verification of money transfers, including the chargeback analysis.

Prospects for KYC Development

The future of KYC is closely related to the implementation of artificial intelligence and other popular technologies (blockchain, as well as virtual and augmented reality).

In 2022, the US government, represented by FinCEN, published guidelines that approve investment in the growth of AI. American authorities are ready to support FinTech companies that use such a tool to comply with AML specifications at the legislative level.

At the beginning of 2023, the FATF published its annual report. The international organisation spoke highly of new KYC and anti-money laundering technologies, as well as the ability of AI to accurately analyse data in real time and identify risks.

The new EU Artificial Intelligence Bill specifies that the solution must not violate any fundamental rights, including unlawful discrimination. If the document is signed, then in the future, it will be valid along with the GDPR (European data protection rules).

The Main Things about User Verification in Online Casinos

The introduction of KYC mechanisms is a prerequisite for a legal operation in the iGaming market.

  • The identity check starts at the time of registration on the website when players try to make the first deposit or withdraw money. The task of entrepreneurs is to make sure that this is a real adult client who is visiting the platform from a country where gambling is not prohibited.
  • The implementation of KYC increases the effectiveness of combating fraud, facilitates compliance with industry requirements, and helps with user profiling. Business owners can legally manage their portals, interact with the target audience, and block scammers or bots.
  • Artificial intelligence is the main driving force in the niche. AI algorithms are responsible for automatic audience verification, advanced risk assessment, and acceleration of Re-KYC on the gaming site. AI is quite useful when it comes to the identification of customers based on biometrics or the fight against money laundering.

The CASEXE studio is your reliable partner in the gambling industry. From us, it is possible to order a turnkey casino, a White Label project with a licence, a high-quality script, and other products.

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Author: Matt Grant
iGaming business expert
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