Navigating Bonus Pitfalls in the iGaming Industry

09.12.2024

There are few industries that rely on bonuses as heavy as the iGaming industry. It is the number one method of attracting and retaining players; it is practically impossible to find an operator that does not offer any bonuses. One could even say that bonus offerings are only limited by regulatory restrictions.

However, although the positive aspects and effectiveness of bonuses are clear, they can also be a double-edged sword. Mismanaged bonuses can have serious consequences, both financially and regulatoryly as well as reputationally. This article will offer you an insight into the world of bonuses from an operator’s perspective, particularly its potential pitfalls and the strategies operators can use to navigate the bonus landscape.

Understanding the Bonus Landscape

First and foremost, we must point out that we will be looking at the international landscape. Rules and regulations that affect bonuses can vary greatly from country to country or even from state to state.

Before diving into the pitfalls bonuses can be, it’s essential to understand the most important aspects of the current bonus landscape.

Types of bonuses and their specific goals
Bonus terms and conditions
Regulatory environment
Player behaviour and responsible gambling
Bonus abuse
Emerging trends and Challenges

Types of bonuses and their goals

As mentioned in the introduction, bonuses’ primary goals are to attract and retain customers, but they also have an effect on other aspects such as reputation and brand loyalty.

These two goals allow us to make a distinction between two different types of bonuses: welcome bonuses exclusively for new players and bonuses that are also available for existing players.

Here we must realise that bonuses are short-term incentives, which makes them different from loyalty and VIP-programs. Such programs are long-term investments and focus more on brand loyalty and player lock-in. Although promotions can also come in the form of bonuses, we consider them a more general marketing tool, and they are usually limited-time or seasonal offers.

Below you will find an overview of the most common types of bonuses and their primary goals:

Bonus Terms and Conditions

Especially in the iGaming industry, bonuses might come across as free money, but of course no business can remain successful if they just give away money. Strategically selecting wagering requirements, game restrictions, maximum bet limits, and other details ensures that bonuses can be economically viable despite their costs.

As the illustration below shows, wagering requirements for bonuses directly and greatly influence the potential payout, or costs, for an operator. Wagering requirements of 30 or even 40 times are not uncommon, and after that many wagers, on average a player will have lost at least 75% of the bonus amount. Please note that this is an oversimplification as many other details such as bet limits and volatility of games also have their effects.

Regulatory Environment

Different jurisdictions have varying regulations that apply to marketing and advertising in general, but also specifically to bonuses. Regulatory bodies around the world have increasingly been focussing on bonuses because of their potential to influence player behaviour in such a way that it can have a negative impact on consumer protection.

In regulated markets we see authorities implementing strict guidelines on how bonuses can be structured and promoted. This can directly influence the number of bonuses that may be offered to or used by players.

Player Behaviour and Responsible Gambling

The impact of bonuses on player behaviour should be a critical consideration for operators. The reason is that the encouragement that bonuses bring is at odds with the moderate play promoted by responsible gaming. Gambling is a demerit good which means it comes with high risks of over consumption – excessive play, which is the number one cause of gambling addiction.

Operators must strike a delicate balance between offering attractive incentives to invite new players as well as to prevent existing players from leaving to a competitor on the one hand and taking their responsibility when it comes to protecting those players on the other.

Bonus Abuse

Bonus abuse is the term used for players that actively take advantage of or exploit bonuses and promotions offered by operators. The majority of the abuse comes from players that have found a loophole in the terms and conditions that allows them to have an advantage. From their perspective, they are ‘playing the system’, similar to how tax avoidance is not the same as tax evasion.

Although, generally speaking, even this form of abuse is considered fraud, there is also a group of people that knowingly commit fraud in sophisticated and organised ways. Preventing or fighting this kind of abuse requires a comprehensive and proactive approach in collaboration with the fraud department.

Emerging Trends and Challenges

As in any competitive industry, the customers, or players in this case, stand to win the most. If your offerings do not meet or exceed expectations, the competition is never far away, especially when operating online.

The modern player expects innovative as well as highly personalised bonus offers that meet their specific needs. A player that is only interested in Live Casino games is hard to make enthusiastic with free spins for slots or betting on sports.

This kind of customisation can greatly benefit from the many new technologies that are described as ‘AI’, or machine learning, which can analyse a player’s behaviour from the moment they login. The same techniques can also be used to detect bonus abuse patterns or emerging problematic gambling behaviour.

By carefully considering these factors and implementing best practices, iGaming operators can effectively manage bonus risks and maximise the benefits of these powerful marketing tools.

Common Bonus Pitfalls and Best Management Practices

But what are the most common bonus pitfalls operators experience? Let’s look at some of the most important ones:

Unrealistic Bonus Terms: Setting overly restrictive or complex terms and conditions, such as wagering requirements, can frustrate players to the point that they damage the operator’s reputation and cause players to leave for a competitor.
Bonus Abuse: Players may find loopholes or even actively look for ways to exploit bonuses to gain unfair advantages. These advantages can lead to significant financial losses for the operators.
Insufficient Risk Management: Failing to properly assess the potential impact of bonuses on the business can result in unexpected costs. These risks include bonus abuse, chargebacks after using bonuses, money laundering, and, specifically for bookmakers, arbitrage and matched betting, where bonuses can increase profitability for the player.
Regulatory Non-Compliance: Many operators are active in different jurisdictions, but unlike games, bonuses cannot simply be offered the same way everywhere. Failing to observe local regulations, which can be very specific and strict, can lead to hefty fines and ultimately even license revocation.

Best Management Practices for Bonuses

The best way to manage bonuses in the iGaming industry is evident. First of all, it is critical to stay updated with the latest regulations in local markets. As bonuses are often a separate department from the compliance department, an operator must structure its organisation in such a way that the lines between those departments are as short as possible to avoid inefficient communication.

When the terms and conditions for the operator are clear, the next step is to ensure the same clarity is passed on to the players. All the information that players need must be readily available in such a way that it is easy for them to understand.

By keeping the terms clear and comprehensive, operators have set the first step in managing the risks of bonuses. By using easy-to-understand language, any loopholes will be easier to find and subsequently address.

As mentioned before, the techniques used to track player behaviour from a responsible gaming perspective can also be adapted to identify other types of behaviour, such as fraud or bonus abuse.

All the data collected for these purposes also is the ‘goose with the golden egg’ with regards to optimising bonuses. Bonuses can be highly personalised based on a player’s behaviour, leading to better experiences and more satisfaction. At the same time, the effectiveness of bonuses can be monitored in order to improve them even more.

To summarise, the bonus practices are:

Regulatory compliance
Clear and transparent bonus terms
Robust risk management
Bonus abuse prevention
Customer focus
Data-driven bonus optimization
Diversified bonus offerings

Bonus Abuse: Prevention in the iGaming Industry

Dealing with bonus abuse is a significant challenge for iGaming operators. Keeping bonuses attractive and efficient whilst at the same time preventing potential financial and reputational damages is a constant balancing act.

Understanding Bonus Abuse

Before diving into prevention, it’s crucial to understand various forms of bonus abuse:

Account Sharing: Players share accounts to circumvent bonus terms and conditions.
Bonus Hunting: Players strategically exploit bonuses across multiple casinos to maximise profits.
Chargeback Fraud: Players claim a transaction was fraudulent, but only after redeeming and using bonuses.
Collusion: Players work together to manipulate bonuses and game outcomes.
System Exploitation: Players find and exploit vulnerabilities in the casino’s system.

Prevention Strategies

Preventing bonus abuse requires a multitude of strategies, which, when combined and executed properly, can prevent most cases. Although many different approaches are possible, let’s have a look at the most effective ones.

Robust Player Verification

The most effective strategy in preventing bonus abuse and other forms of fraud is to have a robust player verification system in place. KYC (Know Your Customer) is the term used for the process of businesses to verify the identity and background of their customers. This includes verification of documents such as IDs and POAs (proof of address).

By verifying players, it becomes impossible for a player to open multiple accounts with an operator. At the same time, it is an important first step in fighting identity theft, collusion, account sharing, and ‘botting’. Although KYC does not directly prevent these last forms of abuse, the identity of those involved is known, which allows for actions to be taken against those players.

Advanced Player Monitoring and Fraud Detection Systems

Employing sophisticated AI and machine learning algorithms similar to those that can be used to identify problematic gambling helps to identify suspicious patterns and behaviours of players.

With modern computers, tracking dozens of data points for all players is now a reality. From deposits to withdrawals, anything a player does can be automatically recorded and analysed for suspicious patterns. Betting patterns, game selection, and how bonuses are used can not only help to spot abuse, but also provide valuable information that can be used to improve bonuses.

Bonus Structures

Although we mentioned that it is essential to keep bonus structures and terms easy to understand, how a bonus is structured greatly determines how sensitive they are to abuse.

First of all, bonuses generally come with a selection of limits or requirements; maximum bonus amounts and bet limits, time and game restrictions, and wagering requirements all can help prevent bonus abuse or the risks thereof.

The most well known is the wagering requirement, which determines how many times the bonus amount must be wagered before a player is able to cash out. As this is also the most restrictive, players will tend to choose games with the highest RTP (return-to-player or pay-out). For this reason, most operators let different games contribute to the wagering at different rates – game weighting.

Game weighting

Game weighting is based on the RTP of games, where games with a higher RTP contribute less to the wagering requirement. This means wagering requirements that typically range from 20 to 40 times might end up being 100 times.

On the other hand, this strategy can also be used in a similar way as free-spins are to promote certain games. If a player wants to meet the wagering requirement as quickly as possible in order to be able to cash out, a game that contributes more to that requirement is more enticing to play.

Player Segmentation

The final strategy we discuss here is player segmentation. By identifying and segmenting players based on their risk profiles, betting behaviour, and bonus history. Bonus offers can be tailored to mitigate the risks of these groups of players, for example, by setting extra restrictions for certain types of sizes of bets.

Constant Monitoring and Adaptation

Monitoring and adapting to an ever-changing bonus landscape is not a strategy but a necessity. Staying updated with emerging bonus abuse techniques and regularly reviewing and updating fraud prevention measures is not optional if an operator wants to stay in business. Conducting audits to assess the effectiveness of prevention strategies must be incorporated into the core of any bonus department.

The Delicate Balance Between Bonuses and Responsible Gaming

The iGaming industry walks a fine line when it comes to offering bonuses while upholding responsible gaming principles. Bonuses are essential marketing tools to attract and retain players. They create excitement, provide additional value, and encourage player engagement; however, there’s an inherent risk of promoting excessive play and potentially harmful gambling behaviours.

Key Challenges in Responsibly Offering Bonuses

Bonuses incentivise players to play longer and wager more to meet bonus requirements. Bonus amounts have to be wagered a certain number of times within a certain timeframe. The problem with this is that it increases the risk of problem gambling, which is directly related to how much one gambles.

Large bonuses can also create unrealistic expectations and a false sense of winning potential. Not only can this lead to disappointment and frustration because the chances of winning do not rise with the bonus amount, but large bonuses mean you need to play a long time to meet the requirements. As said, this inevitably makes a player more susceptible to problematic gambling behaviour.

Finally, bonuses can disproportionately impact vulnerable individuals who are more susceptible to gambling addiction. It is the most vulnerable group of players that have trouble rationally assessing or understanding bonus conditions, and are most prone to see bonuses as ‘free money’ and fall for their temptations.

Balancing Act

To mitigate these risks and promote responsible gaming, operators must adopt a holistic approach:

Clear and transparent bonus terms: ensuring that bonus terms and conditions are easily understandable and accessible to players is crucial. This includes clear explanations of wagering requirements, which can be complex, game restrictions, and time limits.
Responsible gambling tools: Integrating responsible gambling tools into the bonus experience is essential. This includes deposit limits, loss limits, self-exclusion options, and access to responsible gambling resources.
Player protection measures: Implementing robust player protection measures, such as age verification, identity verification, and responsible gambling checks is vital. In more and more markets, we see regulatory limitations to the types of bonuses that can be offered and to whom.
Targeted bonuses: Offering bonuses that cater to different player segments can help to reduce the risk of targeting vulnerable players, either by offering them different bonuses or no bonuses at all.
Educating players: Providing players with information about responsible gambling and the risks associated with excessive play is essential. However, convincing players to actually use such information is challenging. It can quickly be interpreted as pushy or obtrusive, which can push players away to a competitor that does not take responsible gambling as seriously as they should.

Ultimately, the success of balancing bonuses and responsible gaming lies in a combination of effective risk management, player education, and a strong commitment to player welfare. It’s a complex challenge that requires ongoing attention and adaptation to the evolving landscape of the iGaming industry.