“Digital Goods” Fraud is Big

The Wall Street Journal reports that digital items within games and social networks accounted for $2.2 billion in sales in 2009, and are expected to account for $6 billion in sales by 2013. Billions more are spent on music and other downloadable digital media.

“Digital goods” are any products that are stored, delivered, and consumed electronically. Within a variety of online communities, including social media and online gaming websites, “virtual currency” is used to purchase virtual goods. Clothing and supplies for Second Life avatars are examples of virtual goods, which sometimes add points and enhance the player’s status within the game.

While it may be “hard to imagine fraudsters’ interest in items like computerized swords for a fantasy game…these goods are often easier to obtain than physical goods and criminals have learned that there are ways to convert them into cash.” Criminals can use stolen credit cards to purchase digital goods, and then sell them at a discount, “the online equivalent of selling stolen Rolexes on the street corner.”

The difficulty for digital goods merchants is the nearly instantaneous delivery. A traditional merchant must physically process and ship an order, which leaves time for more scrutiny. But with virtual goods, there’s little time to investigate the validity of an order.

When a credit card is not physically present, merchants can protect themselves by leveraging device reputation analysis. iovation’s ReputationManager 360 is used by many of the world’s largest gaming sites and digital goods providers. Gaming operators can customize business rules around geolocation, velocity, and negative device histories (including gold farming, code hacking, virtual asset theft, and policy violations) to identify nefarious accounts activity, or fraudulent use of stolen accounts. More than 2,000 fraud-fighting professionals who contribute to iovation’s global database every single day continue to strengthen the system, while maintaining a safe and inviting environment for their players.

Robert Siciliano, personal security and identity theft expert contributor to iovation, discusses identity theft in front of the National Speakers Association. (Disclosures)