Fraudulent in-app purchases in iOS reach 40%, says developer

Lakoo, developer of online multiplayer games, reports large scale fraud with in-app purchases in iOS, Apple’s operating system. The fraction of fraudulent transactions reaches four out of every ten purchases in some cases. The fraudsters use compromised iTunes accounts and fake gift cards.

Although Lakoo asserts to have contacted Apple numerous times to request assistance in combating the fraud, the Cupertino-based firm remained silent. In a similar fraud case that took place in the summer of 2010, Apple promised to enhance security. The new cases seem to indicate that this has not happened, yet.

Lakoo is known best for their game Empire Online, that is played globally by over 5 million registered users. The version playable on Apple’s mobile devices is used by around 200.000 people. Other developers of apps that feature in-app purchases have not revealed data on fraud. This may point to other developers facing less dramatic fraud.

Using in-app purchases appears to be a successful new business model, especially with games. The games a re generally free to download and play, but in order to access specific content or acquire certain items, one needs to pay. This strategy, called free to play, is gaining in significance in marketing games.

One of the world’s largest publishers of games, EA, recently elevated free to play to one of the focal points in the coming years. Turnover of the soccer game FIFA Ultimate Team have risen 400% to 40 million dollar when the basis of the game became freely available. At a recent conference, EA’s CEO John Riccitiello said: "As the head of our Playfish division likes to say, 'There's no such thing as free to play... It's play first, pay later,' and that's a very compelling model."

If this model is to develop further, the reliability of the platform used to distribute the games and to offer extra content for purchase, is of the utmost importance. Here’s to hoping that Apple stops the gap.