Stricter control measures for loot boxes: an opportunity or a threat for video gaming companies?

We’re seeing a new generation of consumers come to maturity that have both feet firmly planted in the digital noosphere like no previous generation. Not only do these digital natives have a deep connection to the digital world (92 percent of Generation Z have a digital footprint), but they also frequently lack many of the more traditional links to the systems that the world runs on.

A combination of age and reduced numbers of young people buying property, voting or even living in single household families has led to a situation where traditional credit data like electoral registers and prior credit history can be weak to nonexistent.

Generation Z, frequently at least a decade behind their parents in terms of typical adult milestones, are finding themselves unable to use traditional credit files to verify their identities. This difficulty doesn’t just cause problems for younger people looking for first-time big credit. There are many other reasons for people to want to be able to verify their identities quickly and easily.

All over the world, tighter regulations for digital products are making it essential that younger consumers can verify their age and identity quickly and simply. While the U.K.’s proposed age limit on digital adult material was recently cancelled, there are other digital products that are increasingly controlled by age checks in a number of countries.

While no one would like to be able to see school children get online access to casinos, there is another type of product that’s increasingly classed as either a type of gambling or as an addictive gambling trigger. Video game loot boxes, purchased with real or in-game currency, contain virtual rewards. Players don’t know what they’ll get when they buy loot boxes, so they function as games of chance.

What is the problem with loot boxes?

Loot boxes at first seem like innocent packets of randomly generated digital joy or disappointment, with their selection of level-limited in-game goods and resources. Most modern games have loot boxes or their equivalent. In fact, loot boxes are often an important part of gameplay.

However, loot boxes have a lot of similarities with fixed-odds betting terminals. Even with loot boxes from games that charge a flat-rate license or subscription, the player usually invests a certain amount of game capital (in the form of credits or time spent completing a level) in exchange for a minimum return in loot of various types (game objects like weapons and armour, game resources, and similar).

The rise of freemium games — free-to-play games that encourage micropayments to get additional resources, game goods, character upgrades and so on — have the potential to make the link between loot boxes and gambling much stronger. Most of these games directly link spending real-world money with the opening of loot boxes, spinning of loot wheels, and similar. Premium loot boxes cost more, and often it’s extremely easy to accidentally run up huge real-world payments, one micropayment at a time.

These games frequently rely on payments via platforms that take PayPal, and even mobile phone app platforms like Google Play that let you pay via phone credit. None of these payment methods require an age check, or even a bank account in some cases, making them extremely accessible to children and young people. It’s also worth mentioning that some games let users sell objects for cash, potentially making the link between loot boxes and cash gambling much stronger.

Regardless of whether in-game loot boxes involve real-world money, they represent “toy” gambling and involve many of the same triggers and mental pathways. Quite rightly, a steadily increasing number of countries have realized that loot boxes are a potential addiction trigger, whether or not money is involved.

A IPSOS Mori survey in 2018 found that 31 percent of U.K. children aged 11 to 16 had paid for loot boxes, with one gamer saying they spent up to £1,000 per year on FIFA Points trying to win better players for his team on EA’s FIFA football/soccer game.

Loot box legislation

Legislation of loot boxes has rapidly sprung up in many countries around the world, and many more countries are thinking hard about changing their laws. These laws vary greatly from country to country, with outright bans in some places, and age limits, spending limits or combinations of the two in others.

Some self-regulation is also happening. Games publishers make a great deal of money from loot boxes, so they’re reluctant to do away with them entirely. Currently, major titles have loot boxes available in some countries, but not in others. Gamers may also need to prove their age and ID before they can access loot boxes.

The importance of effective digital identity verification

Access to effective identity verification methods that work online is essential for complying with these regulations. Not only does identity verify age, it verifies which country a gamer is in, and therefore which regulations apply to them.

In the case of loot boxes and other age-restricted products, access to a credit card isn’t necessarily enough to make sure someone is old enough for access. After all, many children can borrow credit cards or buy pre-paid cards online. For Generation Z, having a better way to prove their identity online is about more than just loot boxes.

Generation Z already spend a huge amount of their time online, whether it’s for gaming, socializing, shopping, learning, work or entertainment. Loot boxes aren’t going to be the last thing that regulators start wanting identity verification for. In fact, once members of Generation Z start verifying themselves for these services and building up a track record, it will benefit them once they start looking for more “adult” services like mortgages and business loans.

What is important is that this next generation of consumers isn’t held back by their lack of easily verifiable identity, having already had the bad luck to be brought up during a recession. Once they are able to combine an easily verifiable digital identity with the skills of a digital native, Generation Z will get the opportunity to truly shine.