Whether it’s scamming free flights with stolen credit card numbers, booking hotel stays to test stolen card numbers’ validity, or falsely claiming fraud after a tour or trip, travel fraud is a big, organized business.
The recent rise in card-not-present (CNP) fraud targeting online retailers – and how best to fight it – has been a hot industry topic over the past year, but retailers are not alone in facing fraud and losses due CNP fraud. The travel industry has also become a target for online fraudsters worldwide. Fraud losses eat into margins for hotel chains, car rental agencies and airlines, but the most damaging effects may fall on travel agencies and small hospitality operators. Why is CNP fraud such a problem for the travel business now, what makes it such a tempting target, and how can travel businesses fight back?
Whether it’s scamming free flights with stolen credit card numbers, booking hotel stays to test stolen card numbers’ validity, or falsely claiming fraud after a tour or trip, travel fraud is a big, organized business. Last October, for example, law enforcement agencies from more than 40 countries arrested nearly 200 people in a coordinated operation targeting airline fraudsters. According to Europol, such fraud costs the airline industry more than a billion dollars every year. For smaller operators like travel agencies, the losses are smaller but the stakes are higher.
Low margins, high risk for travel agencies
Unlike retailers, who earn the full value of each online sale, travel agents earn a percentage of each ticket, rental, stay or travel package they book in the form of convenience fees paid by clients and commissions from travel providers. Just like retailers, though, travel agents are responsible for the full cost of any fraud-related chargebacks if they don’t meet certain transaction requirements.
According to the Travel Market Report, this means that a travel agent who earns a fee of a few hundred dollars putting together a trip for an online client may be liable for thousands of dollars in lost sales if the customer turns out to be a fraudster. For a small to midsize agency, such a loss can cause lasting damage, from cash-flow problems to lawsuits.
Unique fraud-screening requirements for travel operators
In addition to this revenue structure, travel agents (and providers) have payment processing requirements that are unique to the industry, especially when it comes to the timing of orders, approvals, and travel dates.
For example, travel agencies’ fraud protection tools must factor in the holding time agencies face when they buy tickets for a client. The holding period, during which the agent and providers verify ticket availability, can be up to 24 hours. During that time, the funds available on the credit card can change, so an approval early in the hold period might be invalid by the end of that time. Fraud screening programs must consider this long transaction window in order to protect agencies from costly chargebacks.
Airlines face a different set of timing challenges. They need fraud protection protocols that can prioritize decisioning according to how soon the flight takes place. That means that some transactions must be properly screened within just a couple of hours for last-minute ticket buyers. These last-minute buys have a higher rate of fraud than orders placed months in advance, as criminals hope to make their flight before their fraud is detected. Advance purchases, on the other hand, leave open a very long window for potential chargebacks.
Best practices for thwarting CNP travel fraud
Travel providers and agencies can reduce fraud exposure without unintentionally declining valid orders by following these best practices:
- Understanding each card company’s transaction documentation and response policies to reduce friendly-fraud chargebacks.
- Choosing e-commerce fraud prevention tools that can handle peak booking periods and short approval windows without sacrificing the accuracy of transaction screening.
- Incorporating machine learning and algorithms that adapt quickly to sudden changes in fraudsters’ strategies.
- Using human intelligence to screen flagged transactions and contact customers before declines, to prevent false declines that can end customer relationships.
- Verifying customer identities with geolocation, consumer and behavioral analytics, and social media vetting tools.
- Having chargeback insurance. This is especially important for agencies that cannot afford to assume liability for fraud related to costly vacation packages or international air travel bookings.
As long as fraudsters can develop ways to cheat the system, travel operators and agents will have to find ways to stay ahead of them. By building robust fraud-prevention habits and staying up-to-date with the latest travel fraud threats, travel businesses can reduce their online fraud risk and protect their customer relationships.
Rafael Lourenco is the VP of US Operations at ClearSale, a Card-Not-Present fraud prevention operation that protects e-commerce merchants against chargebacks. The company’s flagship product, Total Guaranteed Protection, is an end-to-end outsourced fraud detection solution for online retailers.