Tom Randklev, global head of product of CellPoint Digital, shares his views on the necessity of tackling this pressing issue head on
Guest Post: A growing problem – fighting fraud in the airline industry
Call it a function of the human condition, but any time value is exchanged, there will be bad actors trying to get something for nothing. Because of this, as the volume of transactions in any industry increases, the potential for incidents of fraud increases as well.
Now that the global number of travellers is near 95% of pre-pandemic levels this year, according to UN World Tourism Organization estimates (up from 66% in 2022), the travel industry is experiencing a comparable uptick in fraud.
Airlines have been particularly hard-hit by this trend. In 2021, Fraudster reported that airlines lost 6.5 billion Euros to fraud, or 1.5% of global airline revenues. And with new technologies, hackers and fraudsters are becoming more adept at leeching from airlines every day.
That said, airlines aren’t defenceless in the face of this growing problem. By utilising payment platforms designed with fraud prevention in mind, embracing holistic strategies like Payment Orchestration, and creating wider pathways for legitimate transactions, airlines can effectively combat fraud and protect their margins.
Airline fraud bigger than most people think
Before airlines can start mitigating fraud, it helps to understand the size and scope of the problem they face. Ecommerce fraud is nothing new. But the airline and travel industries are particularly impacted by fraud; according to an Experian report, 46% of all fraudulent transactions were centred on the airline and travel industries.
In total, this accounted for airlines losing 1.2% of their annual revenues on website and mobile sales said IATA. While this may sound like a relatively small number, it can be catastrophic for an industry with narrow operating margins and highly variable cost factors. Beyond the bottom-line impacts, fraud can affect an airline’s ability to expand its reach, invest in capital improvements, build customer trust and create jobs for local economies.
Most visibly, fraud often results in higher ticket prices for customers. In short, both airlines and travellers pay the price for rampant fraud.
Most worrying of all, the problem is getting worse. According to another report, by Sift this time, account takeover attacks of frequent flier accounts increased by 307% from 2019 to 2021. After reaching record highs in 2021, loyalty fraud rates increased by another 30% from 2021 to 2022 found Group-IB's research.
Another common form of fraud, chargebacks, are a particularly insidious type of scam because of the extra costs associated with absorbing the chargeback. According to Forbes, retailers lose $3.75 for every dollar lost to online fraud. This is why, in 2017, 60% of global airlines said reducing chargebacks was their top priority for combatting payment fraud.
What are the most common types of fraud?
Chargebacks may be the top priority for airlines, but they are not the only type of fraud impacting the industry.
Airline fraud hits every aspect of the booking process, making it incredibly difficult to stop. Some of the most common types of fraud include:
Providing fake payment details
Stealing loyalty miles
Employee account phishing
Third-party travel company fraud
Airline account hacking
Point of Sale (PoS) machine hacking
In-flight credit card scams
The threats are coming from both inside and outside of the house. For example, an airline may have a secure payment platform, but their PoS machines may be vulnerable. Likewise, lacking access to in-house access controls may allow employees to exploit an airline’s current protocols.
Like other companies, airlines suffer from disparate systems, slow manual processes, and multiple information sources. There’s also the simple issue of speed. When many instances of fraud are discovered, it’s already too late to recover their losses.
Improving the status quo – how airlines can change the game
Airlines face assaults from countless angles and remain unprepared... but not without the ability to protect themselves. The first step is simply updating the systems in use. According to the International Air Transport Association (IATA), airlines still have many legacy systems within the booking and payment processes, and any legacy system is ripe for exploitation. They cannot stand up against the most common techniques implemented by fraudsters.
So, what are the answers?
Integrated booking and payment platforms
Adopting Payment Orchestration strategies, which centralise all aspects of payment processes – including fraud detection and prevention – is a good start. This allows airlines to move quicker when suspicious activity is discovered and makes the process of whitelisting and blacklisting accounts simpler. A good Payment Orchestration Platform will also accommodate multiple PSPs and acquirers, route transactions intelligently to boost acceptance and integrate multiple payment methods, creating a more efficient payment system overall.
Checks and balances
Every transaction should go through automated checks and balances. Automated fraud orchestration enables the relevant security checks to be performed in seconds and avoids the loopholes that come with manual processes.
And these same checks and balances should also be applied to in-house teams managing the fraud prevention process.
Implement robust fraud detection capabilities
Next-level Payment Orchestration platforms typically incorporate sophisticated fraud detection and mitigation tools. Fraud detection identifies and prevents suspicious transactions from as early as the booking request state.
Payment Orchestration platforms with fraud detection capabilities also integrate with incident management processes, enabling airlines to move faster and more flexibly than ever. Crucially, they allow global airlines to avail themselves of next-generation technologies, such as big data, machine learning, and artificial intelligence, to stay one step ahead of the fraudsters.
When airlines shake themselves out of the status quo, they can more effectively combat fraud at every stage of the booking process. At a time of increased travel demand – and therefore higher travel transaction volumes – this is a critical defensive step for airlines. With a relatively high-value product attractive to bad actors, airlines are particularly at risk but far from defenceless.
They can upgrade their systems, embrace Payment Orchestration, institute common-sense checks and balances and strengthen their legitimate payment channels. By embracing these solutions at scale, airlines can enact the kind of fast, collective action that enables governments and authorities to hunt fraudsters and make the industry safer for everybody.