A multi-layered approach is the best defence, explains Ecommpay senior sales manager for travel, Harry White
Guest Post: Modern solutions to rising travel industry payment fraud
As the travel sector becomes increasingly digitised, payment fraud is on the rise. Whether scamming free trips using stolen card numbers or falsely initiating chargebacks after a holiday, travel fraud is now a vast, well-organised business.
The popularity of online and mobile bookings, combined with the rapid evolution of consumer technology, means that payment fraud is predicted to surpass $362 billion from 2023 to 2028, according to Juniper Research's Online Payment Fraud research. The impact on the travel sector is profound, with 50% of merchants experiencing increased online scamming activity. More specifically, around 20% of travel accommodation providers have reported a notable surge in fraudulent online payments.
Losses from fraud, combined with the costs of chargebacks and higher payment-processing fees, chip away at travel operators’ thin profit margins and, understandably, make many business owners reluctant to sell packages online.
In this post, I’ll explain the difficulties faced by anti-fraud systems in the travel sector and how fintech payment providers are rising to meet the challenge.
Today, most travel products are sold digitally, making fraudulent transactions challenging to detect in an industry where mismatched datasets are common.
Traditional e-commerce fraud prevention systems rely on spotting inconsistent data to separate legitimate customers from fraudsters. However, in many checkout scenarios, cardholders buy tickets for third parties, so the names associated with purchases don't always match. Meanwhile, digitally delivered products mean there’s usually no need for a physical address, so travel merchants aren't able to check shipping and billing information to confirm transactions.
Compounding the issue, many travellers often purchase extras and upgrades when they book a holiday, with some of those transactions happening through separate channels, using different payment methods, and at later dates.
The high degree of payment data fragmentation within the travel industry makes it easier for dishonest customers to initiate chargebacks (so-called "friendly fraud") and makes professional scammers more difficult to detect.
The relative risk of payment fraud may be acceptable for airlines and large cruise operators. But for small or medium-sized online travel agencies, such profit losses could be catastrophic. So what's the solution?
Fighting payment fraud in 2023 and beyond
The best anti-fraud solutions now take a multi-layered approach to detect fraud within complex datasets. Algorithm-based systems and advanced machine learning tools provide the first line of defence, with highly trained payment fraud specialists performing checks on flagged suspicious activity.
Most importantly, modern anti-fraud systems can be tailored to a merchant's unique needs — something that's particularly important for travel operators. Once correctly optimised, it's possible to strike the perfect balance between high security, checkout conversion and maximum revenue.
Graph analysis: The final piece of the puzzle
By nature, payment fraud is fluid and dynamic, with criminal tactics evolving over time. Therefore, modern systems must employ equal dynamism to thwart increasingly complex attacks. One technology rapidly gaining traction in the fintech sector is graph analysis — an innovative solution that can detect and prevent not just individual scams but also interconnected fraudulent activity and chain attacks.
Graph analysis allows multiple activities in a payment chain to be analysed, uncovering the accounts involved in attacks as well as so-called “hidden fraud” — scammer accounts that look genuine but often go undetected by less sophisticated solutions.
If fraudulent transactions are found, graph analysis tools can block chains of activity so that when fraudsters attempt further malicious action, the threat is neutralised. The entire process is repeated until the criminals have exhausted their efforts and ceased fraudulent activities.
A word of Open Banking
Although professional scammers are undoubtedly a huge problem for the travel industry, instances of “friendly fraud” via malicious chargebacks are also on the rise.
Open Banking, also known as bank-to-bank payment, is an effective way to combat this issue because, with no card networks involved, chargeback mechanisms do not exist. The payment method is growing in popularity across Europe and the UK, as it enables instant payment in a few clicks or screen taps, with strong customer authentication via the user’s bank.
In addition to increased merchant and consumer security, Open Banking also offers fast settlement. Moreover, the technology is cost-effective, as payments aren’t subject to interchange or card scheme fees.
By adding Open Banking to their checkout pages, travel companies can offer a compelling alternative to card payments that could save them money, increase conversion, and boost the average consumer spend.
The travel industry is facing ever-greater pressure from increasingly sophisticated payment scams, and operators must invest in robust fraud prevention solutions to track and prevent attacks while remaining competitive.
The travel sector presents a unique e-commerce scenario with complex data sets. To beat fraud while maintaining high conversion and customer satisfaction, merchants should search for a payment provider able to tailor its product offering to suit their specific business needs while employing innovative technologies to mitigate payment fraud in a complex digital landscape.