Shvangi Sharrma

11:06 AM, 18th May 2018

Fasten your Seat belts: Travel Industry Fraught with Fraud

The past decade has witnessed a spectacular rise in the travel industry’s online and mobile commerce. As in other businesses, going digital—embracing newer channels and technologies—has enabled the travel industry to grow quickly, create more value, and bolster customer experience. However, this rapid expansion has come at a price, making the travel industry ripe for fraud.

New channels breed new vulnerabilities and create dozens of opportunities for scammers. According to industry reports, online bookings have the highest incidence of fraud by channel.

The fraud rate by channel, as observed, is only a little higher for online versus over the phone. As majority of people now use mobile phones to access the internet, more and more bookings are now done via mobile devices. Evidently, online bookings are expected to rise, but so are more sophisticated forms of fraud.

A Breeding Ground for Fraudsters

A unique set of areas and activities contributes to breed scams in the travel industry. Some of these top fraud challenges include:

  1. Shift to new markets: Expanding into new markets requires travel companies to understand industry operations in foreign spheres. For example, user interactions, verification credentials, and identifier codes can vary on travel-agency websites according to different geolocations, complicating user authentication. Companies who fail to customize online operations based on regional requirements invite fraud.
  2. Increased fluidity: Millennials believe in the power of instant: instant recipes, instant payment, Instagram. And, according to a report by Foresight Factory, one-third of millennials make last-minute travel plans. Companies are left with little time to detect and avert a scam, and fraudsters take advantage.
  3. Authorization vs. charges: Online travel agencies are most prone to “authorization vs. charges” risk. Typically, hotel stays are authorized but not charged before a check-in takes place in the hotel. By the time a fraud is detected and reported, the scammer has already scooped out his riches. The risk rate increases for those agencies that deploy manual fraud-detection measures.
  4. Emphasis on customer experience: Keeping customers’ experience simple and streamlined across different channels is the key to winning them over. It is, nonetheless, difficult to balance quality experience with security; doing so requires companies to collect significant personal information from users. There is an inherent risk of data theft and fraud involved, which cannot be overlooked.

 Types of Fraud Prevalent in the Travel Industry

Shrewd fraudsters keep looking for newer, more advanced ways to exploit user data and travel businesses online. Airlines are experiencing an average fraud attack rate of 1-3%. And, because of outdated fraud prevention measures, these airlines are rejecting 8% to 25% of good orders, as per a study by Centre for Aviation.

The following examples show scams that are mushrooming among travel companies and consumers around the world every day:

         Identity Theft

A fraudster impersonates a genuine user in an attempt to misuse her personal details. Stolen information, such as credit-card numbers, is used to book online tickets and hotel rooms. Additionally, fraudsters often sell stolen identities to underground cybercriminals.

  • Action tip: Travel companies should deploy an advanced fraud detection solution to protect their firm and their customers from account takeover and associated damages. The chosen solution should be able to identify and distinguish between legitimate user and fraudster devices and behaviors via multiple technologies such as device fingerprinting, user location, and link behavior analysis.

    Card-not-present

Consumers spend huge sums of money making online bookings, using their credit/debit card information. Such transactions involve heavy investment from both the merchant and consumer. For fraudsters, this is a big opportunity to book flights or hotel rooms using stolen credit card information, with no intent to honor the payment. Adding to the nonpayment losses is the heavy cost of fighting chargebacks—a fight agencies often lose. When this happens, the merchant gets debited for the card charge as well as paying a chargeback fee.

  • Action tip: Use automated fraud prevention tools to reduce manual reviews and false positives while dramatically increasing overall speed and accuracy.  This will help ensure your legitimate customer transactions are quickly approved without compromising on security.

    Mobile Fraud

The mobile revolution has brought with it a whole new set of data points to be carefully managed and protected. Fraudsters usually target mobile travel services that don’t require strict identity verification, such as travel company loyalty clubs and memberships. However, with appropriate security measures in place, mobile transactions are at least as secure as other online transactions.

  • Action tip: Implement a quality fraud detection solution that’s capable of efficient data ingestion across all channels, including mobile. Perform cross-channel profiling to ensure that all transactions across all channels are evaluated in context.

    Frequent Flyer Fraud

Fraudsters have been known to attack frequent flyers by stealing miles from good user accounts. They do this by often hacking into legitimate user accounts—typically those that have weak login credentials. These thefts damage the company’s reputation and destroy customer trust.

  • Action tip: Employ device and other fingerprint technology to detect and analyze login attempts. For example, if two login attempts (allegedly from the same person) occur within a short period of time, but geolocation data shows that the users were located actually more than 150 kilometers apart, the login attempts can be flagged as fraudulent behavior.

Beyond Rules: Shifting to Machine Learning

Rule-based systems are still widely relied on to prevent fraud, but they often come up short in battling more advanced crimes. Leading industry players who want to foolproof the future of the travel business are switching to smarter solutions that use machine learning. Unlike traditional rule-based systems, machine learning is proactive, provides more accuracy at scale, and enables real-time decision making.

At Simility, for example, machine learning fights loyalty fraud by using device intelligence technology combined with user-behavior pattern analysis. To see how we are fighting fraud in the travel industry, simply contact us or schedule a demo for a product walk through.

Note: This blog post was originally published here on Simility.com 

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