Costing US$21B a year - it pays to know about fraud in travel payments

February 22, 2018

The digital revolution has enabled people to find and book travel to more and more destinations, often via travel intermediaries such as Online Travel Agents. Unfortunately, these technologies have also equipped criminals with the tools they need to commit fraud.

Global reach and digital anonymity are just two factors that make the travel industry especially susceptible to fraud. In 2017 the impact of fraud is estimated to have cost travel intermediaries US$21B. By 2020 the impact of fraud is expected to cost US$25B, driven by both a migration from offline to online, and an expected uptick in the rate of fraud.

Understanding fraud and its true impact and cost to travel businesses is the first step to combating it. So we engaged payments focused consultancy, Edgar, Dunn & Company, to investigate fraud in travel payments. Using the research findings, we worked together to identify best practices that minimise the risk and impact of fraud and put them together in a Fraud in Travel Payments report.

The scale of the problem is compounded by the fact that fraudsters are adopting ever more sophisticated techniques to catch companies out. An example of this is where a fraudster will list a fake hotel with an OTA and use stolen credit cards to make bookings via the OTA’s website. The OTA makes payment to the fake hotel but will then receive chargebacks for the bookings. The fake hotel will have withdrawn all the funds paid by the OTA and won’t respond to any contact attempts. OTAs need to ensure they are verifying the legitimacy of a new supplier during onboarding and perform appropriate due diligence checks to limit the risk of this type of fraud.

There are also instances of fraudsters using stolen credit card details to purchase tickets to tourist attractions. These tickets may then be on-sold via a social media platform for a discounted price. In this situation the ticket is either utilised, leaving the tourist attraction operator or travel intermediary out of pocket after a chargeback, or when the tourist arrives at the attraction the operator advises the ticket has been cancelled as it has been reported as fraud, leaving the tourist out of pocket, not to mention a bad holiday experience. This type of fraud occurs with velocity and in a short time window. OTAs need to be alert to volume increases to a particular supplier.

Reducing incidence and impact

The good news is that advances in payments technology means there are simple steps travel intermediaries can take to minimise the risk and impact of fraud. As well as aid recovery should fraud occur. For example, eNett VANs can be configured to ensure smooth flow of legitimate transactions, while at the same time providing controls which can ensure that a single payment goes to one specific merchant, on one specific day, for one specific amount, on one occasion only, thereby reducing fraud rates by 99%.

With fraud costing travel businesses time, money and effort, it pays to know how to reduce the impact of fraud.

Download eNett’s full Fraud in Travel Payments report here.