The first step for travel merchants to get ahead of fraudsters is to understand how fraudsters work.
The travel industry is a hotspot for fraudsters. Airline merchants are probably very aware of payment fraud because it cost the industry $858 million annually. The first step for merchants to get ahead of these fraudsters is to understand how they work. To help with that, here are four ways that fraudsters try to take advantage of airlines:
Booking Through a Travel Agent
Even though online booking has made it easier for customers to book their tickets online, as of year-end 2017, more than half (52%) of all U.S. travel was still booked offline through travel agencies/travel management companies. The travel agent that is booking and working with the customer is the one who approves the transaction. This means that human error can get in the way of picking out an experienced fraudster. Stolen credit cards, forged passports or drivers licenses, and posing as an authority figure, such as a doctor, are all methods that are used by fraudsters to make sure the booking goes through. The airline’s fraud filtering system would normally prevent this type of transaction, but because of a lack of communication between the travel agency and the airline, these transactions are being accepted.
For the transactions that are disputed, the airline may request the transaction amount from the travel agency. This puts the financial responsibility on the travel agency, but the problem for airlines is that no matter who is liable for the cost of the dispute, as the “merchant of record” the airline is still liable for responding to the disputes. This means that the airline has to sacrifice employee time to respond to these disputes.
Reward Point Fraudsters
These fraudsters take stolen card credentials to buy as many ticket purchases as possible. The more expensive the ticket is, the better. The goal is to rack up as many reward points or miles as possible, to then sell the points on the black market. As soon as the points are in the account, the fraudster will transfer them into another account to sell or immediately use them to buy another ticket.
Loyalty Fraud / Account Takeover Fraud
Account takeover fraud is when a fraudster obtained valid credentials to takeover an online account. After gaining access to the account, the fraudster is free to run wild pretending to be the actual account holder. These can lead to a couple of scenarios for airline merchants.
Loyalty Program Fraud
Airline loyalty program points have a large appeal to fraudsters. These points are incredibly sought after and can be used toward high-value tickets. On top of that, there is a lack of protection around the loyalty points. Merchants and even the customers do not view reward points as currency, but fraudsters do. As long as that mentality exists, there is going to be less protection around the loyalty points than there would be around credit card information. This makes loyalty programs a target for fraudsters.
The percentage of cyber attacks targeting loyalty and rewards accounts nearly tripled from 2016 to 2017, with 48% of businesses hit by account takeover attacks. This has cost companies more than $2.3 billion worldwide.
Merchant Account Fraud
If a merchant has a cardholder’s information saved to their site when a fraudster gains access to the customer’s account, they can start to make purchases posing as the customer. By simply accessing the account, fraudsters don’t have to get their hands on a credit card to make purchases. When a customer does not change their passwords from account to account this tees up fraudsters to takeover many accounts after gaining access to just one. Fraudsters are also utilizing technology to takeover an account. If they only have one piece of the puzzle, such as an email, a bot that can enter thousands of passwords a minute to try to access the account. Targeted accounts can be based on data breaches that contain customer information.
Chargeback fraud is the fraudulent request for a return or refund in the form of a dispute. The cardholder disputes the transaction in an attempt to regain the transaction dollar amount while retaining the product or services rendered. For airline merchants, this means that the cardholder was on the flight, then disputed the transaction to try and get their money back. Because this is an abuse of the dispute process, merchants can win these disputes from submitting a dispute respond document. This document must be crafted based on the reason code, and for airline merchants, the applicable travel transaction modifiers.