Five types of fraud that hotel merchants need to be aware of to protect their revenue and bottom line.
Hotel merchants face different types of fraud because of the nature of booking and reservations. Here are five types of fraud that hotel merchants need to be aware of to protect their revenue and bottom line.
Account Takeover Fraud
Fraudsters are starting to targeting loyalty programs.The 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 an easy target for fraudsters. The percentage of cyber attacks targeting loyalty and rewards accounts nearly tripled from 2016 to 2017, with 48% of businesses being hit by ATO (Account Takeover) attacks. This has cost companies more than $2.3 billion worldwide.
After a fraudster gains access to the reward points, they will quickly transfer the points to a dummy account. From there, the fraudster may hack many accounts and consolidate the points to sell. Or they may even use stolen credit cards to increase the amount of points.
A customer losing their points not only affects the business by losing merchandise, points, or other benefits that the fraudster has now gained. It also angers and disappoints the customer. This will damage customer loyalty and goodwill that the reward program was set up to build.
“Good” Account Set-up Fraud
The goal of skilled fraudsters is to blend in as much as possible with normal customer behaviors. This could include setting up loyalty accounts to blend in. They will set up these accounts with stolen credentials before they actually commit any fraud to make the future fraud purchase look as normal as possible. Even if that takes making a legitimate purchase first to set the stage as a good customer. The key is after fraudulent purchases happen merchants will see these account transfer the points to another account.
In an attempt to make the process of checking in as easy as possible for customers, hotel merchants may have opened the door for fraudsters. Hotels have started implementing digital check-in where a customer can use an app to bypass the traditional front desk check-in. While this may improve customer experience, fraudsters can now use stolen credentials and have no problem at the front desk where they may need to present the physical card or ID that was used to book the stay. This process is essentially taking away any roadblock the fraudster may face.
When a fraudster gets a hold of stolen credentials, it is a common practice to test the card to make sure it is still active. One common way to do this is to make a very small purchase on the card which makes low-cost digital goods a target. Another way fraudsters test is to get an authorization to go through on the card. This is when hotels become a target. Fraudsters attempt to reserve a room for a future date to see if the card will be authorized, if it is they will move on to selling the stolen credentials or use the card to make a purchase. By the time the reserved stay comes around, the card has most likely been shut off which leaves merchants turning away actual customers.
Chargeback fraud is the fraudulent request for a return or refund in the form of a chargeback. The transaction is disputed by the cardholder in an attempt to regain the transaction dollar amount while retaining the product or services rendered. For hotel merchants, this is when a customer stayed at the hotel than disputes the charge to try and get their money back. This type of dispute is winnable for merchants by submitting a compelling dispute response.