Fighting Fraud in the Travel Industry

With each passing day, the travel industry is growing, evolving and broadening its offerings while also significantly expanding its customer base.

There’s been a remarkable rise in online travel agencies, a rapid adoption of mobile technologies and movement into new markets around the globe, to name a few of the seismic shifts taking place.

All of these factors are contributing to what Andy Nelson, from San Francisco-based Sift Science described as the perfect storm in terms of the potential for fraud in the travel industry.

“The travel industry is increasing its focus on the customer experience, broad product offerings and expanding its customer base,” Nelson explained during a recent interview with TravelPulse. “And every single one of those growth initiatives increases the likelihood of fraud.”

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A machine learning based fraud detection company, Sift Science shared some of the areas and activities within the travel industry that it says are most vulnerable.

Rising Competition, Small Margins

The overall volume is increasing across different travel products, but many companies are facing a small margin — particularly in the airline and OTA sectors. High ticket values combined with a low margin creates a higher business risk. And “inventory” such as a ticket, which could have gone to a legitimate traveler, can’t be recovered once it’s lost to fraud.

“It takes most companies time to identify a stolen credit card, and by the time that chargeback is brought to the attention of a company, that flight or hotel room stay has already occurred,” Nelson explained.

Moving Into New Markets

The incredible rise of online travel has introduced great opportunities for businesses to expand into new markets. However, every new market has a different risk profile. Travel companies need to adapt their tools, as well as potentially hire new people with specialized knowledge of each market.

In other words, as companies move into new foreign markets, Nelson explained, it’s critical that they understand the local norms for such things as usage and self-identification in order to also identify risk.

“Let’s say you’re an OTA; how does a user interact with your website? The verification credentials and unique identifiers customers use may vary with every new region. Companies need to have a custom view of that region and how customers in that region act. Companies that don’t may find they’re blocking too many people from their site or letting too many people in.”

Increasing Product Offerings

Travel companies are under pressure to grow and expand. One need only look to Expedia’s 2015 acquisition of Homeaway, which many say is now helping Expedia close in on Airbnb in the home-sharing market.

Companies may start out offering a single product, such as hotels. But then they expand into vacation rentals, insurance, activities, airport transportation and more.

Each new product will also have a unique risk profile, which needs to be accounted for in fraud prevention models.

Collecting Information While Keeping the Experience Simple

For many travel products, such as airline tickets, companies need to collect a significant amount of personal information. However, thanks to Amazon and other digital pioneers, customers are growing more accustomed to a streamlined buying experience. If customers face too much friction with travel technology, they may turn to a competitor instead, said Nelson.

The question then becomes: How do you keep the experience simple and intuitive, without increasing risk?

“What’s important about this type of work, is creating that balance,” said Nelson. “The balance is between creating trust internally, and at the same time improving the customer experience on your site.”

Every hurdle companies add, increases the risk of a consumer walking away, Nelson said.

Monitoring Mobile Bookings

A rising number of digital travel sales are completed on mobile devices. And Google research found that 31 percent of leisure travelers and 53 percent of business travelers have booked travel on a smartphone.

Companies must be prepared for both legitimate and fraudulent mobile bookings headed their way.

“In theory, the booking process should be device agnostic: The risk profile shouldn’t change based on the device the person is using,” said Nelson.

But the reality is that fraud patterns vary by device and companies need to be prepared for that.

When it comes to fighting fraud, mobile data is fairly unique: Companies can obtain extra data points such as mobile carrier, device type and the pressure someone uses to tap, all of which can help pinpoint fraud.

READ MORE: What the Travel Industry Faces in 2018

Last-Minute Travel is Growing

The window of time between booking and traveling is shrinking for all travelers. One-third of millennials make travel plans at the last minute and 72 percent of mobile hotel bookings are made within one day of a stay.

This change in traveler behavior means real-time decisions are critical to a company’s ability to stay competitive. In many cases, there’s no time to manually review risky orders and logins.

Meanwhile, fraudsters take advantage of last-minute bookings to evade detection. Sift Science’s research found that day-of hotel reservations are 4.3 times more likely to be fraudulent.

“The more prevalent last-minute booking becomes, the more risk there is for companies,” said Nelson. “Because then you are talking about needing to act with speed in order to identify intent.