Opinion: Pandemic leaves airlines vulnerable to payment fraud

Unique industry threats

The airline travel industry is fertile ground for fraudsters due to the wide range of transaction amounts and services offered. A fraudulent purchaser can evaluate an account on a domestic flight from Sydney to Melbourne, then change their itinerary to go first class to London instead, then file a chargeback dispute for the increased amount.

Travel fraud is more likely to result in high dollar exposure. The average value of a fraudulently purchased ticket is much higher than the average legitimate purchase value. According to the IATA’s 2020 Fraud in the Airline Industry Report, “The average legitimate purchase is worth $606, while the average fraudulent purchase is more than three times higher at $1,930.”

The airline industry is also susceptible to account takeover (ATO) fraud. Fraudsters can gain access to credit card information stored in users’ accounts as well as access airline frequent flyer points, which can be exchanged for goods and services directly from the account.

The travel industry also experiences a high rate of chargebacks: when airline schedules go haywire, customers that aren’t able to have their issues resolved through customer service may file a credit card dispute. Distinguishing chargebacks made by legitimate customers from fraudulent chargebacks due to ATO attacks or liar-buyer purchases is a huge burden on the airline industry.

New customer challenges

In addition to guarding against airline-specific fraud threats, airlines are also tasked with ensuring their fraud protection processes don’t hurt revenue as the industry tries to acquire new customers. Airlines compete with third-party booking sites for online business and must ensure they are providing e-commerce experiences that are in line with customer expectations.

Without a transaction history for a customer, travel merchants who use rule-based fraud detection solutions are often flying blind, and their systems are more likely to decline good customers.

Another challenge is prolonged staffing shortages, which increases the likelihood of chargebacks and can also cause reputational damage. Passengers often take it to social media when there are flight delays and cancellations. Also, reputational damage from a data breach due to ATO or other attacks can deter new potential customers and discourage loyalty program participation.

Navigating the current fraud environment

Given this challenging environment, security leaders can now take steps to guard against fraud without compromising customer experience:

Reduce staffing burdens by automating fraud detection

Streamlining transaction approvals with technology can free up personnel to focus on customer service and other functions that are desperately needed in today’s airline climate. Machine learning-based technology (ML) delivers higher accuracy than manual analysis, which means airlines can expect fewer false declines, which will have a direct impact on customer service needs.

Algorithm optimisation

International payments, last-minute purchasing and schedule changes make the travel industry a particularly complex one for automated fraud detection. Purchasing patterns that would be fraud indicators in other industries are the norm in travel. Ensure that the ML being deployed is navigating travel patterns to minimise false transaction declines. Moreover, travel patterns post-pandemic are changing fast — having insight into those changes enables security leaders to mitigate risk. If airlines fail to bolster their fraud prevention strategies, they’ll be hit with massive revenue losses, mounting operational costs, and will lag behind in rebuilding a loyal customer base.

Tackle chargebacks and friendly fraud

Riskified data shows that around 50% of fraud chargebacks for our merchants contain indicators of chargeback abuse. Disputing these chargebacks is costly for airlines. Stopping chargeback abuse requires the ability to unmask the real identity behind an order, which airlines must do at scale. Chargeback incidents are often not a one-time occurrence. By fighting and winning liar buyer chargebacks, airlines can discourage repeat offenders.

Win over a new generation of customers

Travel security leaders must ensure their fraud protection solution is working in tandem with customer acquisition and marketing goals. Avoid unnecessary transaction declines and ease friction by deploying technology solutions that provide instantaneous approvals.

Riskified is an eCommerce fraud management platform.