Through no fault of its own, the travel industry has been hit incredibly hard by the COVID pandemic. While profits naturally dipped from the travel restrictions, there was also the unintended consequence of a record rise in chargebacks across the industry. That’s on top of heavy volumes of fraud targeting the travel industry before COVID.
If you’re in the travel industry, you’re more familiar with chargebacks than most merchants. However, you may not be familiar with the tools available to reduce and manage chargebacks. There are many steps to take; they can be complicated, but they can also be highly effective. That said, ChargebackHelp can simplify those steps significantly for travel industry merchants. Let’s start by looking at what you’re up against, and then we show you how to manage the challenges that travel fraud and chargebacks pose.
TYPES OF TRAVEL FRAUD
Unfortunately, the travel industry is an ideal target market for fraud. Airlines in particular sit in a sweet spot for fraudsters of having high-dollar items purchased widely online, with quick turnaround between purchase and fulfillment; in fact, fraud ratios skyrocket on last minute purchases of higher fares. Flights and hotel rooms are also highly subject to customer satisfaction, where unhappy customers are quick to trigger chargebacks. All told, “travel fraud” is an industry unto itself, costing businesses over $10billion annually.
We often refer to travel fraud as if it was its own species, but in reality it consists of all the usual suspects: true fraud, friendly fraud, and chargeback fraud. True fraud is where purchases are made with stolen credit cards or with airline miles from hacked accounts. Friendly fraud consists of all the qualitative disputes customers may have with their travel experiences; including legit purchases they suspect to be fraud. And chargeback fraud is the deliberate attempt by an actual customer to gain a refund from unreasonable or deceitful claims. While all three combine to create the colossus of loss the travel industry faces, each require their own nuanced approach to fight.
Fighting true fraud is challenging on two fronts. While trying to prevent processing transactions with stolen cards, merchants risk shutting out legit transactions with false declines. Customer relations are key in the travel industry and false declines can cost the merchant future business from declined customers. There is no lack of fraud prevention solutions, but you have deploy them in a way that does not add friction to transactions for genuine customers. Secondly, merchants need to react quickly to fraudulent purchases in order to reduce the cost of the chargebacks they create.
Pre-authorization fraud filters — applications that can detect and prevent fraudulent purchases from being authorized — should be configured with adequate qualifiers, and not simply applied wholesale to all transactions. Geographic triggers are one way to qualify fraud. For example, some common destinations for fraudulent airline ticket purchases include Las Vegas, Santo Domingo and New York JFK. Transactions involving destinations with higher fraud ratios should have elevated screening for fraud. Other qualifiers might include purchases for travel or accommodations from locations that are vastly different than the card’s billing address. Combinations of traits like these help to better score the likelihood if a transaction is fraudulent.
Card networks issue fraud notices when cards are reported stolen. Visa’s TC40 notifications and Mastercard’s SAFE data are useful feeds to inform your fraud filters against processing stolen cards. They can also confirm fraud that has been processed. Confirmed fraudulent transactions can be useful to inform behavioral analytics to help prevent future instances.
Preventing fraud pre-authorization requires holistic inputs from the type of transaction attempted, verification data, and outside inputs such as fraud notices. Machine learning and human intelligence need to work hand-in-hand to accurately evaluate the likelihood of fraud, all within a narrow time frame.
When fraud does get through, your next step is to avoid the chargeback. Chargebacks incur fees and penalties that add to the pain point of processing fraud. Chargeback insurance is highly recommended in this industry. Another effective remedy is to use chargeback alerts. Verifi and Ethoca provide dispute alerts from Visa and Mastercard respectively (as well as the other card networks) which tip the merchant off for pending chargebacks. Once an alert is received, the merchant can refund the cardholder before a chargeback hits. This saves money, but also reduces the ratio of chargebacks on your merchant account.
FRIENDLY FRAUD & CHARGEBACK FRAUD
Unlike true fraud where a third party makes the purchase, the cardholder commits friendly fraud and chargeback fraud. Legit purchases become fraud when they’re disputed — either unintentionally (friendly fraud) or deliberately (chargeback fraud). These cardholder frauds lead to the vast majority of chargebacks. However, the merchant actually has some leverage to deal with them.
First of all, merchants can prevent these frauds. Good communication during and after the transaction will help cardholders recognize their purchase. Get your customers engaged with confirmation emails, and occasional reminder emails for advance purchases. Be thorough in verifying the customer’s identity. Most importantly, get confirmations of travel or accommodations, and keep them on file with any correspondence. All this information can be used as “compelling evidence” to support your transaction if things go sideways.
Compelling evidence is crucial to prevent disputes and reverse chargebacks; it’s all the data that ties a customer to their purchase. You can send compelling evidence in real time, as you gather it, to the cardholder’s bank statement using products from the alert services; Verifi’s Order Insight and Ethoca’s Consumer Clarity connect your compelling evidence to the issuing banks. These tools inform cardholder inquiries; if they don’t recognize a transaction, they can drill down on their online statement descriptors and see deeper information on their purchase. That information is also available to the issuing bank as they investigate disputes, so if chargeback fraud is attempted, they have the information to deflect the dispute.
Reversing Chargebacks with Representment
If the dispute still goes through to a chargeback, you can recover your revenue through a process called representment. This is a re-presenting of the disputed transaction along with all the relevant compelling evidence you have gathered on the cardholder. Correspondences, confirmations, and if you’re really tricky, social media evidence of their travels, are all sent along with the transaction details, back to the issuing bank to reverse the chargeback.
DISPUTE MANAGEMENT: THE ALL-INCLUSIVE PACKAGE
When it comes to dealing with travel fraud, there’s a lot to unpack. You need a nuanced and well-informed fraud prevention strategy tailored to your industry’s fraud trends. However, you don’t want your pre-authorization prevention to be so restrictive as to block legitimate transactions and generate false declines. Best practice is to also have a post-authorization dispute management strategy in place to capture the fraud that does get through.
This is where ChargebackHelp comes in. Our dispute management portal ChargebackHelp Plus integrates the most effective tools to manage fraud and disputes post-authorization. We integrate your transaction stream and compelling evidence to prevent cardholder fraud, reduce chargebacks, and send effective representments to recover your revenue. You can manage all your alerts and fraud notifications from Verifi/Ethoca in one place, saving you time and money.
See exactly how ChargebackHelp Plus can reduce the pain point of travel fraud and chargebacks. Contact us for a demo with a chargeback specialist today. Send us an email, call us at 1.800.975.9905 or contact us here.