Defensive measures key to fight fraud in corporate travel industry

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By: Meena Selvaraju, Senior Research Analyst, Professional Services

22 August, 2017

Defensive measures key to fight fraud in corporate travel industry
WHITEPAPER

Abstract/Business Case

1    Introduction

The highly competitive corporate travel industry faces a unique set of challenges around online booking, payments acceptance and fraud prevention. Online selling is an area of heightened risk, and as importance of online bookings grows in organisations and travel agencies, the risk of potential fraud also increases.

2    Problem Statement

Fraud in the travel industry is becoming more prevalent and threatening to businesses. Along with convenience, the internet has also increased anonymity which makes it easier for fraudsters to cover their tracks. It has become important for travel managers and travel agents to become better organized and be prepared to overcome these fraudulent activities.

This whitepaper discusses the various types of frauds that may occur in travel bookings and how travel managers can overcome those frauds by using different tools and methodologies.

The key elements covered in the whitepaper are –

  • Types of fraud
  • Fraud detection and management
  • Top focus areas to manage fraud
  • Advanced fraud detection tools
  • Mitigating risk caused by travel frauds
  • Best practices to mitigate travel fraud

Types of fraud in corporate travel industry

Online travel agency (OTA) frauds

Online travel agency fraud is more complex in nature compared to fraud in direct channel sales for airlines and hotels as OTAs sell multiple types of product packages that include air travel, hotels and vehicles.

1. OTA air fraud

Margins: OTA airline transaction margins are generally very less ( 5 to 10 percent). Mitigating risk in such a low-margin business is crucial as losing money on a single fraudulent airline ticket could require an additional 30 to 40 bookings to recover the loss.

Bookings within 24 hours: Fraudsters use a shorter window to book air travel with OTAs so that merchants have very little time in detecting the fraud.

Ticket exchanges: Fraudsters call the airlines directly to exchange the air tickets for alternate dates, routes, etc. This tactic is used to take advantage of the lack of communication between the airlines and OTAs/Travel managers.                                                                                                            

2. Online travel agency hotel fraud

Dealing with hotels across multiple geographies can present difficulties and  geographical factors can impact transactional risk. Hotel class and fraudulent activity is directly correlated where, higher the rating/reviews, higher the correlation to fraud.

Compared to airline bookings, hotel frauds are less troublesome due to the following reasons:

  • OTAs are the merchants of records for majority of hotel transactions
  • Less complexity since the booking is at a single location as opposed to air segments and routes
  • Margins are greater and average prices are smaller

Friendly fraud

Friendly fraud in travel industry is extremely difficult to detect and predict. For example,  delays due to weather, cancellations or airline system outages can generate higher levels of friendly fraud.

  • Fraud prevention system can help travel managers to detect and monitor friendly fraud chargeback situations.
  • Travel managers should ensure that cancellation policies are updated irrespective of bookings done through TMCs or OTAs

Account takeover

Fraudsters may try testing hundreds of password variations against a username. Once fraudsters obtain customers’ email addresses, they may employ automated approaches such as ‘bots’ to attempt to obtain passwords. Other methods include social engineering, phishing, and malware.

Travel managers should improvise and strengthen their privacy settings by maintaining a multi-level account security and tailored rule sets for accessing their travel accounts.

Timing hotspots

  • According to a survey by ACI, travel buyers have reported that 67 percent of the total volume of attempted fraud occurs when the time to departure is less than three days.
  • Fraudsters make the transactions during standard operational hours where network traffic is high. This makes it difficult for travel managers/OTAs to detect the  fraudulent transactions.
  • It is identified that 30 percent of fraudulent bookings are made over the weekends as the chances of going undetected is greater.

Travel expense reporting (TER) fraud

Types of TER fraud that companies can encounter are 

Fraud detection and management

Large companies have travel agencies that are more compartmentalized and more efficient in handling fraud cases. They should have more tools in place that are customized according to the needs of the company.

Typically, large companies have automated system for fraud handling where  automated cancellations of suspected fraudulent bookings are done through their travel agency.

Fraud handling

Travel managers should inform their travel agency to reject the booking if there is any fraudulent activity.

Most common actions that a travel manager should take for suspected bookings are   

Top focus areas to manage fraud

Many travel agencies and companies lack the knowledge of tools and best practices for fraud detection and management. Corporate travel managers should ensure that fraud detection and management tools are implemented in their system with main focus on the following areas

Advanced fraud detection tools used

Only a small percentage (around 4 percent) of large companies seem to have plans to implement advanced fraud detection tools such as Fraud score modeling, Negative lists and Positive lists.

About one in five larger agencies undertake order velocity monitoring, while the percentage of smaller and midsize agencies using these techniques are mostly in the low single digits.

Travel managers should understand the significance of fraud detection tools and ensure their implementation in their travel management system.

Buyers' checklist to reduce travel frauds

The key to mitigating risk in travel category is to be proactive and maintain a structural fraud prevention program. The following multi-layered approach can be followed for fraud prevention.

Case Example  

One of the multinational companies has implemented strategies and adopted fraud detection and management tools to minimize fraudulent activities and false positives in travel booking. This has reduced 50 percent of the number of bookings declined for fraud validation.

Best practices to mitigate travel fraud

Buyers need to follow a checklist when engaging with travel suppliers to reduce travel frauds.

This process can be performed by travel managers, background screening firms, consumer reporting agencies (CRAs) or a combination of these parties. These functions are highly regulated by federal, state and local agencies. The most prominent regulations are the Fair Credit Reporting Act (FCRA) and the Equal Employment Opportunity Commission. 

Real-time screening of transactions is an essential parameter to stop fraud and ensure genuine customers receive travel service.

Case Study

Conclusion

Fraud remains a significant and persistent challenge for companies and travel agencies, especially for businesses with limited technical resources and knowledge. There is a significant opportunity for the corporates to learn about new technologies, techniques and best practices to protect and prevent travel fraud. Companies need to understand the financial implications and the direct cost of fraudulent bookings and should have the tools and best practices in place for a strong defense.