Fighting fraud in travel-tech: challenges and solutions

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29/03/2018

Fighting fraud in travel-tech: challenges and solutions

Sadly, there are people out there who will use underhand tactics to try and scam people under the guise of legitimate users of different services, and that costs money of both customers and travel app providers.

The travel industry is growing, evolving and broadening its offerings while also significantly expanding its customer base. We are witnessing a remarkable rise in online travel agencies, a rapid growth of mobile technologies and an expansion of travel-related apps into new markets around the globe. Sadly, there are people out there who will use underhand tactics to try and scam people under the guise of legitimate users of these services, and that costs money of both customers and travel app providers.

A record amount of money, over $5.3 billion, venture capital companies invested in travel startups in 2017. The travel sector is heating up continuously and the influence of tech innovations has never been more prominent and accessible than it is right now. Only in one week of January 2018 the total companies publicized in the travel sector came down to over $46 million. Flight and accommodation metasearch company Wego had raised an undisclosed funding round in the second half of last year. It has raised $60 million to date. These examples clearly show the trend. The travel tech industry is one of the most rapidly growing markets.

A wide range of apps covers almost every aspect of traveling and as a result of that technology is transforming the tourism industry. For example Airbnb - one of the most popular booking platforms - is now offering hotels on its platform. Google is expanding its search services to hotels and startups offering new booking services are gaining popularity. Travel suppliers such as hotels and airlines are also investing in their direct booking channels, by offering lower prices than online travel agencies for instance.

One of The Masters’ key partners is Wimdu, a leading European portal for renting privately-owned apartments. Although a big part of the accomodation featured there are apartments they also have holiday homes, chalets, farmhouses, boats and even treehouses on offer. Participating in this project introduced us to the challenges travel-tech market is facing, especially when it comes to fraud. This experience taught us how to prevent them.

Fraud threatens to run rampant

Booking sites generally deal only with verified users. In most cases customers have to verify their email, phone number or social media profiles, and then use ‘verified ID’ to confirm their identification. Wimdu verifies all hosts by phone and checks out a number of properties in person.

One of the safety key point at Wimdu is that the platform securely holds the guests’ payment and transfers it to the host 24 hours after the guest has checked-in successfully. This means that in the rare situation that there is an issue with the accommodation or the host, the guest’s payment is safe and Wimdu’s customer support team arranges substitute  accommodation.

Despite the fact that there are many types of security systems, fraud still happens and many platforms still fall victim to fraudsters. Of course there is no simple solution to effectively verify all online payments. Each day fraudsters become more and more advanced and invent new ways to break security systems. In many cases, there’s just no time to manually review risky order requests and logins. Meanwhile, fraudsters take advantage of last-minute bookings to avoid getting caught. Research found that last minute hotel reservations are 4 times more likely to be fraudulent. Criminals typically create a fraudulent listing, then when potential guests get in touch they suggest the two parties arrange the booking away from the site in order to not pay the commission. When it turns out the accommodation doesn’t exist, the fraudster is long gone.

Why fraud is still happening?

There is no denying that consumers are probably the easiest to fall prey to the scams of fraudsters. From email phishing scams, to stolen credit cards and mobile devices, there are many ways you can be manipulated into giving away private information to hackers. It’s estimated that credit card fraud represents between 1% and 2% of an airline’s revenue in the indirect channel. This comes down to $2.4 to 4.8 billion dollar problem for airlines.

Many companies are still relying on an outdated fraud prevention approach. For sure, ill-chosen or badly implemented solution makes the situation worse. That’s why it’s crucial for all booking platforms to know which users they can trust, and which they should ban. If you wrongly allow a scam user to buy something, create a fake account, or hack a legitimate  user’s account, the repercussions of it can be destructive to your business.

Useful solutions you can implement to avoid the risk

Functions like data analytics and personalization, digital advertising, API integrations, machine learning, voice and unstructured search, and other tech-enabled business functions run core to every modern travel service provider. That includes not only booking platforms, airlines, tour operators, but also destinations looking to attract and retain their most loyal customers. You can implement a fraud detection system that uses big data and machine learning technology to assign fraud scores (based on statistics) to users. Using algorithms, it can easily identify which transactions are legitimate and which are fraudulent. Armed with this system, you can save your business from fraud.  

When fighting fraud every second counts, when you detect suspicious activity, you need to move quickly to investigate it and take action within seconds or minutes. That's why a real-time data processing is key to making this possible. Integrate your booking platform - sales should be tracked and monitored as often as possible. Series of checks also should be automated as much as possible because doing it manually slows down the process.

Fortunately, there already exist solutions that mediate in payment transactions and care for the safety of payers and recipients. A good example is Adyen, which you could know from your payments for Netflix, Spotify, Uber or EasyJet. This payment platform verifies a few things related to the users' credit card. For example, checks whether the customer's address is correct and if they cheated in the past, as well as calculates the probability of fraud. It could also compare other credit card's data with the one provided by client and by using advanced linking algorithms, proprietary device fingerprinting and network intelligence to track devices, networks, and online personas, Adyen is able to identify the customer behind each transaction and minimize the risk of fraud. It can also minimize chargebacks without damaging conversions by using Dynamic 3D Secure tool.

Whether you’re booking a flight or a hotel room, there are good chances that your query or transaction was processed by Amadeus. In 2016, Amadeus processed more than 595 million travel agency bookings and boarded over 1.3 billion passengers. Amadeus condusts a strategic global collaboration with CyberSource, a Visa Inc. company. The partnership is aimed to leverage Amadeus' travel reservation services combined with CyberSource's fraud management solution. Together they create Decision Manager dedicated to APP (Amadeus Payment Platform) which help travel organizations detect fraud faster, more precisely and with less manual engagement. The transaction data is derived via sophisticated modelling of more than 60 billion payments that Visa Inc. and CyberSource process annually worldwide. The data is being analyzed and researched by 260 detector tests and time-tested statistical risk models, while identifying potential fraudulent transactions.

Summing up

Travel tech providers can educate their customers about how to save themselves from scams, and that will help to an extent, but to avoid fraud completely, they need to secure their digital infrastructure that empowers their businesses.  

Project Manager
Project Manager at The Masters.io. He is getting the best out of the people and projects that he oversees. He sticks to the rule “A goal without a plan is just a wish”. A huge fan of Manchester United and PlayStation games.

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