The relaxation of COVID-19 restrictions and the residual fear of contact the pandemic left on many consumers has prompted many hoteliers and merchants in the hospitality industry to rework their booking and check-in procedures. With hotel apps and electronic keypads, many resorts and overnight accommodations have adopted contactless check-in and check-out systems.
Global tourism is expected to grow by more than $8.6 trillion in 2022 alone and is being dubbed by the media as the “summer of revenge travel” with nearly nine out of 10 Americans (85%) expected to travel this season. With those new online bookings comes a fresh wave of fraudsters. Ranking high among rising fraud tactics are account takeover fraud, loyalty fraud, card testing and friendly fraud.
Recent reports indicate that a majority of travel merchants are prioritizing reducing fraud and chargebacks this year with many of them increasing their staff headcount to manage the volume as fraud incidents rise. As many businesses prepare for a potential recession, hoteliers and resort managers can arm themselves against rising fraud costs through education, awareness and prevention.
Contactless check-ins remove the opportunity for hotel employees to verify a guest’s ID and confirm possession of the credit card used to create a booking, making way for sophisticated fraudsters to use stolen credit card information to create fake accounts. Many travel bookings do not require a shipping address making the use of stolen credit card information less challenging than purchasing merchandise that requires shipping.
Account takeover fraud occurs when a fraudster gains access to a legitimate customer’s account and makes a purchase or booking through the established account. Last minute bookings are particularly susceptible to fraud as they can be made and enjoyed before a travel merchant has the time to review the order for fraud, and before the legitimate cardholder is made aware of the unauthorized charge.
Loyalty fraud occurs when a bad actor gains access to a loyal customer’s account. The fraudster uses the opportunity to transfer the cardholder’s loyalty points or miles to a separate account. The advantage of loyalty fraud to fraudsters is that the use of points or miles undergo less vigorous screening than new credit card transactions. Points can be transferred out and used or sold quickly. Whether or not the fraudster gained access to the account through hacking into the hotel’s system or through a third party, in the majority of cases the cardholder will blame the hotel for the theft and take their future business elsewhere. Losing a loyal customer’s trust due to fraud can really hurt a business.
The lodging and hotel industry is also being afflicted by an onslaught of card testing fraud. Fraudsters obtain large batches of stolen credit cards without knowledge of which cards are active. An easy way to ascertain the status of the cards is by using them to book hotel rooms. Often with hotel bookings, a credit card will be authorized at booking but only charged at check-in or check-out. This gives fraudsters ample time to verify the status of the card, use or sell the card info and by the time the check-in date rolls around the cards have often long been discarded or deactivated–leaving the merchant to bear the loss of the no-show or cancellation fees. Card testing also affects inventory management and revenue by preventing hoteliers from renting rooms to paying visitors.
Another rising fraud trend in the hospitality industry is friendly fraud. Friendly fraud, which is anything but, refers to fraud that is committed by a legitimate customer post transaction. The fraud occurs in the form of an undeserved chargeback initiated by the customer. The visitor may be trying to get away with enjoying free accommodations out of complete disregard for the hotel or in response to a negative experience. A chargeback could also be initiated innocently by a patron who simply forgot about the stay, or if the charge seems foreign on their financial statement.
Another common form of friendly fraud is fraud committed by a child or household member of a legitimate cardholder. Bored kids on summer vacation or home from college may be tempted to book an adventure without prior authorization from their parents. Crafty teens have been known to swap credit card information with a friend, each using the other’s parents’ payment details to throw suspicion off of themselves and to allow their parents to win their respective chargeback claims when the unauthorized charges are discovered.
The best way for hoteliers to combat sophisticated fraud is by leveraging fraud prevention that can draw a complete picture of the cardholder very quickly. Every detail of a booking needs to be analyzed, such as device history, email longevity, IP address etc. Often, merchants relying on manually reviewing orders for fraudulent activity will be too late to stop the fraud or ignorant of emerging threats and fraud trends, not even aware of what they should be looking out for.
To keep your patrons friendly, hoteliers should seek ways to improve customer relationships. Responding quickly to customer concerns or inquiries will make customers feel valued and respected and less likely to act out of spite. Informing customers of how a charge will appear on their financial statement and using obvious billing descriptors will help prevent mistaken chargebacks.
To prevent friendly fraud from relatives of cardholders, bookings and high-value orders should require a cardholder verification process via phone call, email or text. All communication with the cardholder should be recorded as evidence to be used in the event a chargeback is initiated.
Another major source of loss during high-travel seasons are the losses due to suspicions of fraud. Vacationers are more likely to break their normal buying habits while on holiday than when they are at home. Purchases displaying high risk factors that would normally be indicative of fraud could actually be legitimate. Items such as high value impulse purchases, bookings placed miles away from the cardholder’s billing address, and use of an international credit card could all be attributed to a vacationing cardholder. Often, an American cardholder visiting Europe may decide to extend their trip or visit a neighboring country. Attempting to book additional travel accommodations while overseas may result in their charges displaying high fraud indicators. Having their credit card declined due to suspicions of fraud will produce an automatic loss for the hotelier or booking agent, and most likely, a disgruntled customer.
Booking agents, already challenged by thin profit margins, steep competition, fluctuating order volumes, and the pressure to respond quickly to customers can really benefit from technology that not only weeds out bad actors, but unblocks every possible good order. Advanced fraud prevention solutions can identify the true identity of a customer with very little information by tapping into a broad network of retailers spanning regions and industries. Using machine learning, advanced fraud protection and detection software can make instant decisions and respond in real-time to ensure that travel merchants and booking agents can capture orders without delay.
Removing the burden of manually reviewing orders for fraud, can return hours of labor back to hoteliers and customer service representatives so they can focus on better serving their clientele and building their businesses. Additionally, fraud prevention solutions may also offer a full financial guarantee against chargebacks and chargeback management services.
Implementing proper fraud prevention will allow hoteliers to truly take advantage of the global travel revival happening this summer and fully enjoy a healthy boost in revenue.
Isaac Gurary, CEO, NoFraud