Fraud Trends in the Online Travel Industry

Fraud Trends in the Online

Travel Industry

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Fraud Trends in the Online Travel Industry

Introduction
Consumers are increasingly turning to digital channels to make travel-related
purchases. Online bookings accounted for over 40% of total travel sales in the US
and Europe last year, and by 2017, the global online travel industry is expected to
be worth $830 billion. Airlines and travel agencies are doing everything they can to
take advantage of the enormous opportunity presented by the booming online travel
sales market. But unfortunately, so are fraudsters.

Ecommerce merchants across all industries put in endless effort to protect their
revenues from fraud, but the online travel vertical faces unique challenges. For
starters, traditional fraud detection methods rely on geographical indicators to detect
fraud. However, measuring the distance between the billing and shipping addresses,
or detecting mismatches between the credit card issuing country and the IP address,
are less effective when applied to purchases by consumers who are often in-transit
when placing their order. This makes geo-mismatches common in both legitimate and
fraudulent online travel orders, with the result that relying on these characteristics to
determine which purchases are rejected or routed to further validation can lead to a
high false decline rate.

Another challenge is that travel reservations are an interchangeable digital good.

Legitimate customers who are falsely declined by an airline or online travel agency
(OTA) due to suspected fraud can easily purchase tickets for the same flight on a
competing site. In other words, travel merchants who wrongly reject a good customer
due to suspected fraud lose not only the revenue from the lost sale, but might also
be “sending” these customers to their direct competitors.

By improving fraud operations, merchants in the online travel industry can not only
reduce fraud-related losses, they can enhance customers’ shopping experience.
Distinguishing between fraudulent methods of operation and legitimate shopping
patterns in this fast-growing market is the first step travel businesses can take to
optimize their fraud prevention systems. The following report presents Riskified’s
insights into fraud in the online travel vertical, based on our experience partnering
with Fortune 500 companies and industry leading retailers across markets and
industries. Throughout the report we share our observations and provide tips for
accurate and effective fraud management.

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Fraud Trends in the Online Travel Industry

Online Flight Purchases Are 98% Valid

Incurring a costly fraud-related chargeback is a frustrating experience for any
merchant. But trying to prevent chargebacks by adopting an overly conservative
fraud strategy can result in even greater losses for your business.

Analysis of online flight tickets data proved APPR

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shows that the fraud rate - meaning the

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percentage of fraud-related chargebacks

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Dec Approv

and clear-cut fraud attempts out of total

Appro
ved

APPROVED Ap p rove d

order volume - is approximately 2%. APP

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In other words, merchants selling flight

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8

tickets online should accept close to 98%

of purchases through card-not-present
channels (desktop, mobile, and phone
orders). An approval rate significantly
lower than 98% may indicate that good customers are being turned away along
with the fraudsters - a costly mistake. Research by Javelin Strategy shows that 66%
of US consumers who were falsely declined via a digital channel limited or entirely
stopped their patronage of the merchant.

Online Travel Consumer Behavior & Fraud

Customers provide more information when purchasing a flight ticket than when
shopping for apparel or gift cards. On top of the credit card details and billing
information, customers provide information about the passengers (such as name,
nationality, and birth date) and about the travel itinerary (including dates and
destinations). By analyzing this data and identifying correlations between various
data points and fraud trends, travel merchants can prevent fraud and approve more
valid orders.

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Fraud Trends in the Online Travel Industry

Two [Passengers] Are Better Than One

One data point that travel merchants

should pay attention to is the number
of passengers included within a single
order. Riskified’s data shows that in
single passenger bookings, the rate
of fraud is almost twice as high as in
orders with two or more passengers.

A possible reason for this pattern is the

“broker fraud” phenomenon. This is
where fraudsters approach a traveler 1.81% 0.90%
on the street, and offer to sell them One Passenger Two or more
discount airline tickets. If the traveler
accepts the offer, the fraudster uses a stolen credit card to make the purchase, while
receiving payment from the traveler in cash. When the traveler arrives at the airport,
they simply present the booking number and are able to hop on to the stolen flight
without a problem.

It’s much easier to use this technique on a single traveler. Single travellers who are
only responsible for themselves are more willing to accept the risk of a fraudulent
ticket. For groups and families, the tendency is to plan in advance instead of
purchasing tickets on the street.

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Fraud Trends in the Online Travel Industry

Domestic vs. International Flights

There are many differences between domestic and international flights, including
price, duration, baggage allowances, and service on board. One difference online
travel merchants may not be aware of is the difference in fraud rates between
domestic and international flights. According to Riskified data, international flight
tickets are half as likely to be fraudulent than domestic flight ticket orders.

The higher rate of fraud in domestic flight tickets may seem surprising, as there is
both less demand for these tickets and they are less expensive. In fact, the average
international flight ticket costs twice as much as the average domestic flight.

2.43%
Fraud rate

DOMESTIC

1.32%
LAX JFK Fraud rate

INTERNATIONAL

Terminal Flight # Gate # Departs

TLV JFK
G9 256B 4D 12:20 Terminal Flight # Gate # Departs
G9 256B 4D 12:20

One explanation for the higher rate of fraud in domestic flight tickets is that it is easier
to re-sell domestic flight tickets on short notice. This is in contrast to international
travel, for which travelers are more likely to plan in advance. Another reason for the
lower rate of fraud in international flight tickets is that fraudsters may be discouraged
by the more stringent identity validation process required in international travel.

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Fraud Trends in the Online Travel Industry

The Early Bird Not Only Catches the Worm - It's Safer
Much like concert or sporting event tickets (but unlike apparel or other goods) flight
tickets are sold for specific dates and times. Riskified’s research has found that
calculating the amount of time between the purchase and the planned time of travel
is useful for detecting fraud.

While the correlation isn’t exactly linear,

the general trend reflected by the data is
that tickets purchased close to the flight
date are riskier.

For example, tickets purchased one day

before the flight carry eight times as
much risk as tickets purchased more
than 10 days before the flight. This
makes sense, since most airline travelers
will plan their trips days, if not months, in
advance. Fraudsters on the other hand,
will aim for short turnover time for stolen
merchandise.

Backpackers Are Safer

One of the most prolific travel groups is the “backpacker” age group. These are
young people, generally between the age of 18-25, who are globetrotting on a
budget. What’s interesting is that orders placed by this consumer segment are safer.

A comparison between flight tickets purchased online by travellers in the

“backpacker” age group and travellers age 25 and older shows that these younger
consumers are safer across the board. For example, the average rate of fraud in flight
tickets placed three or four days before the flight is 1.4% in the 18-25 age group, but
jumps to 3.2% in customers above the age of 25 - an increase of over 75% in risk!

Days before flight Fraud rate (Age 18-25) Fraud rate (Age 25+) Additional risk

1-2 4.2% 5.2% 20%

3-4 1.4% 3.2% 77%

5+ 0.5% 0.8% 35%

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Fraud Trends in the Online Travel Industry

Customer Connections Are Key

Consumer demands are increasing constantly. Digital tickets and same-day booking
have become standard, along with a mobile-friendly site or a mobile app. There is
also growing demand for more localized services, including currency converters
and location-based promotions. To safely sell flight tickets while meeting consumer
demands, it’s important to be aware of legitimate and fraudulent behaviors across
channels and devices.

Mobile Is Your Friend

Mobile is the fastest growing channel for online travel industry merchants.
It’s estimated that the value of mobile travel bookings in the United States will be
nearly $95 billion by 2019, representing nearly 70% of all digital travel bookings.
Contrary to the commonly held believe that mobile is a risky channel, Riskified data
shows that flight tickets purchased via mobile devices are overwhelmingly safe.
On average, nearly 99% of mobile flight ticket orders are legitimate. In fact, travel
orders placed using mobile devices are safer than purchases made via desktop or
laptop computers.

Flight tickets purchased via mobile devices are overwhelmingly safe

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Fraud Trends in the Online Travel Industry

Watch out for Proxy Servers

A proxy is an intermediary computer which acts as a hub to process requests on
the internet. An order placed via a proxy server is generally considered higher risk
because it allows users to conceal their true location. However, proxies have many
legitimate uses, and are being used by an increasing number of people worldwide.
That’s why it’s important for online retailers to understand their connection to fraud.
To that end, we analyzed our data for orders placed via a proxy server, and came to
some very interesting conclusions. Over 25% of flight tickets purchased with a proxy
server are fraudulent.

However, not all proxy connections are equally risky. The rate of fraud in flight tickets
purchased by customers connecting via a proxy server belonging to an academic
institution is significantly lower - at just 8%. Similarly, the rate of fraud in tickets
purchased by travelers connecting to the web via a hotel or airport server is also
lower than average - at 16%.

While the overall rate of fraud in flight tickets

purchased via a proxy connection is high, travel
merchants who simply block or decline all orders
with a proxy connection will be losing out on many
good customers as well. Not only are nearly 75%
of these orders valid, but also, by distinguishing
between various types of proxy connections,
merchants can identify which transactions carry
less risk. Best practice is to make decisions to
approve or decline orders based on multiple
data points, considering the context to determine
whether the story adds up.

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Fraud Trends in the Online Travel Industry

Not All Globetrotters Carry the Same

Risk of Fraud
Looking at the average fraud rate in flight tickets according to the arrival or departure
country, it's clear that some countries are safer for online travel merchants.
For example, Denmark, Poland, and Japan are among the top five safest countries
when examining both arrival and departure countries. On the other hand, flights to
and from Indonesia, India, Colombia, and Morocco carry the highest risk of fraud.

Safest Departure Countries Safest Arrival Countries

Denmark 0.22% Poland 0.33%

Czech Republic 0.26% Denmark 0.44%

Finland 0.26% Norway 0.44%

Poland 0.36% Japan 0.45%

Japan 0.37% Hungary 0.46%

Riskiest Departure Countries Riskiest Arrival Countries

Morocco 7.05% Indonesia 5.61%

Indonesia 6.85% India 4.62%

India 5.55% South Africa 3.12%

Greece 4.78% Colombia 2.90%

Colombia 3.20% Morocco 2.74%

However, despite the clear correlation between certain countries and high fraud
rates, it’s important for travel merchants to remember that it is never a good idea to
reach a decision to approve or decline a purchase based on a single data point. In
order to distinguish between good customers and fraudsters, travel merchants need
to examine all the available data.

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Fraud Trends in the Online Travel Industry

To illustrate this, let’s look at the rate of fraud in flight tickets to and from Indonesia,
which as we know, is a relatively risky country in the online travel vertical. While on
average, flights to and from Indonesia carry a high risk of fraud, breaking down the
data further shows that fraud rates vary greatly according to the credit card-issuing
country.

The average fraud rate in tickets for flights departing from Indonesia is 6.9%.
However, in flight tickets purchased with Swedish credit cards, the fraud rate is over
50% lower - 2.0%. Flights tickets from Indonesia placed with credit cards issued in
South Africa and Russia, meanwhile, are virtually 100% valid.

Fraud In Flights Departing From Indonesia

Credit Card Country Fraud Rate

All Cards 6.9%

Sweden 2.0%

South Africa 0.0%

Russia 0.0%

Similarly, while the average fraud rate for flights arriving in Indonesia is 5.60%,
the rate of fraud in tickets paid for with Finnish or Russian credit cards is below 1%.
For Switzerland, the fraud rate is zero:

Fraud In Flights Arriving From Indonesia

Credit Card Country Fraud Rate

All Cards 5.6%

Finland 0.6%

Russia 0.4%

Switzerland 0.0%

This variation in fraud rates is explained by the travel patterns of vacationers from
various countries. Although Indonesia is considered to be a risky country, it is also
one of the world’s premiere tourist destinations, meaning many legitimate customers
purchase tickets to fly to and from Indonesia.

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Fraud Trends in the Online Travel Industry

Statistical Data Must Be Used Intelligently

All data that is registered when a flight ticket is purchased through a digital channel
is valuable and can help distinguish between fraud attempts and valid purchases.
However, statistical data is only effective as long as it is used intelligently.

Many online travel merchants build a complex web of fraud prevention rules
and filters to determine whether a purchase should be approved or declined.
Unfortunately, rules and filters are incompatible with the way fraud actually works.
A single data point or a mismatch between data points does not in itself mean that an
order is fraudulent.

Let’s take a look at a typical order for flight tickets.. The order described below is for
a single, round trip ticket valued at 430.87$. The transaction has several data points
that many travel merchants would consider to be strong indicators of fraud.

ORDER DETAILS

Ticket type Value Credit card name does not match

Round-trip flight 430.87$ passenger name

Passenger name Credit card name

John Snow Arya Stark

Passenger nationality BIN Country

Philippines UK

IP address Email address Credit card country does not match

South Korea John123@gmail.com passenger nationality

For starters, the name on the credit card does not match the passenger name on the
ticket. In addition, while the card used to purchase the tickets was issued in the UK,
the passenger for whom the tickets were purchased is a citizen of the Philippines.
Many airlines and OTAs flag orders where the passenger is not the cardholder,
let alone orders where the passenger nationality does not match the credit card
issuing country.

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Fraud Trends in the Online Travel Industry

This mismatch alone may not be enough for

the average travel merchant to decline the
order. However, this order has another set
of mismatched data points - the BIN country Credit card country doesn't not
match IP address
does not match the the IP address country.
Traditional, rules-based fraud management
systems would consider an order with a UK
credit card placed from a device located in
South Korea a high-risk transaction.

Despite these mismatches, by collecting and analyzing additional data points,

Riskified was able to gain more insight into the transaction and to identify that it was
perfectly valid.

First of all, data collected through the Beacon - a small snippet of code embedded on
the websites of merchants using Riskified’s solution, revealed that five months prior to
this purchase, a legitimate order was placed on the same site using the same credit
card, the same email address, and the same computer.

5 months
ago

While not impossible, it seems very unlikely that a fraudster would gain access not
only to a legitimate cardholder’s credit card details and email account, but would also
gain physical access to the cardholder’s computer.

Secondly, elastic order linking across the Riskified ecosystem revealed that a
customer by the same name, using the same email address and connecting from
the same device, purchased a ticket to a music concert 8 months earlier. The
order was legitimate and did not return as a chargeback. Linking every new order to
all previous orders reviewed by Riskified for fraud, across merchants and markets,
provides valuable data and additional context that can help establish whether an
order is valid or fraudulent.

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Fraud Trends in the Online Travel Industry

Thirdly, automatic data enrichment from multiple sources revealed a connection

between the passenger and the credit card holder who paid for the tickets.
For starters, the cardholder has previously lived in Great Britain, explaining the UK
credit card. Additionally, both the passenger and the credit card holder worked for
the same employer, a company that often required international travel, potentially
explaining why the order was placed from South Korea.

What would at first appear to be a very suspect order, riddled with data point
mismatches that indicate fraudulent activity, now makes perfect sense. The order was
approved, and the merchant avoided what could very likely have been a costly false
positive decline.

Conclusion
Digital channels hold many opportunities for travel merchants. However, travel
merchants will only be able to take advantage of this trend and maximize revenues
if fraud prevention measures do not ruin the digital shopping experience. The ability
to do so will hinge on having a dynamic fraud solution that can detect changes in
fraudster methodology in real-time, while still supporting scale.

Riskified has extensive experience helping merchants in dynamic, fast-growing

industries to safely drive ecommerce revenue. We use data enrichment, proxy
detection, device and browser fingerprinting, order linking, machine learning models,
and behavioral analytics to provide merchants with the most comprehensive fraud
management solution available. Through our work with Fortune 500 companies,
across verticals, we’ve learned how to protect retailers against fraud.

Data is what drives our fraud detection and prevention abilities, and we’re always
interested to hear about what our partners are experiencing. We’d love to hear about
your fraud management challenges and success. We’d also be interested to know
whether the fraud patterns we’ve shared in this report match what you are seeing.

Please visit our website www.riskified.com or contact us at sales@riskified.com

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