There’s never been a better time to be an online travel merchant. It’s estimated that there were over 1.2 billion international tourist arrivals in 2015, and many of these travellers used digital channels to book their flights. In fact, digital travel sales topped $200 billion last year in the US alone. By 2020, the global online travel market is expected to be worth $817 billion.
Preventing card-not-present (CNP) fraud in the online travel vertical, however, presents unique challenges. Airlines and online travel agents (OTA) often respond to fraud attacks by implementing overly risk-averse measures that result in the rejection of good customers along with the bad. To help provide insights into consumer behavior and fraud patterns in online travel sales, Riskified analyzed its data and compiled the findings into a report on CNP fraud in the online travel vertical.
The report reveals whether fraudsters are more likely to target domestic or international flights, and shows how online purchases can be approved despite mismatches. We share some of the insights included in the report in the article below.
Traditional fraud prevention tools are ineffective for travel
Traditional fraud detection tools 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, is less effective when applied to purchases by consumers who are often in-transit when placing their order. For example, it’s a common occurrence for a passenger to use a card issued by a bank in the UK to purchase a flight ticket to the US, while connecting from an airport or hotel room in France.
Airlines and OTAs that rely on these such tools are therefore likely rejecting many good customers. That’s a shame, because over 98% of online flight ticket purchases are valid. Merchants who reject more than 2% of online revenue are likely leaving money on the table – and are essentially sending good customers to book their flight tickets with a competitor.
So how can travel merchants avoid turning away good customers? The key to safely driving online revenue is learning not only about fraud patterns, but also becoming familiar with the characteristics and shopping behavior of good customers.
Open your virtual doors to backpackers
A key consumer segment that online travel merchants should open their virtual doors to is the “backpacker” age group. Despite travelling on a budget, these 18-25-year-olds represent a large, lucrative, consumer segment. Moreover, their online purchases are very safe compared to the general population. Riskified’s data shows that online purchases of flight tickets by consumers in the18-25 age group carry 20% less risk than orders placed by travelers over the age of 25.
Younger consumers are more likely to use mobile devices to purchase their tickets. Mobile is the fastest growing channel for online travel industry merchants, with mobile travel bookings expected to represent nearly 70% of all digital travel booking in the US by 2019.
Contrary to the commonly held belief that mobile is a risky channel, 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.
Identify good customers despite the risk
Not all online travel orders carry the same risk. For example, while the average fraud rate in this industry – meaning the percentage of fraud-related chargebacks and clear-cut fraud attempts out of total order volume – is approximately 2%, the average fraud rate in flights departing from Indonesia is significantly higher – at 7%. Travel merchants may understandably concerned about the high rate of fraud in these orders, leading to a high rate of declines. However, while online orders of flights to Indonesia carry a higher risk of fraud, there are still many good customers making valid flight tickets purchases from this country.
In fact, there is a significant variation in fraud rate depending on the issuing country of the credit card used to place the order. For example, flights departing from Indonesia purchased with Swedish credit cards have a fraud rate of just 2%, while purchase with credit cards issued in South Africa and Russia have virtually zero fraud.
This was just a small taste of the data included in our special report for merchant about CNP fraud in online travel. For more insights and fraud prevention best practices, read the full report.