Ai Editorial: Managing fraud associated with indirect sales – a challenge for airlines

Ai Editorial: Airlines need to refine their fraud management tactics as well as work closely with travel agencies to reduce chargeback levels. Ai’s Ritesh Gupta learns how

Managing credit card fraud is an ongoing process for airlines, and keeping a tab on fraudulent transactions coming in via travel agencies remains a critical issue.

In fact, airlines list fraud-related issues associated with third party channels as a major challenge till date.

As airlines put smarter tools in place to detect fraud, fraudsters also get smarter; they move from one channel to another until they find the “unprotected front”. 

“We already see airlines who can deny a transaction in their call centers if it comes from a customer who has already been rejected on their website,” says Celia Pereiro, Head of Travel Payments at Amadeus. “Airlines should extend this multi-channel approach to an omni-channel one, which includes a single repository for all travel data regardless of the channel.”

And negligence or being ignorant wouldn’t help at all.

“If airlines consider that, in view of IATA Resolution 890, payment fraud committed via a travel agent is not airlines’ concern (those airlines) may be missing the full impact of fraud,” says Pereiro.

She says regardless of who is liable for the cost of the chargeback, airlines, as the merchant of record, are still liable for processing, investigating and resolving the chargeback; moreover, the airline will never recover the bank fees incurred when they processed the payment in the first place.

For its part, Amadeus has developed a solution that will allow airlines to implement a fraud detection mechanism before authorization and ticketing issuance, saving both manual intervention and costs.

Points to consider

• Contribution: First of all, airlines should look at the weight of indirect distribution in their overall channel mix. Secondly, they must analyze how big of an impact fraud is on this channel – this is often hard to track for airlines because the information they receive in a chargeback may not include reservation details, says Pereiro. Carriers should also consider the loss of revenue and costs as a result of fraud and the negative impact it may have on the relationship with travel agencies.

• Communication: Fraudsters today take advantage of the lack of, or, delayed communication between travel agencies and airlines by making an innocent-looking booking with a travel agency and then calling the airline call centre to change the details of the booking to one which would have been detected by a fraud management system. Airlines and travel agencies should work together and ensure seamless communication to close loopholes such as these, recommends Pereiro.

• Reaction time: In case there is a dubious development, the response time and the sort of action that is taken needs to be improved upon. “The lack of automation and the long cycle of a travel agency sale often make it difficult to react quickly,” points out Pereiro. In order to close that gap, airlines need to gear up for real-time visibility of all transactions processed via a payment platform. “This will allow airlines to have not only a single repository of payment and PNR details, but also enable them to easily take corrective actions on bookings, look at statistics and monitor performance,” says Pereiro.

• Operational costs: It is a common practice that airlines cancel bookings done by travel agencies due to credit card fraud. The communication between airlines and travel agencies varies from one airline to another however, it usually involves manual intervention. When a booking is cancelled both the customer and travel agent will be able to see the booking as cancelled, says Pereiro. One needs to automate follow-up actions performed based on the fraud check results, helping reduce airlines’ operational costs. “If, after a manual review, the airline decides that the transaction is fraudulent, we automatically void the ticket and cancel the booking, enabling the airline to automate communication with the travel agencies,” shared Pereiro.

• Checks on a booking: It is imperative to integrate a fraud check into the GDS booking flow with no impact on the agent’s booking flow. This means that airlines can stop fraud before the ticket has even been issued, reducing the manual effort associated with managing fraudulent bookings. “As we manage the booking, we can use data to contextualise the sale and easily identify good and bad customers at the time of booking,” says Pereiro. There is a fraud screening request before even requesting an authorisation. This is an essential step to save costs by preventing a ticket from being issued when payment is detected as fraudulent.

For bookings that require a further review, airlines can make a decision based on information and either accept or deny that booking. “If an airline decides to deny the booking and the ticket has already been issued, then we’re able to automatically void the ticket, therefore maximising effectiveness and reducing the manual workload,” says Pereiro.

The prevalent situation

Nowadays the earliest airlines can detect fraud is usually after the ticket has been issued, says Pereiro.  Today, airlines can have internal processes in place or rely on a third party to screen all bookings coming via the travel agency channel. All this, though, ends up being costly as it involves heavy manual intervention and clearing up to be done when a payment is detected as fraudulent. This is however the best case scenario, says Pereiro. 

Most commonly, fraud is detected at settlement time by the airline’s bank, which is then reported to the airline as a chargeback. Then the costs add on, making the ticket cost only one component of the total cost of a fraudulent sale.

The worst case scenario is when airlines take a binary approach to fraud controls; for example blocking transactions from entire countries or regions– rejecting valid transactions as a result. Assuming that the false positive rate is 5%, then even small airlines could be missing out on hundreds of thousands of dollars’ worth of revenue. To be able to realise these savings airlines should consider smarter anti-fraud solutions which uses the traveller data at their disposal to check for indicators that a transaction is fraudulent or not. For example, historical data which shows that a traveller has a history of making similar trips – even on different airlines – would add significantly to the accuracy of fraud checks.

So what happens when an alert surfaces that stops a ticket from being issued when payment is detected as fraudulent?

Pereiro explains: when a transaction is sent to be checked by a fraud management provider, the resulting cases can be one of the following:

• Positive – this doesn’t look fraudulent
• Maybe – this should be checked
• Negative - this looks fraudulent

Fraud management needs to be business rules-driven, meaning that the responses provided will be determined by the score each transaction obtains based on the criteria selected. “In addition, we can help airlines to define their fraud strategy and set the balance between accepting and denying transactions,” shared Pereiro.

With the Amadeus product, in the case of a positive result the ticket is issued; in the case of maybe the ticket is put on hold and the PNR is placed in a queue for manual review, where a negative response triggers stopping the booking before the authorization process and there is no option to issue the ticket; and in the negative case the booking is automatically cancelled.

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