Understanding Online Fraud and How to Mitigate the Risks – Part 1

Online Fraud

The ecommerce industry is growing by leaps and bounds. In 2016, global B2C ecommerce sales are expected to reach US$1.92 trillion. But with this continued growth, fraudsters are looking for new ways to violate online businesses and consumers. About 75% of travel and tourism companies were victimized by online fraudsters in the previous year.

Avoiding fraud is easier said than done, but understanding and identifying fraud attempts will go a long way towards mitigating the problem.

Here are 3 examples of online fraud in the travel industry that merchants should look out for:

Fake Travel Agent

There have been a number of cases in which online fraudsters sell travel packages on behalf of other travel companies or tourism organizations. They often offer large discounts like half-off Business Class prices to unsuspecting travelers. For example, fraudsters pose as telemarketers from travel companies and they call residential phone numbers to try to sell vacation packages. The fraudulent telemarketers use fake phone numbers with local area codes to appear on the customer’s caller ID in order to increase the probability of a sale. The telemarketers usually pose as representatives from known companies to make the scam more believable to their victims. There have also been scams that involved fraudulent baggage fees reported by airlines.

Mobile Fraud

Modern fraudsters are using the mobile revolution to their advantage by targeting mobile tourism bookings and travel company loyalty clubs. They screen the discrepancies between the different channels and between tickets issued and any possible exchanges. Usually, travel services that do not require identity verification, like trains, see more frequent fraud attempts.

Identity Theft and Stolen Credit Cards

The majority of scammers in the travel industry use stolen credit cards to purchase flights and book vacations. Airlines are particularly vulnerable to this type of fraud. Approximately 10% of stolen credit card data is used to book flights. International airlines lose 1% of revenue to online fraud, which comes out to about US $1 billion.

There are effective and efficient fraud prevention measures, which we will discuss in more depth in the next blog post, that merchants can implement to prevent becoming a victim, such as:

  • Incorporate PCI-DSS standards
  • AVS (Address Verification System)
  • CVV (Card Verification Value)
  • Use external security services
  • Implement 3D Secure

In addition to these methods, it is also beneficial to check:

  • If the customer entered a suspicious email account – for example [email protected]
  • If the number of times a customer tried to enter credit card details is higher than four - you should limit the number a user can incorrectly enter a credit card number
  • How many times a customer tried entering credit card details and was rejected – keep in mind that you are charged for each rejection.
  • If the customer’s billing, IP, and credit card issuing country match.

Merchants can opt to use these fraud prevention measures on their own, or they can choose to work with a PCI DSS Level 1 certified payment processor that employs all of these in addition to other anti-fraud technology, such as Direct Pay Online.

No matter which direction a merchant decides to go in, avoiding fraud and preventing chargebacks should be a top priority. Online scams cost merchants money in the form of chargebacks, loss of potential bookings, and negative customer feedback. Chargebacks are costly and unfortunate for many businesses that accept credit cards, and they occur when customers dispute the charges for a product or service. If the fight against a chargeback is lost, the merchant is debited for the credit card charge that had previously cleared as well as a chargeback fee that may range from $15 to $100.

The most important advice that can be given is: be vigilant, be skeptical, and adopt fraud prevention best practices.  Following this advice will surely lower your risk of suffering from successful fraud attempts, and in the process, you will increase profits and customer loyalty.  Stay tuned for the next blog post, where we will more deeply explore the most effective fraud prevention methods.

 

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