Digital Transactions Authoritative, insightful and timely information for payments professionals
Online travel agencies are well-known fraud targets, and now new data from CyberSource Corp. suggest that fraudsters make more attempts against them than other sectors of the travel industry. But the data also show that the so-called OTAs’ fraud losses as a percentage of revenue are actually less than elsewhere in the travel business.
Overall, travel merchants lose an average of 0.44% of annual revenues to online fraud, according to data compiled by Mountain View, Calif.-based CyberSource, the e-commerce fraud-control subsidiary of Visa Inc. The mean for airlines is identical at 0.44% and 0.59% for the rental cars-cruise lines-rail-lodging sector. But the average of OTAs, including packaged-tour operators and some related merchants, is a bit lower at 0.36%. The category includes such familiar names as Travelocity, Expedia, Orbitz, and Priceline.
The OTAs’ figure is especially surprising given that their mean fraud booking rate, or percentage of transactions deemed to be fraudulent, is 0.95% against 0.6% for the travel industry overall, according to Doug Schwegman, CyberSource’s director of market intelligence, who spoke on Wednesday at the Merchant Risk Council’s 2012 e-Commerce Payments & Risk Conference in Las Vegas. CyberSource collected the data last September and October and also incorporated some data from earlier studies for the findings it presented at the MRC conference The Seattle-based MRC is a non-profit trade group for e-commerce retailers, law-enforcement official,s and others concerned with reducing Internet fraud.
“The fraud attempts are definitely up year after year,” Sheryl Pinto, director of global revenue protection at Travelocity.com LP, a unit of Southlake, Texas-based Sabre Holdings, said at the MRC session with Schwegman.
Pinto attributed at least part of the high fraud-attempt rates against OTA sites to their “big brand names” that attract would-be cyberthieves who often may be testing a new batch of fraudulent credit cards. “Everybody comes to shop, including the fraudsters,” she said.
But Pinto and Schwegman noted that e-commerce merchants, including those in the travel industry, have gotten better over the years at preventing fraud attempts from turning into revenue losses through better automated screening, manual reviews of suspicious transactions, and other methods. “OTAs do a really good job of finding the fraud,” said Pinto.
While the OTAs’ mean fraud-attempt rate is considerably higher than the mean revenue-loss rate, the two measures are probably closer when the median, the midpoint of a frequency distribution in which half the values are higher and half are lower, is considered, according to Schwegman. He estimates the mean likely was pulled up by a very high number of attempts against some OTAs and that the group’s median is probably about half the mean rate.
Still, the industry’s fraud fighters can hardly rest on their laurels. Session attendees, many from e-commerce merchants, noted that fraudsters are constantly testing new methods. U.S. e-commerce travel merchants are beginning to see fraud coming in through mobile devices, with many suspect transactions originating abroad. “Mobile fraud is starting to get some legs,” Pinto said.
And while there have been a few high-profile arrests of suspects in countries such as Russia for fraud against U.S. e-commerce merchants, extradition treaties signed years ago often fail to account for cybercrimes and thus prevent many foreign suspects from ever being prosecuted in the U.S., according to Schwegman. “The extradition treaties have not kept up with the new crimes you can do these days,” he says.
