Firms warned chargebacks and payments fraud could land them a fatal blow

Firms warned chargebacks and payments fraud could land them a fatal blow

Airline and travel firms have been warned failure to keep fraud and chargebacks in check could put their businesses in jeopardy despite the post-COVID bounce back.

A new report, Fraud and Chargebacks in Travel, from merchant dispute specialist Chargebacks911 and Airline Information, has shed light on the cost to the sector of fraud and disputed payments.

A survey conducted this year for 2021 Chargeback Field Report found that 25% of merchants asked have seen an increase in chargebacks and expect this to continue.

A chargeback is a process offered by the main card companies Visa and Mastercard to allow customers to get their money back from their vendor if goods or services are not provided.

Merchants are able to challenge chargebacks and during the COVID pandemic card companies issued updated guidance on the rules for claiming money back.

However, the threat of chargebacks remained a key concern for all travel firms, and some customers used the process to ‘double dip’ – fraudulently claim money back from their agent as well as going direct to the supplier.

Chargebacks911 cited global aviation body Iata figures to estimate that payment fraud causes airlines alone to lose around 1.2% of revenue or around $1 billion annually.

The firm said how bookings are made determine the levels of chargebacks. Half of those surveyed said chargebacks are more common when bookings are made direct, compared with third-parties or travel agents.

This was especially true for respondents reporting more than 500 chargebacks per month.

Two-thirds of airline and travel merchants respond to 76% of chargeback requests – significantly higher than the 43% response rate across all verticals reported in the 2021 Chargeback Field Report.

Despite this, the Chargebacks911 study warned just a 10% chargeback reversal rate could prove to be a fatal blow to a travel merchant’s chances of survival post-COVID.

Monica Eaton-Cardone, chief operating officer and co-founder of Chargebacks911, said: “The travel industry has suffered the most devastating economic impact from the pandemic.

“It continues to lose revenue; refunds are requested on a massive scale and the ever-rising numbers of chargebacks spell the collapse of several travel providers worldwide.

“There’s been a clear structural change in chargebacks after COVID-19. Travel is getting back to a new normal, and chargeback activity will follow suit.

“We’re seeing a surge of travel-related chargebacks, foreshadowing another round of ‘dispute contagion’ – a clear indicator of growing behaviour trends. Merchants can’t afford to ignore this problem.”

The study found 62% of respondents want greater industry collaboration, including integrated technology systems and data sharing, to help identify evolving fraud and chargeback methods.

And it found 37% of respondents could only identify one in ten chargebacks were ‘friendly fraud’, despite knowledge of over five times this figure being most likely.

Eaton-Cardone said merchants lack the internal resources and expertise to effectively tackle this problem.

“One of the reasons for the growing number of chargebacks is the lack of defence against friendly fraud.

“Once committed, most merchants don’t realise that if they let it go, they’re admitting fault – and inadvertently rewarding the wrong behaviour.

“50% of those fraudsters that get away with it will do it again in as little as 60 days. This doesn’t just impact the merchant’s business, it has a trickle-down effect for others, too.

“We’re seeing lots of very creative avenues for fraud and chargebacks being exploited.

“Merchants must be on their toes. It all comes down to knowing your customer and having access to more data to be able to identify suspect behavioural trends.”

When it came to double dipping, the research found 60% of respondents have seen an increase since the pandemic began.

Eaton-Cardone said: “When you look at chargebacks in vulnerable sectors like travel and tourism, you need a full end-to-end strategy including front-end fraud prevention and post-transaction fraud management.

“It’s not just about identifying criminals; it’s about understanding what’s behind friendly fraud. Sometimes it’s truly accidental, and you don’t want to blacklist genuine customers. If you don’t have that intelligence, it’s going to affect your authorization rates.”

“Any merchant should focus on their core competencies, like improving the customer experience, and paying attention to customer service.

“I would challenge merchants to look at how they can make smarter decisions and recognize the technologies available to assist them. That way, everybody wins.”

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