Fraud-Mgmt-Benchmark-Study-Travel-Edition-2014.pdf

CYBERSOURCE FRAUD MANAGEMENT BENCHMARK STUDYAIRLINE INDUSTRY EDITION 2014

WRITTEN AND RESEARCHED BY JULIEN BERESFORD, CHETAN KAPOOR AND DOUGLAS QUINBY

Fraud Management Benchmark Study, Airline Industry Edition 2014

WELCOME TO THE CYBERSOURCE FRAUD MANAGEMENTBENCHMARK STUDY, AIRLINE INDUSTRY EDITION 2014 Travel commerce has been changing at a faster pace than ever before. Today, both corporate and leisure travelers are truly connected, with thousands of travel agencies, wholesalers and suppliers within fast reach, anywhere in the world. Travelers are looking for a fast, safe and seamless travel buying experience, irrespective of device or location.

Our latest benchmark study reflects this evolution – we focus on providing you with the tools and insight to service your customers and accept more bookings, faster and more profitably.

We have commissioned this study conducted by PhoCusWright Inc., to help you assess fraud management operating performance and understand industry trends and best practices.

Whether you are an airline, travel agency, tour operator, hotel, rail operator, cruise line, car rental agency or another travel industry business, we trust you will find the study beneficial.

We look forward to discussing how CyberSource solutions can help you optimize fraud management operations.

The CyberSource Team


CONTENTS CYBERSOURCE FRAUD MANAGEMENT BENCHMARK STUDY, AIRLINE INDUSTRY EDITION 201402

AIRLINE LOYALTY PROGRAMS AND FRAUD16

INTRODUCTION04

ONLINE TRAVEL AGENCIES AND FRAUD17

CYBERSOURCE FRAUD MANAGEMENT FOR THE TRAVEL INDUSTRY19

AIRLINE DISTRIBUTION AND PAYMENTS07

AIRLINES AND PAYMENT FRAUD09

CYBERSOURCE DECISION MANAGER20

Purpose of the Study and Methodology 05

Global Airline Trends by Sales Channel07

Sample and Segmentation05

Payment Methods07

Fraud by Distribution Channel09

1. A World of Data19

Fraud Prevention Methods15

4. One Platform

Fraud Management Priorities10

2. A World of Analytics19

Fraud Detection Techniques12

3. A World of Expertise19

19

Fraud-Related Revenue Loss11


INTRODUCTION

Online travel has certainly come a long way. From its humble beginnings, when a handful of pathbreaking agencies began selling air tickets via the still-nascent Internet, to what now represents a substantial portion of leisure and business travel sales worldwide, online travel continues to shape – and reshape – how travelers and the global travel industry interact.

Online channels – which include the websites of travel suppliers such as airlines, hotels, cruise lines and car rental and rail companies, as well as online travel agencies (OTAs) – account for nearly one third of all travel sales worldwide, and continue to grow faster than the total travel market. Aggregate worldwide online leisure and unmanaged business travel gross bookings – comprising Asia Pacific, Western and Eastern Europe, Latin America, the Middle East and the United States – reached US$369B in 2012, representing 32% of the global travel market.

But the online travel market differs widely by geography, reflecting the varying degrees of maturity in developed versus emerging market regions. Europe is the world’s biggest regional online travel market, with gross bookings of $127.9B in 2012, but the U.S. has the highest online penetration of its total travel market at 42% (see Figure 1). Online penetration in other regions is comparatively low – between 18% and 24% – but is growing at a much faster pace as the less mature markets in Asia Pacific, Eastern Europe, Latin America and the Middle East catch up to Europe and North America.

The remarkable rise of online travel over the past two decades has brought many benefits to travel companies and travelers alike, but it has also introduced plenty of challenges. Not the least of these is payment handling and fraud management. The advent of eCommerce has demanded new technologies and practices to mitigate the threat of credit card fraud. In many emerging markets, where credit card adoption is still relatively low, eCommerce has challenged travel sellers to offer alternative methods of payment and support various fraud detection techniques across these methods.

The accelerating growth of mobile channels for shopping and booking adds further complexity. By 2015, smartphone and tablet bookings will account for nearly $40B in travel sales in the U.S. alone1.

Across nearly all global markets, mobile channels are growing each year. The proliferation of mobile commerce will require new solutions for mobile payment and fraud protection.

Suppliers and intermediaries must keep abreast of key market trends in travel booking, payment, and fraud management to minimize the impact of lost sales while providing a positive shopping experience for customers in a highly competitive marketplace.

2009 2012

Europe 31% 41%

United States 39% 42%

Asia Pacific 18% 24%

Eastern Europe 11% 19%

Latin America 11% 21%

Middle East 9% 18%

Source: PhoCusWright Inc.

Online penetration of total travel markets by region,2009 & 2012

1U.S. Online Travel Overview Thirteenth Edition, PhoCusWright (November 2013).

Figure 1

http://www.phocuswright.com/products/4392


PURPOSE OF THE STUDY AND METHODOLOGY

CyberSource commissioned PhoCusWright to conduct a global study of fraud management practices across airlines and OTAs. The objective of this study is to benchmark global metrics and trends in fraud management and protection across airlines and OTAs. This study also explores supplier and online agency awareness of various fraud-related issues, and examines travel providers’ approaches to and implementation of fraud management tools and services.

SAMPLE AND SEGMENTATION

From consolidation in the U.S. to the explosive growth of low-cost carriers (LCCs) in Asia, the commercial aviation industry is complex, competitive and in a constant stage of change. Among the several hundred commercial carriers worldwide, legacy airlines dominate global supply and traffic, while LCCs outperform in aggregate. The sample from this study is broadly reflective of the global mix of network and low-cost carriers and geographic regions.

PhoCusWright fielded an online survey between June and August 2013 to airline payment fraud managers through CyberSource and Airline Information. Qualified respondents were required to have worked in a payment and fraud management role at a commercial passenger airline or independent airline loyalty program. PhoCusWright received 92 qualified

responses from airlines, and nine responses from independent airline loyalty programs.

PhoCusWright also conducted interviews with global and regional OTAs in the U.S., Europe and Asia Pacific to understand OTA priorities and practices regarding fraud management.

Of the 92 airlines that participated in this survey, network carriers represented 74%, while LCCs and business class-only airlines accounted for the rest (see Figure 2). One third of respondents are headquartered in Asia Pacific (APAC), followed by Europe (22%), the Middle East (15%) and Africa

(12%) (see Figure 3). North America’s share of participating airlines is low (10%), due to the consolidation that has transformed the U.S. aviation market over the past two decades. By comparison, almost half of LCC respondents are based in APAC, reflecting the region’s fragmented airline market.

Figure 2

Figure 3

Asia Pacific

AIRLINE RESPONDENTS BY REGION AND TYPE

Asia Pacific

Europe

Americas

Middle East & Africa

Europe

Middle East

Africa

North America

South/CentralAmerica and

Caribbean

33%

22%

Full-fare LCC

15%

12%

10%

9%

12

15

19

43

5

10

22

Question: In which region is your airline headquartered? Base: Airline companies (N=90)Source: CyberSource Fraud Management Benchmark Study, Airline Industry Edition 2014

AIRLINE RESPONDENTSBY TYPE

2%

24%

74%

Business class airline only

Low-cost airline

Full-fare / traditional network airline

Question: Which of the following best describes your airline or company? Base: Airline companies (N=92)Source: CyberSource Fraud Management

Benchmark Study, Airline Industry Edition 2014


Figure 4

*Canada, Middle East and Africa not included.Source: PhoCusWright’s Payment Unsettled:

Cost, Opportunity and Disruption in Travel’s Complex Payment Landscape

GLOBAL* AIRLINE PASSENGER REVENUE BY REGION (US$B), 2012

6%

27%

7%

27%

33%

Eastern Europe

Western Europe

LATAM

U.S.APAC

It is no surprise that traditional network carriers have been operating far longer. Three out of four legacy carriers have been in operation for at least two decades. This stands in stark contrast to 91% of LCCs, which are generally younger and have been operating for less than 20 years.

A majority of airlines surveyed are headquartered in emerging markets, but more than half of global airline revenue is derived from developed regions. Combined, North America and Europe accounted for 54% of the global airline market in 2012 (see Figure 4). However, on a stand-alone basis, APAC is the largest airline market, comprising a third of total airline passenger revenue worldwide.

Airlines come in all shapes and sizes: legacy, low-cost, domestic, regional and global. The survey sample is diverse and broadly representative of the global commercial aviation marketplace. Nearly one third of respondents represent an airline with less than $1B in annual revenue, another third represent airlines with between $1B and $10B (see Figure 5), and 13% represent the largest carriers (with more than $10B). One in five respondents either did not know or declined to answer. As expected, traditional airlines tend to be larger: 66% of network carrier respondents report revenue of at least $1B (among those who knew their airline’s revenue figures), versus 38% among respondents from LCCs.

Figure 5

Less than $100M

$100 to $499M

$500 to $999M

$1B to $4.9B

$5B to $9.9B

$10B to $14.9B

$15B or greater

Do not know

AIRLINE RESPONDENTS BY ANNUAL REVENUE (US$)

<$1B

$1B+

Do not know

5%

17%

Full-fare LCC

10%

20%

14%

4%

21%

9%

37

19

6

6

10

12

Question: What was your airline’s total revenue for 2012 (inclusive of all sales channels)? Base: Airline companies (N=90)Source: CyberSource Fraud Management Benchmark Study, Airline Industry Edition 2014

http://www.phocuswright.com/products/4392


GLOBAL AIRLINE TRENDS BY SALES CHANNEL

Air is the largest travel segment worldwide, and perhaps the most advanced in online distribution. Accounting for 43% of the U.S. travel market, 46% of the European travel market, and 48% of the Asia Pacific travel market in 2012,2 the airline industry was the first in travel to take up electronic distribution. It remains the most penetrated online travel segment.

AIRLINE DISTRIBUTION AND PAYMENTS

2U.S. Online Travel Overview Thirteenth Edition, PhoCusWright (November 2013); European Online Travel Overview Ninth Edition, PhoCusWright (December 2013); Asia Pacific Online Travel Overview Sixth Edition, PhoCusWright (October 2013).

Online channels – both airline websites and OTAs – accounted for 39% of global passenger revenue in 2012, up from 36% in 2010 (see Figure 6). This three-point shift, driven primarily by airlines’ own websites, signifies the continuing changes in distribution and customer buying behavior as airlines relentlessly woo customers to book directly online.

However, offline channels through intermediaries still account for the majority of airline sales. In 2010, 47% of global airline revenue came through traditional agencies. Another 17% came through other offline sources, including booking with suppliers directly (e.g., call centers, city offices and airport ticket counters). Although travel agency sales still dominate, agencies’ share of revenue dropped

to 45% in 2012 as customers migrated from offline to online channels.

Distribution strategy and channel mix vary significantly by airline type. LCCs have aggressively pursued direct and online distribution to limit third-party commissions and other expenses, while network airlines have a legacy relationship with traditional agencies and do more business in the corporate travel market, where agencies play a significant role. Among survey respondents, supplier websites account for 60% of LCC revenue and only 21% of full-service carrier revenue (see Figure 7). By comparison, sales via travel agencies, wholesalers and tour operators are still prominent among traditional carriers. These sellers represent an average of 45% of network carriers’ sales.

2010 2012

Travel Agency 47% 45%

Direct Offline/Other 17% 16%

OTA 10% 10%

Airline Website 26% 29%

*Canada, Middle East and Africa not included.Source: PhoCusWright’s Payment Unsettled:

Cost, Opportunity and Disruption in Travel’s Complex Payment Landscape

Global* Airline Passenger Revenue by Channel (US$B), 2010 & 2012

Figure 6

Figure 7

The emerging mobile channel (e.g., applications, the mobile web) makes up the smallest piece of the revenue pie for both types of airlines (2%). Despite LCCs’ speedy growth, a considerable portion of their revenue still comes from channels other than

their websites and mobile offerings. Call centers, kiosks, OTAs and traditional travel agencies each represent somewhere between 7% and 13% of LCC passenger revenue.

Airline website

Mobile (websites/apps formobile phones or tablets)

Airline call center(s)

Airports(ticket counters, kiosks, etc.)

Online travel agencies

Travel agencies, tour operatorsand consolidators

PASSENGER REVENUE BY SALES CHANNEL AND AIRLINE TYPE

60%21%

2%2%

8%10%

7%10%

10%13%

13%

Low-cost

Full-fare

Question: Please estimate the percentage of passenger revenue booked through the following sales channels for the full year 2012. Total should equal 100%. Base: Airline companies (Low-cost airlines, N=22; Full-fare airlines, N=68)Source: CyberSource Fraud Management Benchmark

Study, Airline Industry Edition 2014

45%


PAYMENT METHODS

As the role of direct sales channels in overall airline distribution increases, airlines take on more responsibility for payment acceptance and fraud management.

Airlines today accept a wide variety of payment methods, subject to the market conditions and consumer needs across the various countries in which they operate. Credit and debit cards are the most widely accepted form of payment across almost all airlines and regions, given the global nature of the industry (see Figure 8).

The Universal Air Travel Plan (UATP), an airline-issued charge card widely used within managed corporate travel, is far more prominent among full-service carriers, half of whom report accepting UATP (compared to less than a quarter of LCCs). This form of payment is extensively used by North American (89%) and European (70%) airlines.

Figure 8

Almost one in two traditional full-fare carriers accept bank transfers and country- or region-specific cards (e.g., Carte Bleue in France, UnionPay in China). Incidence of acceptance for these payments is especially high among airlines in South and Central America, the Caribbean and Europe.

In emerging markets where Internet and credit card penetration is relatively low, many travel companies – airlines included – offer a range of payment methods besides credit cards. Cash on delivery (CoD) is one such method, wherein a transaction is fulfilled by cash payments offline. CoD is accepted by 36% of LCCs and 38% of full-service carriers,

and is prominent primarily in Latin America and Africa.

Payment methods specific to mobile devices, such as bill-to-carrier and SMS authorization, rank relatively low among both full-service carriers (16%) and LCCs (18%). Across all regions, mobile-specific payment methods comprise only a small share of airline direct billings. But Africa appears to be an interesting outlier region, in which a far greater percentage of airlines (45%) accept mobile forms of payment through popular SMS-based payment methods such as M-Pesa.

Worldwidecredit/debit/T&E cards

UATP

Bank transfers

Country- or region-specific cards

Cash on delivery

PayPal or other online wallets

Electronic check,ACH or direct debit

Gift cards/certificates/otherprepaid card

Mobile phone payment

Western Union*

ACCEPTED PAYMENT METHODS FOR DIRECT SALES CHANNELS BY AIRLINE TYPE

95%97%

23%50%

32%46%

18%44%

36%38%

27%34%

23%34%

23%16%

18%16%

9%3%

Question: Which of the following payment options does your airline currently accept for bookings made on your direct sales channels (airline website, call center, airport ticket counter, mobile, etc.)? Select all that apply.*Only four respondents for Western Union, spread across all four regions. Base: Airline companies (Low-cost airlines, N=22; Full-fare airlines, N=68)Source: CyberSource Fraud Management


Low-cost

Full-fare


FRAUD BY DISTRIBUTION CHANNEL

With the dramatic growth of airline websites as a distribution channel and the consequent need for risk management on these sites, it should come as little surprise that airlines view their websites as the most fraud-targeted channel. Three out of four airline respondents attribute the highest or second highest rate of fraud incidence to their own websites, followed by call centers and travel agency bookings (see Figure 9). Airlines rate airport kiosks as having the lowest incidence of fraud among all points of sale.

AIRLINES AND PAYMENT FRAUD

Figure 9

Mobile channels rank low in terms of fraud incidence relative to other channels, but these are still early days for smartphones and tablets as points of sale. As airlines continue to expand their mobile offerings and consumers clamor for more mobile

devices, the mobile channel will almost certainly become a bigger source of bookings and therefore will also demand attention to fraud management best practices.

AIRLINE SALES CHANNELS RANKED BY SHARE OF FRAUD INCIDENCE

Question: Please rank the following sales channels in terms of the incidence of fraudulent bookings occurring through each channel, with 1 having the highestincidence of fraud and 6 the lowest. (If your airline does not support a particular sales channel, please assign it the lowest rank for fraud incidence.) Base: Airline companies (Low-cost airlines, N=22; Full-fare airlines, N=68)Source: CyberSource Fraud Management Benchmark Study, Airline Industry Edition 2014

Highest incidence 2nd Lowest incidence3rd 4th 5th

1%

Website via desktop computer

54% 22% 9% 8% 6%

Call center

23% 37% 13% 10% 12% 5%

Travel agency

15% 14% 30% 26% 5% 9%

Mobile device

3% 14% 15% 20% 21% 27%

Airport ticket counter

3% 10% 18% 28% 24% 16%

1%

Airport kiosk

3% 14% 15% 30% 36%


FRAUD MANAGEMENT PRIORITIES Because airline websites account for a growing share of airline sales and are the channel most targeted by fraudsters, airlines understandably see card fraud mitigation and management as their top priorities in fraud management. Both full-service carriers and LCCs consider managing card fraud from specific geographic regions among their top fraud-related priorities (see Figure 10). Regions (from which the card or booking originated) cited as the biggest sources of fraud were Africa (72%) and North America (44%).

Figure 10

Airlines also cite the operational efficiency of manual reviews and processing chargebacks as important priorities. The manual review rate for LCCs is 55%. This is likely due to LCCs’ intense focus on cost reduction and the direct bottom-line impact of chargebacks, the associated fees, and the indirect costs (staff time, manual procedures, etc.) associated with handling them.

Another high priority for LCCs is improving website conversion. Therefore, LCCs dislike any additional security steps that cause friction and impact website conversion. This is understandably a very big concern for LCCs, which derive a much greater share of their total revenue from their websites than network carriers do.

Card fraud in specificgeographic regions

Manual review andprocessing of chargebacks

Rejection of "good" bookingsdue to fraud detectiontools (false positives)

Conversion loss dueto additional payment

verification requirements

Fraud via bookingson mobile devices

Loyalty program fraud /fraudulent redemption of miles

Fraud via airline ticket officesor airport ticket counters

PRIORITIES IN MANAGING PAYMENT FRAUD, BY AIRLINE TYPE

41%

55%59%

27%28%

50%28%

36%22%

5%18%

14%13%

66%

Question: Which of the following would you consider your organization’s top priorities with regard to managing payment fraud? Select up to three. Base: Airline companies (N=92)Source: CyberSource Fraud Management Benchmark Study, Airline Industry Edition 2014

Low-cost

Full-fare


FRAUD-RELATED REVENUE LOSS

Payment-related fraud management presents a range of challenges to any business, but the most substantial impact is revenue loss – the bookings that are terminated and the revenue that goes uncollected (or charged back) due to fraud.

Of those respondents who were able or willing to provide an estimate for revenue loss, the average percent lost is 1.1% for websites, 1.2% for call centers, and 1.7% for mobile channels (see Figure 11). The revenue loss figure includes rejected bookings, the value of fraud-coded chargebacks, and credits issued to consumers to avoid chargeback disputes.

However, the percentage of bookings that are rejected or cancelled due to suspicion of fraud is substantially greater: 3.4% of bookings on average are rejected due to suspicion of payment fraud. The percent of bookings rejected due to suspected fraud is higher (exceeding 5%) among smaller airlines (those with under $1B in annual revenue). Among airlines whose revenue exceeds $1B, this percentage is close to 2%.

Website 1.1%

Call Center 1.2%

Mobile 1.7%

Question: What percent of revenue from your direct sales channels (your airline’s website, call center, airport ticket counter, mobile, etc.) did you lose due to payment fraud in the past 12 months?Base: Airline companies (N=92)Source: CyberSource Fraud Management


Average Percent of Revenue Lost Due to Fraud, by Direct Sales Channel

Figure 11

3.4% of airline bookings are rejected or cancelled due to the suspicion of fraud*

*44% of respondents do not track, do not know, or declined to respond

3.4%


FRAUD DETECTION TECHNIQUES

Airlines take advantage of a variety of fraud detection technologies and services to safeguard their business and protect customers from fraudulent payment. The most widely used techniques include card verification numbers (CVN) at 79% and payer authentication (i.e., 3D Secure) at 76% (see Figure 12a). One in two airlines also use address verification service (AVS) checks supplied by card brands during authorization; airlines in North and South America favor this tool more than their counterparts in other regions. Seventeen percent of airlines – driven by the Middle Eastern carriers – plan to implement AVS in the future.

Figure 12a

CURRENT AND FUTURE IMPLEMENTATION OF FRAUD DETECTION VALIDATION SERVICES BY AIRLINES

Question: Which fraud detection techniques/services does your airline use or plan to implement to assess the risk of payment fraud for bookings made on your airline’s direct sales channels? If your airline does not currently use or plan to implement any of the following, please leave blank. Base: Airline companies (Currently in use: N=33-80)Source: CyberSource Fraud Management Benchmark Study, Airline Industry Edition 2014

Currently use Plan to implement Do not use/No plans

Card Verification Number

79% 8% 13%

Payer authentication (3D Secure)

76% 7% 17%

Address Verification Service

50% 17% 33%

Social networking sites

37% 21% 42%

Telephone number verification/reverse lookup

33% 25% 42%

Credit history check

30% 23% 47%

Postal address validation services

26% 27% 47%

Paid public records services

10% 28% 62%

Out-of-wallet or in-wallet challenge/response systems

8% 32% 60%

Biometric indicators

5% 30% 65%

Two-factor phone authentication

5% 30% 65%


Figure 12b

Verification through social networks has also gained popularity among airlines. Some of the Internet’s leading websites are social sites with millions of active users. Despite the youth of social media as a technology, there are already thousands of success stories of enhanced pre-, in- and post-flight customer experiences and increased traveler engagement due to effective use of the platform. Social media is a relatively new tool for tackling fraud, but a combined 58% of airlines are either already using or plan to have services that could scan user profiles across social networking sites.

Loyalty program and repeat customers (traced through IPs or log-ins) also aid airlines in limiting fraud through analysis of historical purchase habits and patterns. In light of the growing share of transactions completed through direct channels – and companies’ increased access to consumer data – airlines and even card companies are creating positive and negative lists of card numbers/users. Up to three in four airlines use or have plans to include these tools as part of their fraud detection techniques (see Figure 12b). LCCs and network airlines whose annual revenue is under $10B tend to use these tools more than other carriers.




Customer order history or frequent flyer membership history

59% 12% 29%

Proprietary Data /Customer History

PurchaseDevice Tracking

Fraud scoring model (company-specific)

59% 14% 27%

Positive lists

59% 13% 28%

Order velocity monitoring

51% 15% 34%

IP geolocation information

66% 12% 22%

Device fingerprinting (e.g., electronic fingerprinting of PC or mobile device/network route)

27% 30% 43%

Negative lists (in-house)

72% 10% 18%


Figure 12c

Many airlines have in-house lists based on their customer set, but services that aggregate information about safe users and potentially fraudulent ones are also offered by industry associations (e.g., IATA’s tool Perseuss). Nearly half of airlines currently use shared lists, but an additional one in five plan to use them in the future (see Figure 12c).

Significant as well is the relatively widespread adoption of multiservice solutions and vendors that provide a range of fraud-screening techniques. More than two in five airlines currently use a third-party provider of multiple services, and another 23% indicate plans to begin working with one.




Shared negative lists / hot lists

47% 20% 33%Multi-merchant Data /Purchase History Multi-merchant purchase velocity / identity morphing models

25% 27% 48%

Third-party solution offering multiple services

43% 23% 34%Third-Party

Outsourcing


FRAUD PREVENTION METHODS

In spite of the various checks and balances currently in place to deter fraud, manual review of suspicious bookings remains a significant part of the payment management process for most airlines. Nearly three in five airlines review bookings manually, and on average, more than one in four transactions (27%) are manually reviewed for payment fraud.

27%of airline direct bookings

require manual review*

*32% of respondents do not track or do not know

27%

62%of bookings sent for review

are ultimately accepted

62%

Airlines in emerging online markets – such as Asia Pacific, the Middle East and Africa – are more likely to conduct manual reviews than their counterparts in Europe and North America. This likely reflects the greater deployment of fraud detection systems by points of sale in emerging markets, as well as sellers’ higher concern about fraud. There is also significant variation by the size of the airline. Larger carriers with revenue in excess of $10B conduct manual reviews for 5% of direct bookings on average, while the percentage of bookings that undergo manual review at airlines with less than $1B in revenue is significantly greater.

On average, a manual review takes just under nine minutes; full-service carriers take longer (10 minutes) than LCCs (under five minutes) to authenticate or reject suspicious bookings. In terms of cost, managing fraud – including staff, systems and tools – accounted for 0.1% of airline revenue.

Airlines may take a range of actions once booking fraud is detected or suspected. The most common step is to simply cancel the booking. Nearly nine out of 10 airlines reject bookings upon detection of potential fraud (see Figure 13). Airlines may also

contact passengers for additional verification – 58% of carriers allow customers to pay in person, and 54% request additional proof of identity or presentation of the payment card upon check-in. Depending on the gravity of the fraud, airlines sometimes opt to work with local law and airport enforcement agencies to apprehend the suspect.

Given the significant potential cost that payment fraud presents to airlines, carriers are aggressive in reviewing and addressing potentially fraudulent transactions – and rightly so. They are also aggressive about disputing fraud-coded chargebacks. On average, airlines dispute nearly half (48%), and of those disputes, airlines win an average of three in 10.

While online commerce may be mature in the travel industry and for airlines in particular, payment fraud management remains a critical aspect of operations. The potential impact on revenue, costs and staffing resources require airlines to pursue new technologies and automation to address fraud, especially as more and more transactions are conducted online and via airline websites.

Figure 13

Reject or cancelthe booking

Allow the passengerto pay face-to-face

Request additional proof of IDor presentation of payment

card used at check-in

Request another payment type

Wait at the airportfor the suspected criminal

prior to boarding

Request additional proofof ID before ticket issuance

Notify local lawenforcement agencies

of the suspected fraudster

ACTION FOLLOWING POTENTIAL FRAUD DETECTION

Question: What does your airline do when a potentially fraudulent booking is identified? Base: Airline companies (N=92)Source: CyberSource Fraud Management


87%

58%

54%

48%

41%

33%

25%


AIRLINE LOYALTY PROGRAMS AND FRAUD

As airlines seek to increase their volume of repeat customers and to derive more revenue from each traveler, loyalty programs and frequent flier rewards have gained importance. Loyalty programs, driven largely by full-service carriers, are offered by 88% of airline respondents, and allow (frequent) travelers to accrue miles for redemption. Opportunities for redemption are expanding as airlines are increasing the range of third-party products and services they offer – some through partnerships with chain hotels, restaurants and retailers – in addition to the redemption of miles for flights and onboard perks.

As a form of valuable currency, loyalty programs are not immune to fraud attempts. Nearly two in five airlines indicate that fraud in their loyalty program is somewhat (31%) or very (7%) significant (see Figure 14). Another 43% state that there is no significant rate of fraud in their loyalty program, while 19% do not know or do not track this. The vast majority of airlines that do know about and track fraud in their loyalty program report that the actual monetary impact is not huge: 79% of respondents said program fraud amounted to less than $1M. Airlines based in North America and the Middle East report a much higher average revenue impact from program fraud.

Loyalty program fraud is still a relatively new issue, but its importance is growing. More than

half of airlines (54%) use only internal tools and procedures for fraud screening related to loyalty programs, while 37% do no screening at all. Currently, just 3% of respondents outsource loyalty program fraud screening.

Among the most common types of fraud associated with airline loyalty programs are miles/points purchased with suspicious cards (49%) and account theft (39%) (see Figure 15). Airlines are also wary of points redemption by travel agencies, which may charge either discounted or full ticket fees to travelers. Another issue cited by more than one in five airlines is the circumvention of frequent flier program rules, such as travelers trying to combine points from multiple programs for a single flight.

Figure 14

Figure 15

Points/miles purchased with fraudulent/stolen credit cards

Loyalty account theft (where loyalty accounts are taken overby someone other than the owner and mileage is redeemed)

Travel agents purchasing tickets for customers with agencymiles and charging the customer full or discounted fares

"Double-dipping": customers attempting to use pointsor miles from more than one program for a single flight

Fraud/misuse of accounts by airline staff

COMMON TYPES OF LOYALTY PROGRAM FRAUD

Question: Which of the following types of frequent flier fraud are the most common? Select up to three.Base: Airline companies (N=90)Source: CyberSource Fraud Management Benchmark Study, Airline Industry Edition 2014

49%

39%

23%

22%

22%

7%

Very significant(it is a major

problem)

Do notknow/havenot tracked

31%Somewhatsignificant

43%Not significant (there is no or

negligible fraud within our loyalty program)

SIGNIFICANCE OF FRAUDIN LOYALTY PROGRAMS

Question: Please rate the significance of frequent flier fraud within your airline’s loyalty program. Base: Airline companies (N=92)Source: CyberSource Fraud Management


19%


ONLINE TRAVEL AGENCIES AND FRAUD

Nearly two decades ago, the first of the OTAs – Expedia, Travelocity and Preview Travel – forged a new path for travel shopping and booking. Today, OTAs around the world are a major part of global travel distribution and constitute a significant portion of online travel. In 2012, OTAs in the U.S., Europe and Asia Pacific accounted for approximately $118B in gross travel bookings. Major global and local entities – from Ctrip in China and MakeMyTrip in India to global companies like Booking.com, Expedia and Orbitz – hold significant influence in their markets.

OTA share of online travel markets worldwide varies, but in no region is it below one third. OTA share is 36% in the U.S., 34% in Latin America, 33% in Asia Pacific, 38% in Western Europe and the Middle East, and as high as 43% in Eastern Europe (including Russia) (see Figure 16).

Given that online travel (and eCommerce in general) originated in the U.S., where credit cards are a long-established, common payment method for consumers, credit card adoption is often cited as a critical component in the development of a thriving online marketplace. Cards are indeed the most widely accepted form of payment by OTAs – and in some notable cases, such as Agoda

and Hotels.com, they are the only accepted form of payment.

However, as OTAs expand their global footprint and new players seek footing in emerging markets, OTAs have begun to offer a range of alternative payment methods to support the needs and practices of consumers in different countries. The vast majority of OTAs – more than nine in 10 in developed regions, and more than eight in 10 in developing regions – accept credit cards. But OTAs in emerging market regions more commonly accept manual forms of payment, such as cash and check, as well as online alternatives such as PayPal and Alipay (see Figure 17).

2012

Eastern Europe 43%

Europe 38%

Middle East 38%

United States 36%

Latin America 34%

Asia Pacific 33%

Source: PhoCusWright Inc.

OTA Share of Online Leisure and Unmanaged Business Travel Market by Region, 2012

Figure 16

Figure 17

Credit cards

Cash

Check

Debit cards

Virtual cards

EFT

COD

Online alternatives

PAYMENT METHODS ACCEPTED BY OTAs, BY MARKET DEVELOPMENT

92%83%

40%

29%31%

60%42%

29%20%

37%42%

8%16%

21%25%

63%

Developed: North America, Western Europe, Australia/New Zealand. Developing: Asia, Africa, Eastern Europe, Latin America.Base: OTAs in developed markets (N=52); OTAs in developing markets (N=64)Source: PhoCusWright’s Payment Unsettled: Cost, Opportunity and Disruption in Travel’s Complex Payment Landscape

Developed

Developing


Because credit and debit cards are the most widely used form of payment in a business model almost completely dependent on online sales, OTAs have a high risk of exposure to card fraud. OTAs experience the highest percentage of payment fraud of any travel segment – on average, 1.2% of OTAs’ online bookings are affected by card fraud3 – and card fraud is their biggest concern with regard to payment processing and management.

Not surprisingly, interviews with leading global and regional OTAs indicate that they use a variety of fraud detection techniques and fraud prevention services, such as address verification, card number verification, public records checks, customer purchase history checks, and third-party services such as shared negative lists and fraud monitoring. However, their business is completely dependent on their website, and because conversion is the most critical performance metric, OTAs are highly sensitive to the potential negative impact of added security measures.

3Payment Unsettled: Cost, Opportunity and Disruption in Travel’s Complex Payment Landscape, PhoCusWright (October 2013).


CYBERSOURCE FRAUD MANAGEMENT FOR THE TRAVEL INDUSTRY

CyberSource Fraud Management Solutions, used with our powerful payment management platform or as standalone service, are your single touch point to a whole world of risk data intelligence, analytics customized to your region and to the travel industry, and to risk experts on six continents.

The global strength of CyberSource helps you minimize payment risk, accept more good orders, and grow your business faster.

The more data you have, the better you can detect patterns of good and bad behavior.

Decision Manager utilizes hundreds of data elements in every risk assessment, including insights derived from our merchant base and the

over 60 billion transactions that Visa Inc. and CyberSource process annually in more than 200 countries and territories. With the World’s Largest Fraud Detection Radar, CyberSource helps you gain greater accuracy, faster.

1. A WORLD OF DATA

Constantly changing fraud schemes and business conditions require vigilance and expertise in managing fraud operations. CyberSource maintains risk experts on six continents. With this global knowledge network, our team works to identify new

fraud trends before they impact your business. As your business expands to new geographies or new channels such as mobile, you can count on CyberSource to be your trusted partner.

3. A WORLD OF EXPERTISE

Effective fraud screening strategies require the ability to analyze and act on data insights quickly. Decision Manager comes with eleven regional and industry risk models, used in conjunction with over 260 detector tests, to screen every order for global

fraud trends identified by our system and risk experts. Unique to CyberSource, Decision Manager gives you specific reasons for each risk assessment, allowing you to write more effective rules and make better decisions.

2. A WORLD OF ANALYTICS

Fraud detection is an integral part of your payment management operations. A single connection to our cloud-based platform enables you to safely accept payments across multiple sales channels, worldwide. Integrated payment, fraud and security

management services speed time-to-market, streamline operations and provide a centralized view of transaction activity. Safe and reliable—CyberSource is a Visa Inc. company.

4. ONE PLATFORM


MANAGED RISK SERVICES

CyberSource has one of the largest Managed Risk Analysts team worldwide. With over 450 years of combined industry experience in fraud management, our Analysts collectively share their expertise to proactively set strategies in place to prevent fraud from affecting your business.

Analysis is a critical component of fraud management, required for understanding how fraudsters circumvent your system, the effectiveness of your rules, and your performance as it relates to your business objectives. Our experienced Analysts know the types of analysis to perform, allowing you to gain insights and take action more quickly.

Our Managed Risk team serves hundreds of clients worldwide with Risk Analysts located on six continents. With CyberSource, you’re tapped into a rich, global knowledge base of Analysts that understand and proactively defend your business from multiple and varying fraud threats.

Our Analysts constantly monitor and tune your fraud management system and coordinate with other departments of your organization to maximize revenue and reduce overhead, while maintaining a positive customer experience.

Custom Analysis

Expertise

Global Knowledge-

base

Ongoing Tuning

Case Review Management Make Better Decisions with an Integrated Dashboard • Reasons for outsorting to manual review • 3rd-party data verifications • Queue management optimization • Real-time management reports

Tuning and Reporting Fine-tune and Optimize Operations in Near Real Time • Reports: financial impact, system reports, review team • Summary and transaction level detail • Passive rule testing • Data download for custom reporting

Detection Radar Assess Orders in Real-time

• Over 260 fraud detectors • Time-tested statistical risk models • Risk intelligence from global merchant base • Insights from over 60 billion transactions

that Visa Inc. and CyberSource process annually

Rules Engine Customize Your Risk Assessment • Use pre-loaded sample rules to get started • Build rules quickly with drop down menus • Combine rules in multiple ways • Customize the CyberSource risk score • Develop your own risk score with Score Builder

1

3

2

4

Accept

Order Disposition

Reject

Orders

3

2

4

1Fraud

Mobile Kiosk

Call Center

eCommerce POS

CYBERSOURCE DECISION MANAGER

The only fraud management platform with the World’s Largest Fraud Detection Radar, which increases fraud visibility over 200X, even for top merchants. Our risk models include truth data from Visa Inc. and payment processors to improve accuracy on every transaction. Decision Manager gives you the ability to customize rules and models to your specific business, across all sales channels, including: web, mobile, call center, kiosks. CyberSource Decision Manager works with any payment system.

CyberSource is a payment management company that provides a complete portfolio of services that simplify and automate payment operations. Customers use our solutions to process online payments, streamline fraud management, and simplify payment security.

Born during the dawn of eCommerce in 1994, CyberSource was one of the pioneers in online payment and fraud management services for medium and large-sized merchants. In 2007, we acquired the leading U.S. small business payment services provider, Authorize.Net, thus expanding our market footprint to cover businesses ranging from

the smallest sole proprietorships to the largest global brands. In 2010 CyberSource was acquired by, and operates as a wholly-owned subsidiary of, Visa Inc.

Today, over 400,000 businesses worldwide use CyberSource solutions. The company is headquartered in Foster City, California, with regional offices in Australia, Brazil, China, Japan, Mexico, Singapore,United Arab Emirates and the United Kingdom.

For more information, please visit www.cybersource.com

PhoCusWright is the travel industry research authority on how travelers, suppliers and intermediaries connect. Independent, rigorous and unbiased, PhoCusWright fosters smart strategic planning, tactical decision-making and organizational effectiveness.

PhoCusWright delivers qualitative and quantitative research on the evolving dynamics that influence travel, tourism and hospitality distribution. Our marketplace intelligence is the industry standard for segmentation, sizing, forecasting, trends, analysis and consumer travel planning behavior. Every day around the world, senior executives, marketers, strategists and research professionals from all segments of the industry value chain use PhoCusWright research for competitive advantage.

To complement its primary research in North and Latin America, Europe and Asia, PhoCusWright produces several high-profile conferences in the United States and Europe, and partners with conferences in China and Singapore. Industry leaders and company analysts bring this intelligence to life by debating issues, sharing ideas and defining the ever-evolving reality of travel commerce. www.phocuswright.com

The company is headquartered in the United States with Asia Pacific operations based in India and local analysts on five continents.

PhoCusWright is a wholly owned subsidiary of Northstar Travel Media, LLC.

© 2014 CyberSource Corporation. All rights reserved.

ABOUT CYBERSOURCE

ABOUT PHOCUSWRIGHT

CONTACT CYBERSOURCE

NORTH AMERICAFoster City, CA, United States

t. +1 888 330 2300t. +1 650 432 7350e. [email protected]

LATIN AMERICA & THE CARIBBEANMiami, FL, United States

t. +1 305 328 1998e. [email protected]

JAPANTokyo, Japan

t. +81 3 3548 9873e. [email protected]

ASIA PACIFICSingapore

t. +800 6363 083 (Singapore)

t. +1800 816 575 (Malaysia)

t. +1800 8756 8388 (Philippines-Globe)

t. +1800 10 802 7222 (Philippines-PLDT)

e. [email protected]

EUROPE, MIDDLE EAST & AFRICAReading, United Kingdom

t. +44(0) 118 990 7300 (UK & Spain)

t. +33 170 98 32 20 (France)

t. +971 4 457 7200 (Middle East & North Africa)

t. +7 (495) 787 4140 (Russia)

t. +27 11 547 8463 (Sub-Saharan Africa)

e. [email protected]

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