A new research report carried out by Edgar, Dunn and Company identifies a dozen best practices for OTAs and other intermediaries to implement as part of their strategy to minimise their exposure to fraud, including a look at how to make payments to suppliers more secure.
All ecommerce verticals have attracted the attention of fraudsters. The nature of travel commerce compounds the prevalence for consumer-to-business fraud, while the important role of intermediaries in the value chain adds B2B to the industry’s risk profile.
Benefits to travel intermediaries from controlling fraud include financial benefits, such as lower direct losses and lower indirect costs from fraud, and can include broader based benefits from keeping legitimate customers happy and protected.
Intermediaries includes OTAs, offline travel agents, consolidators and aggregators.
The risk to intermediaries has increased over the past few years and will continue to do so. In 2017, the report says, fraud cost intermediaries in general $21 billion during the year, with OTAs bearing a lot of the burden.
The research breaks this down further using value-based analysis into direct and indirect losses. Direct losses for all intermediaries came in at some $6 billion for 2017, with OTAs taking a $2.5 billion hit. Indirect costs – such as reputational damage, higher operating expenses and the cost of substandard fraud identification measures which reject legitimate orders from valid customers – were even more significant at $15 billion. OTAs were impacted to the tune of $6.3 billion from this category.
And by 2020, as travel market growth attracts a corresponding increase in interest from fraudsters, this problem could be worse for OTAs. Direct losses are expected to climb from 2017’s $2.5 billion to $3.1 billion, while the indirect hit is forecast to jump from $6.3 billion to $7.8 billion, equivalent to an increase of 24% in fraud related losses over a three- year period
There are a number of practical steps that OTAs of all sizes can do to reduce their exposure. The report found that companies of all sizes and across all regions are exposed – fraudsters identify companies which are “weak” irrespective of their size or geography (and share their discoveries with peers in forums and chat-rooms).
If anything, in a B2B context larger companies make for more inviting targets as they tend to have a wide range of suppliers, with large OTAs typically listing hundreds of thousands of properties, hundreds of airlines, and dozens of other suppliers across many countries and jurisdictions.
The three most common types of fraud cited in relation to making payments to suppliers are
- Stolen payment method details
- Cyber breach of online booking platform
- Stolen security credentials for online payment facility
The report also maps 12 best practices for controlling fraud, ranking the difficulty of implementing the practices and the benefits. For the highest impact during the intermediary-to-supplier payment flow, the report recommends OTAs “use payment methods that offer protection and recovery mechanisms” and that, where possible, they conduct a level of background checking to ensure suppliers are who they say they are (“know your supplier”).
Both these practices are straightforward to implement and ranked as requiring medium effort. Establishing rules and practices in relation to fraud and implementation of specific fraud control tools require more effort, and can also deliver broader based reduction in fraud.
In the know
The best practice map puts internal processes at the heart of the value chain. Enterprises need to instil a corporate culture where controlling fraud is front-of-mind across all departments. Internal processes, such as “educating employees about fraud, especially phishing attacks” is one of the easiest to implement and has a high range of benefits.
The travel industry prides itself on innovation and, unfortunately, the fraudster community is also innovative, finding new ways to take money from their targets’ bottom and top lines.
But as the report shows, OTAs can adopt a range of best practices which can help take action to help control specific B2B and B2C fraud pain points, while ensuring that internal processes are aligned in the fight against fraud. When it comes to paying suppliers, the clearest benefits are to be gained by considering not only how that payment is made but also the recovery mechanisms in place.