Travel and hospitality related friendly fraud is sky high and rising – incurring huge costs to businesses forced to devote time and money to combatting illegitimate chargebacks. This marks a crisis for an industry where mere percentage points dictate who soars high and who goes under. Fortunately, a range of tools and strategies are available to mitigate the impact. This article examines what makes travel and hospitality so vulnerable to friendly fraud, and what your company can do about it.
Travel and hospitality are both classified as high risk industries – and no wonder. With historically thin margins, and subject to surges, cancellations, and large financial, emotional, and investments by cardholders, these industries lose huge amounts to fraud – both true and friendly fraud – each year. The figures are alarming: a recent Outpayce survey shows travel related disputes surging 30% YoY, with companies pointing to friendly fraud as the main driver, while another study reveals that 6% of hospitality revenue is swallowed by fraud annually – again, friendly fraudsters bear most responsibility.
At this stage, it’s important to note that friendly fraud may be inevitable, but your losses aren’t. These are illegitimate disputes that merchants can – and should – win, as long as they take appropriate precautionary measures. Before we discuss how this is achieved, let’s take a look at the industry challenges that make fraudulent travel chargebacks so common:
People plan and book trips far in advance of when they intend to travel – and a lot can happen in the meantime. When something occurs that makes the trip inconvenient or unfeasible, they may file a chargeback rather than face the costs. Friendly fraudsters often do this by claiming a hotel stay has been booked with a lost or stolen card, and without meticulous record keeping and data enrichment, it can be difficult to prove them wrong.
No industry is more seasonal than travel and hospitality, where reservation numbers are relied on to spike during the summer, for winter holidays, and for large sporting and cultural events. But adverse weather, and event cancellation can leave millions disappointed, and wanting their money back by any means necessary. Chargeback surges are the unfortunate consequence – and when they hit, they hit hard.
Manual and template-based outsourcing teams simply cannot maintain response quality when faced with hundreds or thousands more disputes than expected. Furthermore, it can be very costly trying to predict how many in-house staff you need to handle disputes when numbers are constantly fluctuating. Unless you make other arrangements, your win rate is the likely casualty.
In travel and hospitality, the cardholder and merchant are often operating from unusually distant locations. This leads to large numbers of crossborder chargebacks, which present an array of unique challenges. Not only do evidence requirements and financial regulations vary by nation, but misunderstandings can arise due to language barriers and time differences. These disputes consequently require clear and comprehensive representments, as well as swift responses, and in-depth understanding of regional regulatory variations – more than most manual teams can handle.
Nobody books a trip expecting to cancel. This means that most cardholders won’t read your cancellation policy, despite ticking the box that says they have. The result? You guessed it: illegitimate chargebacks. And while you might imagine these disputes would be simple to fight, without rigorous data storage, and time-stamped proof of your policies, cardholders stand a good chance of reclaiming their deposits.
People invest a lot of time and emotion into their vacations, planning them for months in advance, and envisioning blissful getaways where all their problems disappear. This means that when things aren’t perfect – breakfast arrives a little late, or the pool “looks smaller” than in the photographs – they don’t check terms and conditions before disputing the transaction. It’s up to you to prove that they got what they paid for – which is easier said than done.
Fortunately, none of the challenges listed above means you need to lose illegitimate chargebacks. The right tools and strategies can dramatically boost win rates and reclaim millions of dollars in lost revenue. Here are a few ways to begin fighting travel chargebacks effectively:
Although the measures listed above will help, in industries where surges are the norm, manual chargeback handling simply isn’t good enough. When a spike hits, response quality suffers, win rates fall, and revenue is needlessly lost. Fortunately, fully-automated chargeback solutions can scale effortlessly, delivering win-rates that remain consistent – and even rise – during peak travel seasons or unexpected events. Let’s take a look at how this works:
Modern travel is increasingly digital and depends on a highly distributed ecosystem of OTAs, providers, and payment processors across different regions, and bound by different consumer expectations and regulations. Chargeback disputes need to account for this complexity in how evidence is gathered and presented. Justt’s AI capabilities enable custom responses to each dispute with dynamic arguments that can take all these factors into account, which is generally impossible to achieve when relying on static templates.
While the reservation process equips you with lots of great data, this information is time consuming to parse through – and may ultimately fail to sway an issuing bank. Justt’s automatic data integration capabilities (including for PSPs that don’t have public APIs) means all of this data is instantly synthesized into precision-tailored representments, enriched by +500 data sources including third party sources, and sent to acquirers on behalf of the merchant.
The rules that apply to travel chargebacks are not always the same as ecommerce or SaaS cases. Justt’s experts keep the solution up to date with evolving cross-border regulations and travel-specific consumer protection laws. Meanwhile, the system’s multilingual capabilities mean that representments are automatically translated into Spanish and Portuguese where appropriate – with more languages coming soon – for smoother crossborder disputes in many of the planet’s most popular tourist destinations.
Finally, why settle for good enough? Justt’s solution harnesses A/B testing across millions of prior travel and hospitality chargebacks. This means that the system not only generates exactly the representment style and data most likely to win your disputes, but also constantly improves in its ability to fight them. This granular approach extends beyond national regulations and reason codes, to address even the individual stylistic and formatting preferences of the issuers reviewing your case.
Travel and hospitality may be one of the worst-hit industries for chargebacks, but there’s no reason your business should follow the trend. While strong record keeping and fraud prevention protocols will prevent some friendly fraudsters from vacationing on your dime, these defenses are ultimately unable to deal with the surge-heavy nature of the industry. For true protection, pair these measures with a fully-automated and AI-driven chargeback solution, so you can have peace of mind whether you’re in the office or on the beach.
