The travel industry is ultra-competitive at the best of times with profit margins between 5 and 10 percent, leaving little room for chargebacks. With margins like this, it can take selling between 10 and 20 vacation packages to replace the cost of the loss of one to a chargeback. The cost of chargebacks to the overall sector is significant. The cost of chargebacks to travel merchants is estimated at 1.6 percent of total revenue. Just in the airline industry, the International Air Transport Association estimates that card fraud costs $1 billion per year.
It doesn’t help matters that travel is a high risk industry for credit card payments and with 100+ reason codes across all issuers, making sense of them all is a challenge. According to one study, the average chargeback ratio for the travel industry is 0.5 percent of all transactions. A number of factors contribute to a high chargeback ratio in the travel industry:
People often plan their vacation months in advance. This leaves plenty of time for them to experience buyer’s remorse and seek a refund by filing for a chargeback on the travel agency or tour operator.
Travel tickets are relatively liquid goods that can be sold on to third parties quickly. This opens up the possibility of fraudsters using stolen credit card information to buy tickets and then sell them onward to the end-user. The travel agency is then stuck with the chargeback and the fraudster keeps the cash.
The industry is so fragmented with small and medium-sized operators that fraudsters can easily bypass with fraudulent payment information the basic software protections used.
Last-minute flights and deals are common in the industry and are responsible for a high level of fraud attempts. The short window of time between purchase and use makes it difficult for the operator to review the purchase in time.
All of these are reasons for travel agencies and operators to invest in better fraud prevention and chargeback management. Better fraud prevention is needed to fight true fraud. A chargeback mitigation service will tackle the people trying to take advantage of the system for themselves by getting the money back on legitimate purchases – AKA “friendly fraud.”
This was never more the case than in 2020 when the difficulty that travel operators and online travel agencies (OTAs) experienced in running their business dramatically increased due to Covid-19. Transaction volumes in the sector plummeted 48 percent year-to-year in the first half of 2020, while fraud attacks skyrocketed 118 percent, according to Forter’s Fraud Attack Index. As a result, the ratio of chargebacks to total transactions rose for many agencies and tour operators. In addition, 59 percent of travel executives said that the overall level of chargebacks increased as a result of Covid, according to a survey by alternative payments provider Trustly.
To complicate matters the credit card schemes held OTAs responsible for chargebacks due to cancelled flights, train rides and other purchases where they served as the intermediary. This led to many double refunds as both the service provider and the travel agent returned money to cardholders. Chargebacks could even be issued for flights or holiday itineraries that were postponed due to Covid-19 government restrictions if the cardholder didn’t accept the alternative date. In short, a significant source of chargebacks entered the system and still exists with the Covid crisis ongoing.
If you are having difficulties managing chargebacks, you have options. Don’t throw a significant chunk of your profit down the drain leaving the surge in chargebacks to be dealt with by your overwhelmed employees.
Outsourced solutions take time and effort to implement which is why we've made it easier to understand each reason code, their cause, how long merchants have to respond and the steps necessary to prevent future disputes.
Review our reason code directory to gain clarity on disputes.