What the digital booking trend means for local travel attractions and fraud prevention

Online bookings of local tours, attractions and even dining have skyrocketed. Although this can be a great source of traffic and revenue for these local attractions, online payments fraud in this sector continues to rise and these online travel retailers need to take precaution to protect themselves. Here are some ways they can mitigate and prevent fraud for their online travel bookings.

One of the most durable recent trends in the travel industry is booking experiences like local tours, attractions, and dining online. TripAdvisor bought Viator in 2014 to add local experiences to its portfolio. In late 2016, Airbnb started offering local experiences in a dozen cities through its online app. Since then, the projected value of the experience booking business has topped $2 billion, Airbnb's experiences bookings have expanded worldwide, and even hip-hop producer DJ Khaled is now in the business, partnered with Booking.com.

The ability to book local outings through travel apps caters to young travelers, who prefer unique local experiences over visiting famous landmarks. For owners of local attractions, offering online bookings to this tech-savvy, experience-focused generation can be a great source of traffic and revenue. But card-not-preset fraud fears hold some local businesses back.

As CNP fraud continues to rise, the total worldwide cost to merchants from 2017 to 2022 will top $70 billion. The travel industry accounts for 46 percent of ecommerce fraud attempts, according to Juniper Research. On top of that risk, legitimate travelers are increasingly disputing travel charges with their card companies, and the chargeback rate for the travel industry is more than double the typical rate for other industries. The prospect of losses due to fraud, plus the cost of chargeback fees and resulting higher payment-processing fees, has made some small, local travel players reluctant to go digital.

Unique fraud challenges for travel businesses

The travel industry has fraud-prevention challenges that industries such as retail don't have to deal with. For example, there can be longer-than-average transaction windows while ticket availability is confirmed before a booking is approved. During that time, the funds on a credit card can change from sufficient to insufficient, so an order that's approved too early can go unpaid.

The elapsed time between a purchase and the use of tickets matters, too, because last-minute purchases in travel—similar to rush-order purchases in ecommerce—tend to have higher rates of fraud than tickets booked well in advance. On the other hand, tickets purchased ahead of time can raise travel merchants' risk for chargebacks because there is more time for buyers to change their mind.

For local travel agencies, the risks are even more unbalanced. Unlike retail sellers, agencies receive a percentage of each ticket sold but are liable for the full cost of the ticket purchase if it is charged back. That means a single fraud chargeback can wipe out the value of several orders. All of these risks have kept some local attractions from offering ticket sales online.

Experience booking platforms as a way to reduce risk and increase reach

By opting into a travel platform that handles booking payments on its own site, attraction owners avoid much of the risk associated with taking card payments online. Local travel businesses can also benefit from reaching a much larger audience through these platforms than they could reach with their own marketing budgets. The trade-off is the take, which is the 15 to 20 percent cut the travel platform takes from each booking.

There are other digital platforms that connect large audiences to small local travel businesses and restaurants. Yelp and Facebook allow local businesses to add “book now” links to their pages so visitors can easily make restaurant reservations, book hotel stays, and buy attraction tickets. On these platforms, customers make their payments directly to the attraction, hotel, or restaurant. The advantages are reach and convenience. These platforms don't take a cut of the bookings, but they also don't handle payment processing and fraud screening. That means it's up to the local businesses to screen those transactions.

Building an effective fraud-prevention program for attractions

Attraction businesses can reduce their fraud risk without raising their rate of falsely declined orders by taking a multi-layer approach to fraud screening. Identity authentication can be a challenge for a customer base that's often on the go, but it can be done with an array of tools such as geolocation (in particular, to evaluate location of purchase versus point of departure), device authentication, and behavioral analytics, in addition to dynamic internal files that are always being updated to reflect the validity of customer data like phone numbers and email addresses.

Other layers in a robust fraud-screening program are scalable algorithm-based tools that can adapt quickly to new fraud methods; a continuously updated dataset of routes that are known to present high fraud risks; well-trained customer service advisors who can contact customers for additional vetting of flagged orders; and some form of chargeback insurance or protection to shield travel merchants from losses and fees arising from fraudulent chargebacks.

The potential revenue and market reach of online booking can make fraud-prevention efforts worthwhile. Booking experiences online is where the industry and consumer preferences are headed. A properly designed and constantly refined fraud prevention program gives local tourism operators the protection they need to stay competitive by offering their experiences online.

This article is published as part of the IDG Contributor Network. Want to Join?

Related:
SUBSCRIBE! Get the best of CSO delivered to your email inbox.