Over the past 15 years, loyalty programs have enjoyed a relatively low level of fraudulent activities. However, in recent months we have seen the level of loyalty program and loyalty card fraud increase. As “Chip & Pin” credit cards continue to become prevalent, specific industries whose business models include transactions where the physical card does not need to be present, have become the target of fraudsters. One of these in particular is the travel booking industry.
Lately, fraudulent activities have propagated to loyalty programs where the travel components of the program are the primary target. However, as there often is with fraud schemes, there’s a twist. The loyalty program is not the actual target of the fraud, but rather a means to facilitate the scheme.
One popular scheme works as follows:
- A cardholder sees advertisements for cheap flight tickets via social networks or paper ads here and there.
- The soon-to-be victim pays for a ticket using a card-to-card money transfer—such as a secondary online payment system.
- The fake travel agent orders a real ticket using a stolen credit card or via compromised credentials of a loyalty program.
- The payment the victim gets a ticket info/itinerary as most programs today issue tickets in near real time. The victim checks the ticket online sees no reason to suspect any fraud (it is a valid ticket).
- The fraudulent activity is detected by the travel provider and the ticket is cancelled.
- The victim gets to the airport and discovers the ticket has been cancelled. There is no means for a refund or retribution.
- The fraudster has obtained payment for the ticket and disappears.
What is critical to recognize in this case, is that the fraudster is not obtaining any monetary benefit from the loyalty program, but rather from the individual victim purchasing the ticket. Because of this, the post transaction cancellation of the ticket is not a deterrent for the fraudster. As often the in case of fraud, one must identify the specific intent. In this scenario, the intent is to issue a ticket or hotel voucher to the victim. The only deterrent in this scenario is to prevent the ‘fulfillment’ of the ticket of voucher in real time or delay the issuance in order to allow the detection of these questionable transactions.
Better Detection of Fraud Behavior Needed Within the Travel Industry
In the past 15 years, the majority of fraud detection within loyalty programs has been limited to the redemption of merchandise and gift cards. In these scenarios the end goal of the fraudster was to defraud the loyalty program of physical product. This type of direct fraud did not permeate to travel based on the level of traceability and the need for personal identification during the usage of the product. However, with new schemes like the one outlined above, the fraudsters goal is not to utilize the air ticket, but rather to have it issued to the victim. This is forcing the need of similar fraud detection and mitigation processes within the travel redemption streams. Travel Program operators need to consider the implementation of new safeguards to protect Members and increase the sense of security and trust within the Program.
EVP, Digital Solutions
To learn more about trust and satisfaction in loyalty programs download a copy of the Executive Summary of the 2016 Bond Loyalty Report.