May 18, 2011, 1:47 PM

Airlines steer through online payment turbulence

Airlines lost 0.9% of online revenue to fraud in 2010, a study released today says.

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A global study of airlines has found that they lost about $1.4 billion last year to online payment fraud, amounting to 0.9% of total online airline sales, according to a study released today by online payment security technology and services provider CyberSource Corp., a unit of Visa Inc., in association with Airline Information, a publisher of airline industry information.

The good news for airlines is that the study also shows a drop in payment fraud on airline e-commerce sites from 2008, the last time the study was conducted. Since that study, online payment fraud among airlines dropped 17.6% in terms of dollars, to $1.4 billion from $1.7 billion, resulting in a 30.8% drop in the fraud rate to 0.9% of online sales from 1.3%.

The study, “Airline Online Fraud Report: Online Payment Fraud Practices and Benchmarks,” is based on a survey of 192 executives whose companies represent an estimated 40% of total worldwide online sales for airlines. Online sales for airlines participating in the study totaled $62 billion in 2010; total annual sales for each airline ranged from $500 million to over $10 billion.

The study notes that online payment fraud rates are highest among airlines that have been selling tickets online for less than three years. Airlines in this group had a 2010 online payment fraud rate of 1.7%, and those with three to four years of experience had a fraud rate of 1.4%. By comparison, airlines with more than 10 years of experience in online sales had a 2010 online fraud rate of 0.5%.

The study also notes that the online payment fraud rate was lower among low-cost airlines (0.4%), compared to their higher-priced competition (1.2%).

To detect online fraud, airlines use a number of services and methods; the following list shows the percent of airlines citing the fraud-detection services and methods they find most effective.  

Validation services:

∙ Verified by Visa, 60%

∙ Paid-for public records services, 50%

∙ MasterCard SecureCode, 46%

∙ Card verification number, 24%

∙ Credit history check, 16%

∙ Telephone number verification, 16%

∙ Address verification service, 12%

∙ Postal address validation services, 5%

∙ Validation using social networking sites, 0%

∙ Out-of-wallet or in-wallet challenge/response systems 0%

Single airline purchase history:

∙ Negative lists, in-house, 49%

∙ Fraud-scoring model, company specific, 49%

∙ Order velocity monitoring, 25%

∙ Positive lists, 19%

∙ Customer order/frequent flyer history, 10%

Purchase device tracking:

∙ IP geolocation information, 26 %

∙ Device fingerprinting, 25%

Multi-airline purchase history:

∙ Shared negative lists, 44%

∙ Fraud-scoring model, third party, 34%

Following is a list of fraud-detection tools and services and the percent of airlines planning to adopt them:

Validation services:

∙ MasterCard SecureCode, 13%

∙ Verified by Visa, 12%

∙ Address verification service, 12%

∙ Telephone number verification, 9%

∙ Postal address validation services, 8%

∙ Credit history check, 7%

∙ Paid-for public records services, 5%

∙ Validation using social networking sites, 5%

∙ Card verification number, 3%

∙ Out-of-wallet or in-wallet challenge/response systems 0%

Single airline purchase history:

∙ Customer order/frequent flyer history, 13%

∙ Fraud-scoring model, company specific, 9%

∙ Order velocity monitoring, 8%

∙ Positive lists, 5%

∙ Negative lists, in-house, 3%

Purchase device tracking:

∙ Device fingerprinting, 20%

∙ IP geolocation information, 13%

Multi-airline purchase history:

∙ Fraud-scoring model, third party, 14%

∙ Shared negative lists, 12%

The study also notes that 31% of airlines have no plans to adopt new fraud-detection tools or services.

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