Josep Bernat is the CEO of Nuk Consultants and Svik Lainoa, two companies focused on improving B2B clients’ payments, client conversiand fraud prevention, and is a former CRO of eDreams Odigeo. Having worked for Europe’s largest flight retailer with a presence in 44 markets, Josep is well aware of the differences in fraud across markets and for different types of goods and services providers in the travel industry. Below he explains to about-fraud.com the specifics of dealing with fraud on travel sites in Spain and in general.
RS: How big an impact does fraud and fraud prevention have on the bottom lines of airlines and travel sites?
JB: The bottom-line impact of fraud and fraud prevention on hotels, airlines, rental car agencies and travel sites varies significantly. The total impact of fraud depends on how you account for it in your financial statements and that determines the total effect.
If you are a travel site that distributes product, you are fully liable for the total amount of the fraudulently purchased ticket. If you have a margin of 4%, this would mean that you will need 25 good transactions to recover from one fraudulent transaction.
By way of contrast, if you are an airline you’re accounting only marks the fraud for the amount of the cost of the taxes, that is a tiny fraction of the cost of the fraud. For an airline having a 0.7% fraud-revenue ratio is not an issue, for a travel agency if you have a fraud ratio of 0.7% you are in serious trouble.
Most of travel agencies needs to work with fraud ratios below 0.2%. The main issue for achieving that ratio means that 10% of your bookings needs to go through review procedures to check the authenticity of the customers and in that process you can be losing 3% of good sales customers.
Most of the people are aware of the cost of fraud but very few people are aware of the hidden cost of the sales lost. We have seen companies where the cost of fraud is X but the cost of the sales that they are losing because the fraud system is not properly managed is 6X, and those sales that the company are missing goes directly to EBITDA figures, so you can improve your EBITDA figures by 20%.
RS: Do airlines face different fraud issues with their own ticket sites compared to purchases coming thru aggregator sites?
JB: Airlines have been dealing with fraud through a lot of years selling through the Global Distribution System (GDS), which follows procedures dating back to the ‘70s. When there is a fraud claim for a sale completed via GDS, the airlines are asked to provide the signature for the sale and this can be a bit complicated.
But recently the airlines have developed a lot their own websites and with the increase of new distribution capabilities (NDC) the airlines are facing the same type of fraud that the travel agents have been facing.
RS: Which payment methods have the highest rates of fraud (credit card, PayPal, etc.)?
JB: In the travel industry, you need to close a transaction in seconds, so the main payment methods that work offline are the ones that are less suitable for closing the transaction. If you work properly, the different payment methods have similar fraud ratios.
RS: What data points do you find useful in minimizing fraud losses?
JB: For a long time, people have been using only transaction information. But it’s actually pretty simple to create transactions that look like they are good transactions. That means, it’s also important to start looking how a transaction has been closed. This means checking what web pages the customer has visited, what are the products that the customer has been looking at, the time it took the the customer to write down their information, the time that it took the data packets to travel through Internet, and most important, if these variables are similar to those of other customers.
Maybe you are thinking that if you’re able to monitor this you’re able to know your good customers and know how to increase sales from them. And yes, the fraud team can generate a lot of money for the company because they are able to understand what the customer is looking for and what you can be selling to them. The question isn’t really about minimizing fraud losses. The question is always about how to sell more at the biggest profit.
RS: What aspects of fraud are distinctive to the travel sector?
JB: Fraud in the travel sector is about the swiftness of everything. All transactions are digital, the delivery is digital and you need to make your decisions in seconds. You can’t stop the transaction and analyze it and then make a decision. Everything needs to be done with great speed and automated.
Procedures needs to be put on place to automate decisions. Your people needs to be trained to identify and analyze quickly that something is not going as it should be. The most important variable is having people able to analyze and understand the impact of their decisions on your business. By not monitoring properly your fraud procedures you can be killing a significant number of your sales.
RS: Are there any specific geographies in the travel industry that are significantly more prone to fraud either in terms of purchaser origin or as travel destinations?
JB: The answer is a bit complicated. When I was responsible for the fraud team of eDreams Odigeo we have had several meetings with American Online Travel agencies. Our comments were always the same, that fraud in U.S. is difficult to handle. Their comments were always that fraud in Southern Europe is difficult to handle.
In reality, when you are a successful e-commerce in one region, you have been able to understand what is a good customer and a bad customer in your region. When you start selling outside that region suddenly you realize that customers behave in a different way. So you need to adapt your systems to this new reality.
RS: What fraud elements are distinctive to the Spanish market as opposed to the U.S. or other parts of Europe?
JB: The Spanish market is pretty similar to southern European countries in terms of fraud. But Europe is an extremely complex landscape in general. You have UK with fraud schemes similar to US. You have the Nordic countries that don’t really have fraud. There are western European countries where the fraud is similar to Russia, and Portugal where you have fraud schemes similar to Brazil.
RS: What sort of fee structure can merchants expect from fraud and payments consultants like you?
JB: We usually work on a commission basis determined by the amount of additional profit we generate for our client company. The clients are willing to pay us this commission because we successfully reduce their fraud costs, because we’re able to save sales that previously were lost or because we’re able to recuperate money by properly managing the chargebacks.
RS: At what point does it become worthwhile for travel sites to use the services of someone like you?
JB: We serve any type of company, with the type of services provided tailored to the volume of sales. A company that is selling €10 million requires different services than a company selling €100 million or €1 billion. We provide a full array of services. We are able to help companies to design their fraud systems, we train their people, we provide people to manage their fraud systems, etc.