Card-not-present (CNP) fraud continues to be one of the greatest payment challenges facing travel agencies.
ARC’s risk management team is dedicated to helping travel agencies fight CNP fraud. ARC’s CNP fraud data illustrates how much fraud actually costs agencies, as well as the positive impact of ARC’s actions on behalf of the global air travel community.
ARC’s Proactive Fraud Monitoring
ARC plays a key fraud prevention role for agencies by performing what’s known as a form-of-payment process review.
- ARC monitors card CNP transactions on behalf of all accredited agencies.
- ARC triggers fraud alerts for suspicious transactions and sends them to affected agency stakeholders.
- ARC enables stakeholders to take positive action and void confirmed fraudulent transactions.
As a result of ARC’s actions, many agencies are able to avert potential financial impact before it happens. From January 2017 to May-2019, ARC has identified more than 7,000 fraudulent CNP transactions, totaling more than $6 million.
How ARC Reduces the Cost Impact of Fraud
Fraud costs travel agents millions of dollars each year, but agents are also experiencing major losses of time and productivity as they grapple with the ongoing fight against fraud. Manual reviews and time-consuming research — while often necessary to protect agencies — can interrupt productivity and customer service, creating additional labor and overhead costs. Elavon estimates the cost of managing a single chargeback to be $50 — not including the cost of the chargeback itself.
It’s important for ARC to flag fraudulent transactions in a timely manner to help agents protect the financial health of their businesses. From January 2017 to May 2019, ARC saved travel agencies approximately $600,000 in direct cost avoidance. According to ARC’s loss prevention calculations, if it had not sent fraud alerts to accredited agencies, the resulting financial impact for the same timeframe could have been far higher: approximately $3 million based on ARC Loss Prevention Amount Formula (LPA).
That impact is even more significant for tickets to South America and West Africa, where there is a disproportionately high rate of fraudulent activity. For these destinations in particular, the average transaction value is $487, from which the agency derives an average service fee of $35. Based on these two factors, an agent would need to process 26 new transactions to recover from a single chargeback.
If ARC hadn’t issued fraud alerts for these tickets during the aforementioned period, and all the related transactions resulted in a chargeback, agencies would have had to sell 36,555 additional tickets (totaling about $18 million in sales).
These actions also have a positive impact on airlines. Removing these transactions from the value chain eliminates the cost associated with the airlines’ audit process, as well as the cost associated with issuing a debit memo. ARC estimates these cost savings to average $56 per memo
ARC continues to enhance its efforts to monitor and mitigate fraud for the global air travel community. To better understand the specific circumstances surrounding fraud, ARC recently evaluated debit memos focusing on the reason code, “Unauthorized/Fraudulent Transaction.” ARC identified over 25,000 memos in this category, with a total value of $13.9 million in 2018, estimating a $1.4 million cost impact to airlines just for the time and cost associated with issuing those debit memos estimated at $56 per memo — as well as potentially losing out on a sale.
These memos generally resulted from high-risk routes. Although air transactions to and within West Africa and South America have historically seen high rates of fraud, we now see new trends emerging in routes from the U.S. to other parts of the world. ARC will continue to monitor these trends as they evolve, continuously working to protect agencies and airlines from the high cost of fraud.
To learn more about how ARC helps protect the global air travel community from fraud, please visit the Fraud Prevention section of the ARC website.