After a distinctively turbulent period, the airline sector’s recovery is all systems go, as the focus on the consumer journey becomes increasingly important.
As well as this, combatting fraud is pivotal to the accelerated recovery of the sector, as emphasised by Monica Eaton-Cardone, COO and Co-Founder, Chargebacks 911, a firm that enables the airline sector to maximise efficiency in their approach to fighting fraud.
PE: Firstly, are you able to tell us more about some of the key findings from the Chargebacks study and the impact of the reversal rate on the airline sector?
Monica Eaton-Cardone: One key finding that might surprise people is how common chargebacks are in the airline industry: this sector accounts for roughly one in eight chargebacks issued in 2019 and significantly grew the following year as fraud and chargebacks grew in general. We saw a very large increase in ‘double dip’ refunds, where a customer chases refunds from the company themselves and their credit card provider, meaning that merchants lose twice as much.
We also found that chargebacks are more common when flights are booked directly with an airline rather than through a travel agency, likely because unscrupulous consumers are finding and sharing what they would consider to be loopholes that let them get their money back from airlines – the burden of proof is always on merchants to disprove chargeback claims. This has meant that airlines are getting much better at disputing chargebacks, especially those that happen on their own platform where they have all the data available to them.
PE: How pivotal could combating this be when it comes to the bounceback of the airline sector following COVID-19?
Monica Eaton-Cardone: We are seeing that while travel is slowly returning, chargebacks in the sector aren’t going away. Fraud already causes airlines to lose around 1.5% of revenue annually, and in an industry that has already been seriously damaged by the pandemic and in which internal competition from low-cost airlines has cut profit margins, this is extremely damaging. It’s important to remember that this figure is likely to underestimate the total, particularly when it comes to chargebacks. So many go uncontested that it is hard to get good data on how many are legitimate.
We have seen that our travel industry customers (as well as all our customers across all verticals) can significantly reduce chargebacks. Companies don’t have to accept them as a cost of doing business like shoplifting in retail – contesting chargebacks isn’t customer unfriendly but in fact a vital part of doing business in the 21st century.
PE: How far-reaching could the impact of reversal rates be, who will they effect in the sector?
Monica Eaton-Cardone: Of the companies we surveyed, the overwhelming majority reported that less than 50% of the chargebacks that they contest are reversed, and only around 12% of companies report being able to reverse more than 75% – worth noting that these companies did not dispute many. Although many companies understand that their chargeback win rate is a key performance indicator, the fact that very few companies use third-party chargeback management solutions hamstrings their ability to increase reversal rates.
There is the obvious financial impact, which alone would be a serious cause for concern, but chargebacks do damage beyond that. If card schemes notice that a company is getting a large number of chargebacks then they will increase processing rates for that client, further damaging their revenue.
PE: What can the airline industry do to combat the threat and have you had any feedback from the research?
Monica Eaton-Cardone: Most airlines we surveyed manage chargebacks at least partially in-house. This can be effective if you have knowledgeable staff who can keep up with evolving fraud methods, but generally, it means that companies aren’t getting up-to-date information that could give them an edge.
Chargebacks are increasing to the point that 27% of respondents receive over 500 a month, which translates to roughly $3M a year in lost revenue and up to $9M in combined costs when one considers the additional loss implications related to chargebacks. The required process to fully investigate every single chargeback places a huge burden on airline and travel companies, at a time when they are already cutting staff.
The dedicated solution providers in the chargeback sector have extensive knowledge, working relationships with the payments ecosystem and technology that can automate dispute resolution and provide insights to the companies they work with. They are the clear choice for the travel industry at a time like this.
The survey respondents told us how much of a problem chargebacks have become for their company, and how much they have increased since COVID. They are seeing a surge in double-dipping caused by fraudsters understanding their systems and how to avoid getting caught, and then sharing that knowledge online. It is clear from their feedback what a difficult time this is for the travel industry.
PE: Lastly, are there any other lessons that were learned from the research?
Monica Eaton-Cardone: The value of third-party solution providers can’t be overstated of course, but the core lesson that can be learned from this is the same one that caused Chargebacks911 to be founded: Chargebacks are not inevitable, many of them aren’t legitimate and companies can significantly reduce their losses by contesting them.