Fraudulent transactions can have a tremendous impact on the bottom line for airline and travel merchants. Too little or too much fraud sensitivity can be very costly in chargebacks and false declines. Recent consumer behavior analysis shows that shoppers are not exactly forgiving when they’ve been incorrectly declined.
Chargebacks are a significant issue because of their prevalence and how much they eat away at revenues. Travel industries have a roughly 0.5% chargeback rate, and payment fraud causes airlines to lose around 1.2% of revenue (around $1 billion annually) according to estimates from the IATA.
In particular, expensive and high-demand items, such as vacation packages and last-minute airfare, present the most risk for chargebacks. Not only do travel and airline ecommerce businesses incur the cost of the items, but they also have to bear the cost of an employee’s time and effort when customers file chargebacks. And because margins are low in this industry, fraud and chargebacks hit especially hard on a company’s bottom line.
Read more about how travel and airline industry companies can reduce exposure to chargebacks.
“Lost revenue isn’t the only risk, however,” says Eduardo Gerolamo, ClearSale Global Business Analyst. “The industry standard threshold for chargeback rates is 1%. When merchants exceed that rate, their payment processing partners will likely place them into a monitoring program with associated fees, as well as timelines for reducing chargeback rates.”
The longer a merchant is in a monitoring program and the higher the chargeback rate, the more money in fees they will incur.
False declines occur when a legitimate transaction is denied by the merchant, usually due to an oversensitive or one-size-fits-all filter on that merchant’s ecommerce platform.
If the transaction is being attempted in person, the consumer must endure the embarrassment of having their credit card declined, as well as the frustration and fear arising from the possibility of their travel being ruined. When the transaction is being attempted online, the resulting frustration is no less upsetting.
False declines also create inconvenience for the customer, as they must then investigate whether something is wrong with their card – not exactly the seamless experience these customers were looking for.
The biggest lifetime cost of false declines comes from angry customers who not only take their business elsewhere, but also take to social media and complain. While 39% of consumers say they will never again place an order with a merchant that declines their payment, 28% say they go to social media to complain.
That’s where the real damage is done to online travel merchants. Millennials, Gen Yers, and Gen Zers are more likely to book travel online and be active on social media. A scathing review for an airline or hotel can seriously impede sales.
Further proving the need to be wary of false declines, one American Express study found that consumers tell an average of nine people about their good experiences, but they tell 16 people about the bad. And the rule in customer service is that consumers are much more likely to talk about their negative experiences than their positive ones.
What’s truly telling is the data from ClearSale’s 2020-2021 Global Ecommerce Consumer Behavior Report, which showed the following behaviors related to false declines:
There are geographic differences as well:
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