‘A Soft Target For Fraud’: Mitigating Risk In The Hotel Industry

Brian Kinsella, Senior Regional Fraud Manager at global payments provider Elavon (www.elavon.com), shares common scenarios hotels may face during the booking process and ways businesses can improve resilience

Hotels are often seen as a soft target by fraudsters. According to industry research, average losses to fraud are around 5%, equating to over £2 billion in the UK hotels sector. Tackling fraud is critical in the current economic climate, as history makes it clear that downturns and crises are the precursors to increased fraudulent conduct.

While a shortage of nearly 200,000 staff continues to plague the UK hospitality industry, many hotels have been left with inexperienced staff, workers returning from prolonged periods of absence, and an eagerness to recoup losses, placing them at greater risk of becoming a fraud victim. As the industry continues to recover and works to protect profitability, understanding how fraudsters attempt to steal money and taking some proactive steps can minimise the risk of fraud.

Fraudulent pre-paid bookings
Fraudsters often pose as wealthy individuals booking for a friend or as a fake travel agent, using compromised credit card numbers to make bookings at high-end hotels and pay for them in advance. These bookings are then sold on to unsuspecting travellers who pay directly to the fraudsters. This results in financial loss to the hotel when the genuine cardholder raises a chargeback, and potential reputational damage when the unwitting travellers arrive.

Hotels can avoid becoming a victim of fraudulent pre-paid bookings by making sure guests present the card they paid with, and if they can’t, refund the original reservation and ask for payment by a different means. Hotels can also consider only accepting pre-paid reservations via an eCommerce account with Strong Customer Authentication (SCA), such as EMV 3DS, for added protection. Transactions made through known booking platforms can be excluded to avoid friction in the purchasing process.

Hotel reservation fraud
Hotel reservation fraud occurs when organised criminals make large bookings on a credit card followed by a cancellation and refund request to a different account. When the genuine owner of the card raises a chargeback, it will be indefensible, and the hotel faces a double financial loss.

Hotels can protect themselves by remaining vigilant of customers who offer a new credit card number when one is declined, particularly if the cards have consecutive numbers. Additionally, hotels can review the booking details to ensure the email address matches the customer’s name.

Unrelated services fraud
Unrelated services fraud happens when criminals order items not usually sold by a hotel when booking for a fake conference, business meeting or private event such as a wedding. Items might include bottles of whisky, high-value souvenirs or tablet computers. Having paid for the goods using compromised credit card numbers, the criminals arrange for delivery of the items or order a freight company to collect them from the hotel.
Hotels can reduce the risk by offering standard services when taking credit card payments, especially for first-time guests.

As criminals continue to target the industry, hotels must be proactive and stay on top of fraud developments to protect their customers, reputation and bottom line.