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Assessing The Impact Of Payments Fraud & Misuse

Posted December 5, 2018

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The recent Payments Pulse survey by WEX reveals that payments fraud continues to be a major concern for executives. The survey, which polled nearly one thousand CFOs and other senior financial services executives from around the world, gathered insight on global security and fraud.

One key takeaway is that while executives across the globe have fraud on their minds, those in the US are most concerned; 53% strongly agreed that they were “very concerned” about payments security. A similar number (52%) reported experiencing a fraud incident in the last six months at their company, and 14% of them had more than ten fraud incidents in that time period.

European executives showed a similar level of concern, with 49% saying they were "very concerned" about security, though their actual incidents of fraud were lower than in the US, with 29% reporting an incident in the last six months, and 9% reporting ten or more incidents. In Asia/Oceania, 26% were "very concerned," and 24% had had a recent fraud incident.

The concern about payments fraud is well warranted; a similar number of executives in each region (14% in the US and Asia, 15% in Europe) who had been subject to payments fraud or misuse reported over $50,000 lost in the previous six months. Of those impacted, roughly a third of executives in all three regions had damages of over $10,000.

The Travel Industry Looks For Solutions
The survey shows that payments fraud is a concern across all industries. As we’ve written about before, though, the travel industry is particularly vulnerable. A number of high profile data breaches at major hotel chains have compromised the security of credit card information for both travel companies and their customers. These breaches have a high monetary cost as well damage to the reputation of affected businesses.

As previously discussed, many travel companies are addressing exposure to this problem by using a combination of Virtual Card Numbers (VCNs) along with the merchant model of payment. In this model, the company takes payment from the customer, avoiding the need to pass along customer information to where it could be more vulnerable to fraud. The company in turn pays the hotel directly using VCNs, which offer layers of protection well beyond what is offered with traditional credit cards. In this way, travel companies protect their payment information as well as that of their customers.

Companies are seeing other advantages to using the merchant model as well. Booking Holdings for example, which once relied heavily on the agency model, is shifting toward the merchant model, with positive revenue results. Its third quarter financial results showed an increase in merchant hotel revenue of 53.4% compared with less than one percent for agency revenue.

As explained by Skift Research’s Seth Borko, merchant bookings are beneficial to cash flow, which can then be invested in new projects. Merchant transactions also tend to have higher commissions, generating more income. For a company as large of Booking, a 1% increase in commission could boost revenue by $900 billion a year, according to Borko. For smaller companies, the added revenue could still be substantial.

The adoption of the merchant model in conjunction with the use of VCNs is one way the travel industry is increasingly addressing payments fraud. On the broader scale, the Payment Pulse survey showed that executives are thinking about solutions for now and the future. 92% of those surveyed are already using cloud-based payments platforms, which they believe to be more secure than locally hosted solutions, and many look to blockchain technology to help address the payment security in the future.

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