By David Doctor, Executive Vice President of Payments, Amadeus
The impact of COVID-19 continues to be felt by the travel industry; however, we are now seeing positive indications from data that we are on a path of recovery and we’re seeing continued investment in key areas of the industry. One area we’re seeing particularly strong investment is payments and fintech.
At Amadeus, we conducted a survey with 70 senior leaders from airlines and travel sellers in Q1 2022 to understand the pace of investment as well as the specific fintech capabilities travel leaders are seeking to develop this year. The study showed some positive signs for the future of travel payments, with 70% of travel companies ‘investing broadly’ across their business this year to capture an expected rebound in the sector, with only 30% opting for a more ‘conservative strategy’ that’s focused on cost reduction. As part of this study, we also examined challenges that have occurred or accelerated due to the pandemic, and one critical area that stood out was chargebacks.
The challenges of chargebacks
A chargeback is the formal process initiated when a cardholder disputes a transaction – often leading to the cardholder being reimbursed directly by their issuing bank that obtains the funds from the merchant’s acquirer, by way of the card schemes.
Chargebacks stood out due to the significant growth in the number of requests we’ve seen in the past two years, due to the high levels of disruption and strain on industry refund processes.
Our study reinforced the notion that chargebacks are on the rise, as 70% of travel businesses saw a significant 50%+ increase in disputes during 2021 when compared to 2019 averages, and chargebacks increased by more than 100% for a significant minority of travel companies (20%).
To help deal with the influx of chargebacks, one in three firms had to increase headcount to manually process the volume of requests during the pandemic, a period when many travel companies were forced to reduce back-office roles.
It is a real challenge for travel providers today, as around a quarter of respondents admitted that their companies find it challenging to handle the increased burden and are currently unable to respond to or effectively challenge chargebacks, increasing the likelihood of paying out on almost every occasion, whether they are liable or not.
This should be of particular concern when industry estimates suggest that by 2023 just over two-thirds of all chargebacks will actually be ‘friendly fraud’, where merchants shouldn’t be held liable. Friendly fraud occurs when a customer makes a purchase with a credit or debit card and then disputes the charge with their bank, even though they don’t have a legitimate reason to do so. There have been reports of travelers submitting chargebacks in situations where they haven’t received the signature cocktail during a flight or when the flight was ‘unreasonably turbulent’. This is the type of chargeback request the industry needs to be empowered to challenge, so that it’s better placed to settle legitimate disputes for travelers.
Rethinking chargebacks
We’re continuing to see chargeback levels remain high as more travelers become aware of the option, and so it is vital that the industry can respond accordingly and better automate the dispute resolution process. The goal is to reduce the estimated $190 average cost for handling a chargeback, whilst also being able to effectively challenge instances of friendly fraud and quickly settle legitimate disputes.
One way the industry is working to rethink chargebacks is through automation powered by improved information visibility. Often the key to swiftly concluding a dispute is transparent access to information – was the flight delayed? By making certain information more visible via APIs, e.g., booking and payments information, there’s an opportunity to automate and significantly improve this increasingly important back-office function.
Technology has a central role in helping the industry combat these challenges, and with the combination of automation and transparency, we are able to create solutions that will help the travel industry as it recovers.
