As the Risk of Online Fraud Rises, the Air-Travel Industry Wrestles With 3-D Secure

By John Stewart

These days, the airline and air-travel industry finds itself squeezed between two imperatives that have come into sharp focus in recent months. With high average tickets, airlines must guard against fraud at a time when the spread of EMV chip cards is pushing more criminals into e-commerce. At the same time, they must keep checkouts simple to avoid driving up abandonment rates.

Little wonder that airlines and online travel agencies worldwide are applying authentication tools like 3-D Secure, but not across the board and in many cases quite sparingly, according to a study released Wednesday by Ingenico ePayments, the online and mobile-commerce unit of terminal maker Ingenico Group.

Branded by the payments networks (Verified by Visa, for example), 3-D Secure is a 15-year-old technology that requires consumers to enter a PIN or password on a pop-up screen to complete a checkout. While effective, the technology adds extra steps that can discourage customers at the point when they are ready to buy. EMVCo, the network-controlled standards body that drew up the specification for EMV, is working on a new version of 3-D Secure.

Twenty-one percent of airlines and agencies globally were not using 3-D Secure at all last year, up from 16% in 2014, according to the Ingenico ePayments study, which surveyed 118 airlines and other air-travel merchants and analyzed more than 80 million transactions across all of 2014 and most of 2015. And those using the technology all the time fell from 31% to 26%. But the same majority—53%—used it “flexibly” both years, says the study, meaning they applied it under certain circumstances and according to their own criteria.

The impact on online abandonment rates is mixed, according to the data. In 2015, 28% of airlines and others reported 3-D Secure increased cart abandonment by up to 10%, compared to 23% who reported this in 2014. But those reporting a more drastic abandonment rate, 10%-25%, fell from 28% to 16%. And more companies are now tracking this metric. In 2015, 28% said they didn’t know the impact, down from 41% the previous year.

The good news is that the authentication technology is apparently proving to be more effective for air-travel companies. Last year, 17% reported an improvement in chargeback rates of up to 10%, compared to 10% of companies that reported this range in 2014. Some 18% reported improvement in the 10%-25% range, up fully 10 percentage points from 2014.

“As the survey results point out, 3-D Secure shows a significant and positive impact on chargebacks and fraud decrease while also negatively impacting conversion and revenues,” says the study.

The flexibility the study found in usage of the technology depends on a wide variety of factors. The country of origin for the card used figures most prominently, cited by 57% of respondents, followed by risk score (43%) and IP address (31%).

But 3-D Secure, after years of availability from card networks worldwide, still remains far from universally adopted in the air-travel industry. Less than 10% of transactions are authenticated with the technology in the U.S. air-travel business, according to the survey. Adoption here saw little change between 2014 and last year.

In the United Kingdom, this rate fell from 40% to less than 20%. And in only three countries does the rate reach or exceed 50% of transactions—The Netherlands, Saudi Arabia, and Romania—and in all three the rate fell from 2014.