Airlines are looking to new technology to mitigate loyalty program fraud, which has typically been difficult to control.
Airline loyalty fraud "doesn't attract as much attention as payments fraud because the [one] getting hurt by this is the airline itself," said Kristian Gjerging, CEO of CellPoint Mobile, a cross-channel commerce infrastructure provider. "But for some, the loyalty program is more valuable than the airline."
A lot of fraud comes from consumers selling their miles to brokers, such as FlipMyMiles or AlphaGroup, which then flip the miles for cheap tickets to sell to other consumers. Brokers can also sell the miles directly. These practices are not against the law, but many airlines still consider them fraud because they prohibit such resales in their terms and conditions.
More traditional fraud happens where consumer accounts get hacked and airline miles are stolen.
In 2011, the total accumulation of airline miles was estimated at $14 trillion, said Gjerding. "It's a significant issue that's not easily addressed; it's becoming a hot spot for fraudsters to attack," he said.
But in the era of big data, this fraud can be addressed. By incorporating multi-factor authentication during the enrollment process for a new loyalty program, and adding other passenger data, airlines can see patterns, which could be scrutinized within a fraud management system.
For example, if a large number of miles get dumped into a new account immediately, airlines should probably flag this as suspicious and inquire whether a friend or family member gifted the new accountholder or the airline had some kind of signup bonus.
False positive rates are at about 6.5%, but most of those are cleared after manual review, said Gjerding. While the airline fraud management system is relatively new for the seven-year-old company, he said, the system could reduce manual interventions by 30%.
The system hasn't gone live with any airlines yet, Gjerding said. However, CellPoint Mobile provides its payment services to a number of airlines and other transportation companies, including Emirates, a Dubai-based airline.
Emirates began using CellPoint Mobile's Web payment solution last year. The airline then launched mobile Web capabilities at the beginning of this year and will soon launch a mobile app, said Gjerding.
"Airlines all want to assist their passengers travel and transact easier," said Gjerding. "You can't change Homeland Security and security protocols which can be a negative for passengers, but there are some things you can do, like making it easier to transact pre, during and post travel."
One of the biggest ways airlines are modernizing payments is by pushing them onto mobile devices. For example, more and more people are moving their boarding passes to their mobile device. CellPoint Mobile provides software for this purpose.
The company also has a mobile wallet that delivers compensation to passengers, in cases where the airline has over-booked a flight and someone is denied boarding or opts in to take another flight.
"That's potentially a lot of money leaving the airline" if consumers are just given the funds onto their credit card, Gjerding said. "But if you can keep it in your own mobile wallet that could increase auxiliary sales."
And increasing direct sales to improve margins is particularly where airlines need to focus, Gjerding said. Direct sales continue to decrease as consumers purchase tickets from third-party online travel agents. The margin on tickets bought from third parties is about $8, he said, whereas direct-sale margins are double that.
Gjerding said a well-linked mobile app could lure consumers into buying direct. If a passenger could use the airline's app to shop best fares, book and pay for the flight with credentials stored in the mobile wallet, and use the mobile wallet to pay in-flight for a drink through a contactless tap, that connected universe would be very attractive to consumers, he said.