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Travel and Hospitality

Common types of hotel fraud and strategies for prevention

Fraudulent activities are a persistent threat to the travel and hospitality industry, with hotels being especially vulnerable. From reservation scams to employee theft and chargeback fraud, these activities result in financial losses and reputational damage. In a 2023 survey, cyberattacks and data breaches were identified as top risks, with data breaches costing an average of $3.4 million globally. However, implementing effective fraud detection and analytics strategies can help hotels mitigate these risks and streamline operations. This article covers 7 most common hotel frauds and offers strategies to prevent them.


Common hotel frauds

Hotel frauds are rising, posing serious risks to both travellers and businesses. Here are 7 common hotel frauds to watch for.

  1. Reservation fraud (fictitious booking scams)
  2. Reservation fraud, or fictitious booking, occurs when fraudsters use stolen or fake details to make bookings without intending to check in. They may cancel last minute, causing lost revenue and additional processing costs for the hotel.

    Prevention Strategies:

    • Prepayment Policies: Require full payment or a non-refundable deposit to secure bookings.
    • Fraud Detection Tools: Use Address Verification Systems (AVS) and Card Verification Value (CVV) checks to verify credit card details.
    • AI-Driven Analytics: Implement AI software to analyse booking patterns and detect fraud.

  3. Chargeback fraud
  4. Chargeback fraud, or "friendly fraud," occurs when a guest disputes a legitimate charge after their stay, claiming unauthorised payment. Often, the hotel has to refund the money, losing both the revenue and the room.

    Prevention Strategies:

    • Chargeback Fraud Prevention Systems: Use management systems to track disputes and provide evidence.
    • Clear Billing Practices: Ensure transparent, itemised receipts outlining charges.
    • Customer Communication: Educate guests on the chargeback process and the consequences of fraudulent disputes.

  5. Employee Theft and Kickbacks
  6. Employee theft and kickbacks are common hotel scams where hotel employees steal goods, cash, or information. In some cases, employees may also engage in kickback schemes, accepting bribes from suppliers or service providers in exchange for contracts or business deals.

    Prevention Strategies:

    • Background Checks: Perform thorough background checks on all employees, especially front desk staff and accountants.
    • Access Control: Restrict access to sensitive financial systems and inventory to prevent theft.
    • Whistleblower Programs: Create a safe reporting system for employees to anonymously report fraudulent behaviour.

  7. Corporate fraud (B2B Fraud)
  8. Corporate fraud in the hotel industry often involves fraudulent activities with third-party providers, like booking agents or suppliers, including inflated invoices or falsified contracts, leading to significant financial losses for the hotel.

    Prevention Strategies:

    • Vendor Audits: Conduct regular audits of third-party suppliers and service providers to ensure that they are complying with the terms of the contract.
    • Contract Clauses: Include clear fraud prevention clauses in all vendor agreements, ensuring penalties for fraudulent activities.
    • Vendor Management Systems: Use technology to streamline vendor relationships and ensure transparency in all transactions.

  9. Fake reviews and reputation fraud
  10. Fake reviews and reputation fraud occur when competitors or malicious actors post false reviews, damaging a hotel’s reputation. This leads to decreased customer trust and fewer bookings, making it a common and costly scam in the hotel industry.

    Prevention Strategies:

    • Monitor Online Platforms: Use reputation management tools to track and flag fake or suspicious reviews across platforms.
    • Encourage Verified Reviews: Ask genuine guests for feedback and encourage verified reviews.
    • Partner with Verified Review Sites: Collaborate with trusted platforms that verify customer review authenticity.

  11. Overbooking fraud
  12. Overbooking fraud involves the practice of intentionally overbooking rooms, expecting some guests to cancel. Fraudsters may exploit this by making cancellations under false pretences or rebooking rooms at inflated prices.

    Prevention Strategies:

    • Demand Forecasting: Use advanced analytics to forecast demand and avoid overbooking by accurately predicting occupancy rates.
    • Dynamic Pricing Models: Implement dynamic pricing that adjusts room rates based on real-time demand to reduce the need for overbooking.
    • Clear Cancellation Policies: Clearly communicate cancellation policies to guests to discourage fraudulent cancellations and bookings.

  13. Cyberattacks
  14. Hotels are prime targets for cybercrime due to their vast customer data, including payment details and personal information. Common threats include data breaches, phishing, ransomware attacks, and POS hacking, risking guest security and operational integrity.

    Prevention Strategies:

    • Strengthen Network Security: Enhance defences with firewalls, intrusion detection systems, and encrypted communication. Regularly update software to address vulnerabilities.
    • Employee Training and Awareness: Train staff to detect phishing, follow strict data protocols, and simulate threats to improve cybersecurity readiness effectively.
    • Adopt Advanced Authentication Measures: Apply multi-factor authentication, encrypt data, and monitor systems continuously to prevent unauthorised access and protect operations.

How can Infosys BPM help?

Shield your hospitality business from the escalating risks of fraud with cutting-edge fraud detection and analytics solutions from Infosys BPM. Our advanced systems are designed to protect customer experiences while drastically minimising losses due to fraudulent activities. By partnering with Infosys BPM, you can safeguard your revenue streams, build stronger customer trust, and improve operational efficiency using AI-powered insights. Together, we can fortify your defences and ensure your business remains resilient.

Reach out to us today for a customised fraud prevention strategy tailored to your needs.


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