According to Statista, over 70% of transactions at POS in the US were via card or mobile wallet in 2021. The hotel and travel industry is no exception.
The steady increase in card payments brings benefits for everyone. Payments are easier to track, staff spends less time handling cash, and guests enjoy the extra convenience.
Unfortunately, there’s a dark side to the increased reliance on electronic payments. Chargebacks become easier to implement and more prevalent.
That’s a problem because every chargeback costs a hotelier time and money. It also hurts your reputation with financial institutions.
Luckily, there’s plenty you can do to protect your business. Let’s look at what exactly hotel chargebacks are, and how you can avoid them or win them when they happen.
What Is a Hotel Chargeback?
In short, a chargeback is a transaction reversal. The guest’s bank initiates them to get money back when travelers dispute a charge on their credit card.
While this may sound like a refund, it isn’t. Service providers (e.g. your hotel) can offer refunds from their side. Chargebacks always run via the customer’s bank.
While the simple mention of chargebacks can make some hoteliers clench their jaws, they’re not all bad. Initially, they were created to protect cardholders. If the purchaser detects a double payment or fraudulent activity, they can claim their money back easily.
However, chargebacks also bear risks for hotels. Some people abuse them to deliberately avoid paying for services or last-minute cancellations. On top of the obvious loss in revenue, this incurs banking fees and costs time and energy better spent elsewhere.
The Five Most Common Types of Hotel Chargebacks & Why They Happen
There are too many types of and reasons for chargebacks to cover all of them here. So let’s look at the most common kinds hotels will face.
Credit not processed: The guest claims you owe them a refund. This usually happens when you promise a refund to a dissatisfied traveler but don’t process it fast enough.
Credit card fraud: In a case of true fraud, a stolen card is used to pay, and the rightful owner disputes the illegal transaction.
Friendly fraud: This is the most common one you’ll see. It occurs when a person requests a chargeback even after authorizing the transaction. Reasons vary from an honest mistake or a misunderstanding to a conscious attempt to avoid paying for services. Here are two examples of friendly fraud: Someone doesn’t recognize a transaction on their credit card statement; they’re surprised by a charge (e.g. a minibar snack or pay-per-view TV)
Not as described or product unacceptable: Sometimes a guest will request a chargeback because the stay didn’t meet the expectations created by your advertising. This could be because certain services or facilities weren’t available as promised online or by a travel agent.
Services not rendered: In cases of “services not rendered” chargebacks, the guest’s card was charged even though they claim not to have stayed with you. This is most common when you charge no-show or cancellation fees.
Why Chargebacks Are a Problem for Hotels
Apart from the obvious nuisance, chargebacks create a variety of serious concerns for hotels.
They Can Be Extremely Expensive
On top of the time and effort required to fight chargeback claims, lost cases cost you cash. The fee alone is usually between $20-$100 per case. But that’s not all. To see the actual cost of a chargeback, you need to add up everything involved. That includes lost revenue, the cost of goods and services provided, and the chargeback fee. Given all that, every dollar lost to a chargeback actually costs you up to $2.40. For a $150 dispute, this can come to around $360.
They Cost a Lot of Time & Energy
Cardholders can initiate a chargeback up to 120 days after the transaction. Once a case is set in motion, it usually takes 60-75 days to settle a dispute. During this process, it’s on you to show that your transaction was authorized and legitimate. That means you have to collect and send a lot of documentation to prove your case.
They Can Hurt Your Reputation
If you get too many chargeback claims against your hotel, you may lose the ability to accept card payments. Obviously, this would be hugely problematic for any type of lodging property.
How To Prevent Hotel Chargebacks
The good news is that you can do quite a bit to reduce the number of chargebacks you receive. Get started with the following steps to protect your hotel.
1. Use a Pre-Check-In Solution with advanced fraud features
Canary deploys an adaptive machine-learning system to evaluate the risk level of each card payment in real-time. This system examines hundreds of signals taken from each payment and taps into a credit card data network to predict whether a payment is likely to be fraudulent. Canary will then automatically decline higher risk cards.
Canary also runs an AVS (Address Verification Service) check, which hoteliers can use to decide whether or not to accept or reject the card.
Optionally, hoteliers can require guests to submit an ID along with the card information. From there, Canary can provide Instant Identity verification to further mitigate fraud.
Canary’s fraud detection tools are highly effective and can reduce fraud and chargebacks by 75-90%. In fact, according to data from one mid-market upscale hotel brand, the average cost of chargebacks per guest without Canary was $16.85. After Canary Check-In was implemented, the average cost of chargebacks per guest dropped to $3.99 (a 75% reduction!).
2. Use PCI Compliant Authorizations & Payment Solutions
Paper credit card authorization forms are a known vulnerability that bad-actors have exploited for more than a decade. On top of that, they’re time-consuming for guests and staff. Instead, take advantage of a PCI-compliant solution like Canary’s Digital Authorizations. The system collects all relevant client data (e.g. name, billing address, card details) via a secure online form. Then it processes and records the authorization as well as client details in a PCI-compliant manner. This is easier and safer for guests, staff, and your hotel. And if you do receive a chargeback, you have all the required documentation to make a convincing case.
3. Verify Card Details at Check-In
If you don’t use a pre-check-in solution like Canary Check-In, then it’s a good idea to ask for the card on arrival and compare it with the guest’s ID to ensure the information matches. This can protect you from some fraud and a card-present transaction helps prove the guest was on-site.
4. Be Quick With Refunds
Once you promise a refund, process it ASAP to avoid guests getting impatient and initiating a chargeback.
5. Avoid Confusion
Be sure to use a clear descriptor that will appear in your guests’ transaction histories such as your hotel or restaurant name instead of a parent company or anything else your guests won’t recognize.
6. Make Your Policies Straightforward & Easy To Find
Cancellation and refund policies should be easily accessible on your website, visible during the booking and check-in processes, and featured in the confirmation email. To be extra safe, always ask guests to indicate they have read and agree with your policies (digital Contactless Check-In tools allow you to easily include these policies during check-in and make guests acknowledge they are aware of them). Finally, make your contact details easy to find in case of questions.
How To Win Hotel Chargebacks
If you do face a chargeback, fight it! The below steps will help you make your case and increase your chances of winning.
Provide critical information and evidence collected with Canary: As stated above, Canary collects a wide range of data in a PCI compliant manner during its fraud detection process, including a copy of the ID, accurate card information, a confirmation of the transaction amount, and IP addresses related to the authorization submission. All of this data can be easily accessed through a secure web-based dashboard. The ability to provide this information — collected through PCI compliant means — when a chargeback occurs is criticalto winning any case today. And Canary’s team of Customer Success agents are always on standby to assist you with obtaining the relevant information to fight chargebacks.
Enter representment: Representment is the process of protesting the chargeback. For this, you must submit a rebuttal letter to the cardholder’s bank. This letter should prove the chargeback was illegitimate. The bank will then decide whether to reverse or uphold the chargeback.
Respond quickly: Usually, you only get 30 days to respond to a dispute. Avoid losing easy cases by staying on top of the timeline and responding promptly to anything that has to do with the case.
Keep all payment-related documentation: All emails regarding a booking, changes made, and payment authorizations given should be stored and easily accessible to you and your team. This allows you to respond quickly with all needed proof that the transaction was legitimate in the case of a chargeback claim.
Get support: While front office staff usually handles a single guest’s chargebacks, you could get support from your accounting team in complex cases. If it’s a big dispute, you may even consider working with an outside partner.
Canary Helps Our Hotel Partners Fight Chargebacks!
Of course, it’s impossible to avoid chargebacks completely. But following the steps above and using PCI-compliant systems like Canary’s Digital Authorizations and Contactless Check-In solutions, you can reduce them considerably and win them when they happen! Canary Technologies’ industry-leading fraud prevention tools help hotels win chargebacks by providing critical information like IP addresses, copies of the guest ID, credit card information and more.
The less time, energy and money you spend dealing with hotel chargebacks, the more you can direct these resources towards creating a fantastic guest experience people are happy to pay for.
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