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Hotel Chargebacks

hotel chargeback

Am I an Easy Target? Here’s What You Need to Know About Hotel Booking Chargebacks & How to Respond

What do you picture when you think about chargebacks?

Probably some high-dollar item. Camera equipment, computers, maybe designer fashion. That’s not surprising; we tend to hear the most about retail-centric chargebacks. Remember, though: merchants operating in just about any industry can face this problem.

In fact, dispute-to-transaction ratios in the hospitality space tend to be among the highest in all verticals. The epidemic of hotel booking chargeback isn’t slowing down, either. In fact, it's gaining even more steam over time.

In this article, we’re taking a look at hotel chargebacks. We’ll see why they happen, and what you can do about them as a merchant.

Chargebacks in the Hospitality Industry: A Case Study

Hospitality industry chargebacks occur when a cardholder disputes service from a hotel or other guest services provider. In this instance, the cardholder contacts their bank or card network for a return of funds rather than requesting a refund from the hotel.

Let’s put this into perspective. Say you run a small, but successful bed and breakfast. You’ve just served two guests for an extended weekend, who had nothing but kind words and pleasant smiles when asked about the quality of their stay. Next thing you know, you’re receiving notice from the bank that the funds for this stay have been removed from your account. You're also getting hit with added fees.

What’s the deal? Allow us to break this down a bit.

Hotel Chargebacks

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Why Do People File Hotel Chargebacks?

There are four common, legitimate reasons why cardholders might dispute hotel charges. Here’s a quick overview of each:

Faulty Credit Card Processing

A “credit not processed" chargeback occurs when a guest does not receive a refund they were expecting. The two most likely reasons this happens is either the guest’s refund was forgotten, or their refund request didn’t mesh with the hotel’s cancellation/refund policy.

In this case, the chargeback could have happened because someone within your organization made a mistake. Alternately, it might’ve happened because the cardholder had no intention of complying with your cancellation policy, but wanted their money back anyway (i.e. they engaged in friendly fraud).

Service Not Rendered

This type of hotel chargeback implies that the customer was charged by mistake. Or, they might have been charged for items or services they did not receive. An example would be if a cardholder was charged for a three-night stay with an all-inclusive package attached, but only stayed for two nights without utilizing any additional services.

If this was a mistake made by you or a staff member, then the cardholder would be entitled to a chargeback. If, however, the cardholder agreed to pay for these services but chose not to use them, then you may have a basis for chargeback representment. This would only apply if your policies clearly state that packages entail ‘use at will’ items that can’t be refunded, though.

Product Not As Described/ Unacceptable

Now this one is tricky. It could be argued that this is most likely a case of friendly fraud (below). However, it could also be due to a seemingly innocuous complaint, like a lack of soap or hand towels in the room.

If it’s the latter, it will be very difficult to prove the cardholder wrong to their issuing bank, despite it being a rather petty claim. At this stage, you’re essentially arguing against the customer’s opinion.

Criminal Fraud

Criminal fraud happens when a bad actor uses stolen information to complete a purchase. This is actually quite common in hotels and lodging.

If the chargeback is the result of genuine criminal fraud, there’s not much you can do, unfortunately. You were unable to detect the fraud, so according to card network rules, you have to accept the chargeback.

That’s a very basic overview. Now, let’s dig a little deeper to better understand what’s at stake when it comes to the topic of hotels and fraud.

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Breaking Down Criminal Fraud in Hotels & Hospitality

Fraud tends to impact the travel and leisure industries even more heavily than other sectors like retail or digital goods. We can attribute this to five specific factors:

Hacker

Fluidity

Last-minute booking changes create more opportunities for fraud and mistakes.

Hotel Chargebacks

Perishability

Fraudsters tie-up space that cannot be used for legitimate bookings.

Hacker

Margins

Higher ticket values for hotel bookings mean greater impact on the bottom line.

Hotel Chargebacks

Revenue Loss

Excessive false positives mean merchants end up declining valid bookings.

card holder icon - white BG

Higher OPEX

More manual reviews for costly transactions mean
increased operating expenses.


The American Hotel and Lodging Association asserts that as much as 55% of all card fraud in the US takes place within the hospitality industry. Of course, that only takes criminal fraud into consideration. When you factor in other loss sources like friendly fraud, the real figure is much higher.

So, why is hospitality a target for fraudsters? Well, hotel stays are often a very personal experience. As such, they can constitute an uncomfortable gray area.

From the bank’s perspective, it can be difficult to ask a customer to relay the personal details of a recent visit, or ask what made that visit uncomfortable. By the same token, a hotelier might mistake a polite response for approval of an unsatisfactory service. You can see how a fraudster might view this as an opportunity to capitalize on miscommunication.

Hotel Chargebacks

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How Can Hotels Reduce Chargebacks?

There is some good news, though. You can reduce your chargeback ratio and prevent hotel chargebacks with a few simple steps. Or, if you can’t prevent disputes, you can at least learn to fight back and recover revenue.

We identified three simple, basic steps you can take today that will help you retain more revenue, which we've outlined below:

Step 1 | Emphasize Customer Service Best Practices

If you’re looking to prevent a hotel booking chargeback, the first step is in your approach to customer service.

It’s important to keep lines of communication open to allow customers to work through your service channels. This will dissuade cardholders from skipping straight to a chargeback without attempting to contact you first. Be sure that you adhere closely to these best practices:

  • Provide live phone support 24 hours a day.
  • Answer phone calls in three rings or less.
  • Use overflow customer service centers for peak times and outside regular hours.
  • Respond to emails and social media inquiries within 60 minutes.
  • Ensure that all phone numbers listed online are properly connected.
  • Make all social media and email links on your site are live and clickable.

Step 2 | Thorough Record Keeping

Maintaining clear and thorough records is very important in the event a hotel booking chargeback comes your way.

Fighting back against a hotel booking chargeback means engaging in tactical representment. Your records are the primary evidence you will need to demonstrate to the issuer and card scheme that the charge was valid. You're fighting an uphill battle without this necessary information.

Important documentation to retain includes the name and phone number associated with the booking, as well as the arrival date and duration of the customer’s stay. If the cardholder plans to pay for another party, you should request positive, written authorization from the cardholder. This goes for situations in which a customer is booking on behalf of a company or organization as well.

Ask the cardholder to agree to your terms of service before charging the customer’s card and finalizing the reservation. Remember to verify consent to that reservation. Lastly, remember to keep a copy of the signed registration form on file. That individual may still request a chargeback several months later, but having good records on hand will help you fight an invalid claim.

Step 3 | Improve Your Defenses

Lastly, you’ll want to ensure that you have a capable chargeback response team ready to serve your needs. Of course, the fast-changing, complex payments landscape makes it hard to maintain an effective in-house chargeback team.

You shouldn’t be worrying about fighting hotel chargebacks or keeping up with industry regulations. You should be focused on running your business.

Chargebacks911® offers the industry’s most innovative solutions for chargebacks. Our technologies enable merchants to identify the source of disputes, then deploy the right solution to deliver immediate results.

Friendly fraud in the hospitality industry isn’t slowing down. That’s why you need to kick chargeback mitigation into high-gear.

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