How to Handle 5 Common Hospitality Chargeback Scenarios

Reducing and Responding to Hotel Chargebacks

In Brief: As hotel bookings increase during the busy, summer travel season, it is important for hospitality businesses to understand the risk posed by credit card chargebacks. Chargebacks can be a major problem for hotels, causing administrative headaches and lost revenue. Having a grasp on some of the common chargeback scenarios and knowing the best way to respond to them can save your business valuable time and money. In this article, we review these scenarios and suggest some industry best practices for ways to handle them to reduce your risk of fraud.

As we enter the busy season for lodging and hospitality, many hotels will experience an increase in bookings. While this surge in travel is a welcome sight for hospitality businesses, it also brings an increased risk of chargebacks – the instances where a customer disputes a credit card transaction. Chargebacks can become a significant financial burden for hotels, not only for the reversed charges but also for the associated fees. Worse, they can damage your reputation and erode customer trust.

Awareness of potential fraud and how to respond could save your business from costly chargebacks. The following are some common scenarios of fraud schemes in the hospitality industry along with considerations on how to respond.

Please note these are common tactics but not an exhaustive list of potential fraud schemes. While no business can prevent all fraudulent attempts or win 100 percent of its chargebacks, being aware of popular schemes and ways to handle them may help you mitigate both.

Example Scenario: Online Reservations

A customer completed their reservation online and made 100 percent of their payment as a card not present transaction. After they complete their stay, they submit a chargeback. How can I verify this customer at the time of check in to avoid situations like this?

Recommendation:

It is a good policy to have the customer make some form of card present payment (must be EMV/contactless) with the same card used to make the reservation. Additionally, communicate on your reservation site that customers will be required to present their ID at time of check in and show the card they used to make the payment. When they check in, make sure to confirm the name of individual matches the name on the reservation and the card used to make the payment. If the customer does not have the card they used to make the online payment, refund the original transaction and charge the customer in full at time of check-in.

Example Scenario: Cancellation Policy

A customer calls to cancel their reservation less than 24 hours in advance. Our policy states that providing this little notice will result in a charge equal to a one-night stay. The customer disputed this with their bank and won the chargeback. Why did I lose the chargeback when my policy clearly states this charge is applicable?

Recommendation:

Card brand rules and guidelines state that the customer must agree to this policy prior to completing the payment and that the merchant must be able to provide proof of this agreement. If you have a cancellation policy or any other policies that could result in additional fees, enable an agreement check box along with a signature confirming that they agree to each policy. A vague agreement will not suffice in disputes. You must have an acknowledgement of agreement from the cardholder for each individual policy prior to accepting payment.

Example Scenario: Address Verification & CVV

A customer attempted to book a reservation online and their address, zip code, and or CVV came back as a mismatch. What should I do?

Recommendation:

For all card not present transactions make sure to collect the numeric portion of the address, zip code, and the CVV code. There are typically fraud filters available to allow you to set declines if the customer’s information does not match. Legitimate customers should have this information and thus, it should return a match. While not entirely foolproof, it is an added obstacle to deter fraudsters from booking online.

Example Scenario: Room Damages/Smoking Fees/Theft/Loss

1. A customer smoked in the room when our no-smoking policy carries a fine of $250.00. I charged the card for this incident. The customer disputed the charge, and I lost the chargeback, why?
2. A customer damaged the room, and we assessed fees on their card as a result. The customer disputed the charge, and I lost the chargeback, why?

Recommendation:

Just like the cancellation policy listed above, the cardholder needs to agree to these charges prior to the payment being processed on their card. You would need to provide the customer with line-item details of the charges for damages, the cardholder would then need to agree and sign for these charges. If the customer does not agree to these fees, we do not recommend processing the transaction as it would be in violation of many of the card brand rules and guidelines.

Example Scenario: Red Flags/Refunds

A guest made a reservation online, they then called a few days later to request a refund on a different card. The front desk processes the refund to the different card and a chargeback comes through on the original transaction for fraud.

Recommendation:

An industry best practice is to refund the original card on which the purchase was made. There are some cases where this isn’t an option e.g., the card was lost or stolen. If it was a re-issued card, the issuer should remain the same, though. In this instance, call the issuing bank to confirm legitimacy of the replacement card.

If a situation occurs that feels suspicious or is outside of normal transaction activity, trust your instincts. Rules and regulations for card acceptance requirements vary by each card brand, so be cautious when implementing policies or procedures to ensure they are in line with regulations.

By following these recommended responses to chargeback scenarios, hospitality businesses can significantly reduce their risk of chargebacks and ensure a smooth and profitable summer season.