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.
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.
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.
Apart from the obvious nuisance, chargebacks create a variety of serious concerns for hotels.
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.
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.
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.
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.
The most important thing you can do to reduce chargebacks is to utilize fraud software that can notify you in advance of potential fraud. For example, Canary’s industry-leading fraud detection is built into our Contactless Check-In product.
Here’s how Canary’s fraud detection works:
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!).
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.
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.
Once you promise a refund, process it ASAP to avoid guests getting impatient and initiating a chargeback.
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.
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.
If you do face a chargeback, fight it! The below steps will help you make your case and increase your chances of winning.
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.
Click here to see how Canary’s Digital Authorizations solution helped Pinnacle Hotels USA win a $14,000 hotel chargeback against AMEX.
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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