Tips for Tackling Chargebacks in Hospitality
Recently, many hospitality companies have seen a significant increase in credit card chargebacks, leading to financial losses and operational challenges. As payment disputes are becoming more frequent, they’re impacting cash flow, straining staff resources, and disrupting operations. To navigate this growing problem, hospitality businesses need to adopt strategies that prevent chargebacks and protect their revenue.
Common Challenges
There are several common causes for chargebacks in the hospitality sector. One of the most prominent issues is “friendly fraud,” where a customer disputes a legitimate charge either by mistake or to avoid paying for a product or service they received.
No-show fees and additional charges for things like minibar purchases are some of the most common items for customers to dispute. In some cases, customers may have been unaware that their actions would result in a charge. In others, they simply regret the decision or feel entitled to an exception.
Another challenge lies in the complexity of the hospitality sector’s operations. Hotels often manage multiple Merchant IDs (MIDs) and receive bookings from multiple third-party sources. Additionally, many hospitality businesses do not have access to advanced analytics tools that would allow them to pinpoint the exact causes of chargebacks. This absence of detailed insights leaves businesses guessing and hampers their ability to address underlying issues.
Training staff to handle disputes is another area where businesses struggle. In an industry where managers are often pressed for time and may not have specific expertise in chargebacks, disputes may go unaddressed or be dealt with ineffectively, leading to lost revenue. With these issues in mind, hospitality businesses must take proactive steps to minimize chargebacks wherever possible.
Tip 1: Review Reservations from OTAs
Online Travel Agencies (OTAs) are an indispensable part of modern travel. However, they can also be a source of errors that contribute to chargebacks. It’s not uncommon for discrepancies in booking details to occur when reservations are made through these third-party platforms. Double bookings, incorrect room assignments, and communication gaps between the OTA and the hotel can lead to customer dissatisfaction and disputes.
Businesses should have a process in place to ensure reservations made through OTAs are reviewed. This should include checking booking details against room availability and ensuring that customer requests (such as specific room types or additional services) are correctly recorded. Automation can help streamline this process, but a final manual check by hotel staff is recommended to catch any potential errors.
Tip 2: Follow Best Practices for Transaction Processing
Ensuring that employees are processing transactions correctly can prevent many issues that lead to chargebacks. For example, transactions that occur in person should always be processed using a card’s EMV chip (or chip & PIN outside the U.S.). This automatically shifts liability to the issuer for claims of fraud. Even though reservations are typically paid for online, hotels can still scan the EMV chip when a guest checks in.
It’s important to ensure transactions are posted with valid authorization codes to minimize the risk of chargebacks. If the final amount exceeds what was authorized, a new authorization should be obtained.
Tip 3: Prevent Fraud with AVS and 3D Secure
Mitigating the risk of fraud in online transactions can be complicated, but one simple tool that can make a big difference is Address Verification Service (AVS). Requiring the customer to enter a billing address, or even just a postal code, can prevent many low-effort fraud attempts.
Like an online version of the EMV chip, 3D Secure can shift liability for fraud to the issuer. In most cases, the issuer will be able to automatically authenticate the customer without any additional friction. When that can’t be done, the one-time passcode required is a security measure consumers have become increasingly familiar with.
Tip 4: Communicate Clearly & Document It
Ensuring customers are fully informed of any policies that frequently result in confusion, businesses can reduce the risk of later disputes. Guests should receive clear, concise explanations of fees and the terms for cancellations and refunds.
Documentation is equally important, especially when it comes to fighting chargebacks. Businesses should keep records that include both detailed transaction information and communication with the customer. Having these documents on hand can make a significant difference when attempting to reverse an illegitimate chargeback.
About the Author
Tim Tynan is a seasoned senior executive and business leader with extensive experience delivering financial and operational results across the payments, financial services, and technology industries. Tim currently serves as CEO for Chargeback Gurus, a leader in chargeback management services. Chargeback Gurus helps businesses protect and recover revenue by providing innovative chargeback management solutions and AI insights powered by its proprietary platform. Previously, he served as the CEO of Bank of America Merchant Services, one of the largest payments and FinTech Organizations in the U.S.