Hotel chargebacks: How owners can minimise the risks

Hotel chargebacks: How owners can minimise the risks

[Credit: StellrWeb on Unsplash]

Gergo Varga at SEON Technologies highlights five ways in which hotel owners and operators can prevent customer chargebacks.

The hospitality industry has faced various challenges, especially since the beginning of the Covid-19 pandemic. But now hope returns. Restrictions are being lifted worldwide, and our lives are starting to get back to normal. It is time for hotels to begin preparing for post-pandemic success.

This also means dealing with one of the most significant challenges for both large chains and smaller boutique hotels: chargebacks. Luckily, hotels can take steps to minimise the risk of chargebacks such as implementing fraud prevention or ensuring their payment and refund policies are up to date. 

Why do chargebacks happen?

Chargebacks happen when a person raises an inquiry with their card provider about the validity of the charge on their account. Hotels can dispute the chargeback request, and if sufficient evidence is provided, the hotel will receive the funds. If the grounds of the dispute are not valid, the card owner will receive their funds back. 

There are several main reasons why a customer decides to request a chargeback:

• The customer didn’t recognise the transaction on their account  

• The customer wasn’t satisfied with the service 

• The customer has booked the room months in advance and forgotten about it 

• The customer didn’t use the service, and doesn’t want to pay a cancellation or no-show fee

• Another member of their household used the customers’ card to make a purchase 

• The additional payment was processed after the guest left the hotel without being informed of the charge

• Someone has stolen their card details and used it for fraudulent purchases

Chargebacks not only result in lost revenue from the sale, but incur administrative chargeback fees. In the worst-case scenario, the bank can even close a hotel’s account if it is thought the business is high risk due to too many chargeback requests.

In addition to financial damage, chargebacks can also have a damaging effect on a hotel’s reputation, which in today’s competitive market needs to be preserved.

How to minimise the risks of chargebacks?

Here are five ways of dealing with chargebacks to help protect your hotel business. 

1. Use a clear merchant descriptor

When a person takes a look at their bank statement, they need to be able to recognise the transaction. If they can’t, you need to change your merchant descriptor as this can cause a large number of chargebacks. If your hotel is called “Hotel Perfect” your descriptor should be “Hotel Perfect” and not “City Holding”, even though this might be your company name.

2. Make sure your payment and refund policies are clear and easily accessible

Provide your payment and refund policies with every reservation, and require customers to sign that they accept the terms and conditions before completing a purchase. This can help avoid customers claiming that they weren’t well informed, such as needing to pay a cancellation fee if the customer cancels after the agreed cancellation period.  

3. Be available

By having clear communication channels open, you will avoid various types of chargeback requests. For example, if a customer is not satisfied with the service and raises a complaint, you can resolve the issue before they leave the hotel. It will prevent a future chargeback request.

4. Refund the guests when and where warranted

Chargebacks are more costly than refunds. If the guest has a warranted request for a refund, process it before they resort to taking extra measures and requesting a chargeback. 

5. Implement fraud prevention tools

By implementing fraud prevention tools such as email lookup tools or data enrichment, you will be able to avoid various types of chargeback fraud and better protect your business. 

The truth is we will never be able to get rid of chargebacks completely, but by implementing these steps you will be able to minimise the risks. 

Be in the know.

Subscribe to our newsletter »