What are hotel chargebacks?
Hotel chargebacks occur when a guest disputes a transaction directly with their bank instead of the hotel. This triggers an investigation to determine the validity of the transaction and guests’ request for a refund. Ultimately, the bank can issue a complete refund without your permission.
Hoteliers do have the option to dispute the chargeback, called a representment case, before the bank makes their final decision. And while it’s smart to be prepared to fight chargebacks, it’s even more important to invest in a fraud prevention strategy to help you minimize your risk of chargebacks altogether.
Ways to Reduce Hotel Fraud & Chargebacks
Enable 3-D Secure (3DS)
3DS is a security standard you can adopt to secure online payment transactions and authenticate charges. 3DS adds a layer of protection to a payment transaction by requiring cardholders to authenticate their identity before the transaction can be completed. The best part: most cardholders are automatically enrolled for 3DS by their card issuer, so taking advantage of 3DS is easy for merchants.
Beware of Same-Day Reservations
Fraudsters like to act quickly (up to 48 hours prior to check-in), so many hotels have adopted a policy to not accept same-day reservations. While that may not be an option, here are some best practices to follow if you can adopt it:
- Adopt an advance deposit policy and charge a minimum or full amount immediately. If the transaction’s being made with a stolen card, the true cardholder will get a notification of the charge, which will prompt them to contact you.
- Require a second form of payment. If the first card fails or results in a chargeback, the second option is available. This process can be implemented for all same-day reservations.
Require ID with Authorization
As part of your credit card authorization form process, you can require the signer to upload an image of their ID/Passport in the authorization form. Typically, fraudsters will abandon the transaction if prompted to submit photo ID. If they do share an ID, your property can examine the ID and look for doctored images. For third-party authorizations, asking for an ID at check-in acts as an effective way to deter fraudsters, especially for authorizations deemed risky.
Review Information on Your Hotel Credit Card Authorization Form
Train your front desk team to review and research information in your authorization form:
Business Name, Addresses, and Phone Numbers
- Be on the lookout for vague, mismatched, or incorrect addresses, as well as any address with a P.O Box. Run a Google search of the provided business name to verify that it’s real.
- Google Streetview can show you if the provided address is really a home, empty lot, bus stop, etc.
- If the provided cardholder and guest names are different, phone numbers should be different as well.
- Don’t accept a credit card if the address provided for the card and the address provided for the authorization are drastically different
- Take note if a business email wasn’t used with a business selection.
- The signature should match the cardholder’s or guest’s name. Hotels have been known to accept authorizations signed with false signatures, resulting in chargebacks.
Billing Instructions, Comments, and Special Requests
- These sections are typically not required to fill out, so fraudsters may skip them to suggest billing was not approved.
Have Clear Policies & Invoices
One of the easiest ways for friendly fraud to happen is through a confusing and vague hotel policies. Routinely review your existing policies, update accordingly, and make sure updates are made anywhere your guests have access to existing policies. There should be no confusion when a guest leaves your property. They should know exactly who the invoice is from, what it is for, and what they owe at checkout.
Pay Attention to Guest Behavior
It’s important to observe any unusual interactions you have with guests. As you’re building a fraud prevention plan, talk with your guest-facing teams about what they’d consider strange patterns. What have they experienced in the past that ended up turning into a chargeback?
Regularly Touch Base with Guests
Always make time to check in with your guest to find how their stay is when they’re at your property. You can get their feedback both in person and from your website and other systems. Give your guests multiple ways to provide feedback during their stay and add notes to your PMS.
Other Best Practices
- Require entry of security codes (CVV) on payment cards to help ensure the buyer has possession of the card.
- Enable Address Verification Service (AVS), and don’t automatically accept credit cards with a partial AVS match. Review these reservations manually.
- Don’t attempt manual authorizations. Always authorize a card through an online system.
- Don’t accept a booking made with a third-party vendor along with a reservation made within 24-48 hours of check-in without additional verification.
- Do pre-charge credit card for rates to help validate the card isn’t stolen.
- Do monitor your booking sites for robotic or automated traffic.
- Do enforce face-to-face check-ins for high-risk bookings.