Hotel Payments: How Chargebacks Could Cost You Your Merchant ID

In this previous hotel payments post, we delved into the world of payment processing and the importance of merchant IDs (MIDs) and merchant category codes (MCCs). TL;DR: If requirements aren’t met, you’re at risk to be downgraded and charged fees by your card issuer – sometimes up to 5% per transaction.

There’s of course another risk in play when you’re accepting card payments: hotel fraud and chargebacks. Chargebacks differ from a refund in that the customer disputes the transaction directly with their bank, who then reverses it and issues a complete refund. The bank can do so without your permission, and you lose the payment even though the customer keeps the good or service.

Unfortunately, chargebacks aren’t always raised due to fraudulent activity. Sometimes “friendly fraud” occurs. In this case, a card is used in a legitimate transaction, but the customer disputes it with their card issuer afterward for any number of reasons. Maybe they forgot to cancel a subscription they no longer want or don’t want to deal with a return. Sometimes people even innocently forget they made the purchase altogether. Either way, consumers know card issuers will ask fewer questions than merchants, so they go to the issuers instead.

Chargebacks obviously put your revenue at risk, but here’s one not-so-obvious way how: an excessive number of chargebacks can result in a cancelled MID. In fact, it’s the most common reason for cancelled MIDs. If your hotel chargeback ratio is high, a payment processor may temporarily withhold funds. If the higher ratio continues, then they may freeze your MID, revoking your ability to accept any card payments until the freeze is lifted. The last resort is cancelling your merchant account and MID altogether.

Preventing hotel fraud and chargebacks can be easy with the right solution. For example, a solution that:

1. Includes built-in fraud prevention tools that alert risk before a transaction is accepted, like before you use a pre-authorized credit card captured from your hotel cc auth form.
2. Allows you to require advance deposits.
3. Enables identity protections an Address Verification Service (AVS) and 3-D Secure (3DS).
4. Enforces card security codes to process a payment.

Setting up and managing MIDs is equally easy when you have the right processing partner. Sertifi can help you stay informed on requirements, help you reduce and manage risk, and help you avoid hidden payment processing costs like downgrade fees and more.