How to Reduce Chargebacks at Your Hotel
Take a layered approach when protecting your hotel against chargebacks.
If you live in a cold place, one of the ways to protect yourself from the frigid temperatures is to layer up with proper clothing. While you can’t completely block out the shivering sensation when you do go outside, you can significantly reduce it.
A similar approach can be taken when dealing with chargebacks at your hotel. Chargebacks are a continual challenge that hotels face due to disjointed technology and processes. It’s a burden on hotels because it impacts the bottom line, affects the brand reputation, and takes away valuable work time from teams. The cost for each dollar of fraud loss is $2.94 – this can add up very quickly if steps aren’t taken to close the holes.
Chargebacks aren’t fully preventable, but you can reduce them so that you and your hotel teams spend less time dealing with them and more time focusing on other responsibilities.
Let’s start with the basic question – what’s a chargeback?
A chargeback is when a customer disputes a credit card transaction with their bank instead of the merchant and requests a reversal of the transaction. The customer gets to keep both the good or service and the money from the transaction. Chargebacks can be associated with any of the following: fraudulent activities known as chargeback fraud or friendly fraud, merchant mistakes, and customer disputes.
How is this different from a refund?
A refund is when a customer goes directly to the merchant that they purchased the good or service from and requests a reversal of the transaction. The individual gets their money back but is required to return the good or service that was purchased.
It’s worth distinguishing the two because sometimes these words can be used interchangeably. However, the outcomes for the customer are different which makes this an easy way for fraudsters to take advantage.
Why are chargebacks difficult for hotels to win?
No matter what industry you’re in, it’s difficult for businesses to win a chargeback case. It’s not you though. It has to do with two laws The Truth in Lending Act and the Fair Credit Billing Act. The laws were designed to protect customers from fraudulent activities that occur with stolen credit cards and making unauthorized purchases. What was originally intended to defend customers is now a threat to hotels. Fraudsters see this as a loophole.
Another reason chargebacks can be difficult to win is due to how each credit card company handles chargebacks differently.
Additionally, there’s a lack of understanding on the customer side as to when chargebacks should be filed. Chargebacks should only be filed in extreme circumstances, but this can be subjective in the eyes of the customer.
The reality is that both hotels and guests need to be held accountable in the chargeback process. Hotels need to ensure that they’re delivering a consistent guest experience across the board and implementing technology and procedures that reduce the possibility of chargebacks and fraudulent activities. Guests should only file a chargeback as a last resort.
Can a hotel prevent chargebacks?
The simple answer is no. However, don’t feel discouraged. Keep in mind that even though it’s impossible to eliminate chargebacks when the laws benefit the customers, that doesn’t mean you can’t take steps to reduce potential chargebacks from happening at your hotel.
Consider how frequently data breaches happen. Technology can’t fully prevent a data breach from occurring. You have to tackle it in multiple ways to reduce the gaps. The same applies for chargebacks. Take proactive steps to develop a written plan, invest in technology, and train your guest-facing teams. Taking all these steps will reduce your chances of a potential chargeback.
Like with any technology investment, do your research and ask questions. If a company can’t prove what they claim, then it’s probably inaccurate. There are companies out there that can help to reduce them, but the onus is still on the team to be aware of red flags.
It’s easy to forget that we rely on technology so much that we think it can do it all. There’s no replacement for people. You and your entire hotel team play a role in protecting your property from fraudulent activity. Realistically, it takes a combination of both technology and people to help reduce a threat.
What are some ways to reduce the likelihood of chargebacks?
There are different ways you can reduce transactions from resulting in chargebacks. These are just a handful of ways to be proactive in fighting them. Every property is unique though, so you have to work with your teams to determine what are best practices that make sense for your hotel. It’s also good to continually review them to ensure they’re up to date.
1. Explain the difference between chargebacks and refunds in your hotel’s cancelation and reservation policies. Remember, sometimes people don’t realize that chargebacks should only be filed in extreme circumstances. Maintaining clear and transparent policies is another way to protect your property.
2. Consider hiring a dedicated chargeback manager or team. When your hotel is ready to hire again, consider making a business case for this. One way to start building a case for this is to highlight how many chargebacks your property has seen. Keep a record of this because there’s value in data. Also, you can compile a list of positions in other industries to demonstrate that there’s a benefit in having a person or team focused on this area.
3. Make sure to follow all protocols that you’ve set for card acceptance and verification. Whether it’s requiring an I.D. when they fill out the authorization form online or providing the credit card at check-in, follow the same process with each guest. You can also include these protocols in your hotel’s policies so that guests are aware this is a normal procedure.
4. Deliver an exceptional guest experience across the property. This one might seem obvious, but it’s important to create a consistent experience in each area of the hotel so that guests leave on a high note. If what you claim on your hotel’s website doesn’t correspond to the on-site experience, then your guests will pick up on that and it could result in a chargeback.
5. Invest in technology that has features or functionality for fraud detection. Be cautious of companies that claim to eliminate chargebacks. Technology alone can’t prevent chargebacks.
6. Train your guest-facing teams on chargebacks and how to reduce them. Education is empowering and when your team is given this knowledge, then they can look for red flags as well.
7. Request advance deposits from guests. Treat this as an additional layer of defense because it guarantees you’ll receive a specific amount of money upfront.
8. Make sure your invoices are clear and free from any confusing language. There should be no confusion when a guest leaves your property. They should know exactly who the invoice is from and what they owe when they leave.
9. Maintain a record of your guests, both regular and new. A paper trail is important if you find yourself having to file a chargeback claim.
10. Pay attention to your guests’ behavior. Another way to identify where chargebacks could stem from is by observing behaviors and patterns. You can incorporate this type of information into your hotel protocol to create a better guest experience while protecting your property from fraudulent activity.
Bottomline, here’s what to keep in mind.
Chargebacks aren’t going anywhere, and they can’t be eliminated. However, you have the power to fight back against chargebacks and fraudulent activity. You can do this by having policies, training, and technology in place. There isn’t one product, feature, or method that prevents chargebacks and fraudulent activity. Just like you can’t avoid the cold temperatures when you’re outside, you can’t prevent chargebacks either. If you can focus on reducing your exposure to them, then you can keep the fraudsters away.
Interested in learning how to build a fraud prevention strategy at your hotel? Watch this on-demand webinar to get some tips on how to stop transactions that may lead to chargebacks.
About the Author
Chandra is the former Communications Manager at Sertifi where she contributed to the blog and oversaw content and branding.