Taking Charge of Chargebacks: A Hotelier’s Guide to Combating Fraud | Back to Main Page
PART TWO
The Not-So-Friendly Nature of Friendly Fraud
Hotels are primarily affected by two types of fraud:
- Criminal Fraud: A third party uses a stolen card for unauthorized purchases.
- Friendly Fraud: A legitimate customer disputes a valid transaction.
Friendly fraud is sometimes accidental, but it can also be a deliberate attempt to avoid payment, in which case it becomes chargeback fraud.
Friendly fraud is responsible for up to 70% of all credit card fraud, costing businesses over $132 billion annually worldwide.
Below are some common examples of why disputes occur.
Why Friendly Fraud Is Increasing
The increase in e-commerce activity, higher prices due to inflation, and heightened consumer awareness have all contributed to the rise in friendly fraud. Today, disputing charges has never been easier for consumers, and the system often works in their favor.
As a result, millions of credit card charges are disputed annually, with cardholders winning the majority of cases. On average, merchants win less than 20% of chargeback disputes worldwide, with that figure dropping to 10% in Europe.
Hoteliers are far from powerless against friendly and chargeback fraud. The low win rate for merchants is often due to complacency and lack of proactive measures. With the right combination of training, technology, and procedures, most fraud can be prevented.
GROUP SALES & EVENTS
Playing Offense: Best Practices for Handling Payments
In sales and catering, disputes concerning group and event bookings can sharply cut into revenue and jeopardize client relationships. Here are strategies to reduce chargeback risks.
Bottom Line: Eliminate Manual Transactions
Most importantly, stop collecting payment information over email, phone, or fax. Manually keying in transactions is risky, time-consuming, and prone to errors. Key-entered transactions are also harder to defend in disputes.
Using a secure payment processing system that verifies cardholder details and proves transaction legitimacy makes it much easier to defend your business against fraud and chargebacks.
Manually entering card details into a PMS is also considered risky behavior by card issuers, so key-entering cards will even lead to an increased risk of card declines and interchange downgrades (processing penalty fees). These downgrades are often hidden in statements, so merchants may not even realize how excessive their processing fees are.
Get a peek at Sertifi's electronic signature and payment experience. If you're processing payments with SertifiPay, our team of experts will also help dispute chargebacks on your behalf.
Unlocking Benefits with Digitalization
Get a Customer Signature
Ensure your cancellation, no-show, refund, and fee policies are stated clearly at time of booking, in confirmation emails, and at check-in. Avoid ambiguous language to prevent misunderstandings and require a cardholder signature via contract or policy documents, proving they understand and approve of the terms and amounts.
Require CVV with Online Payments
Fraudsters may obtain card numbers but often lack the correct CVV. Since businesses cannot legally store CVV data, it's unlikely for fraudsters to acquire it through data breaches. Set a rule or manually review or decline payments that fail the CVC verification check.
Implement 3-D Secure (3DS)
3DS ensures a seamless payment experience by only requiring additional verification for high-risk transactions, showing your commitment to protecting customers from fraudulent transactions. If a chargeback occurs on a transaction completed through a 3DS-enabled system, fraud liability automatically shifts from the merchant to the cardholder and issuing bank.
Encourage Prepayment
Collect payments as early as possible, even if it’s just a deposit. This helps ensure that in the event of a chargeback, the full amount won’t be refunded.
Encourage ACH Payment
Automated Clearing House (ACH) payments are more secure and less prone to chargebacks compared to credit cards or wire transfers.
Document Everything
Keep meticulous records of guest communications, transaction details, credit card authorizations, and e-signatures. This documentation will be crucial if you face a chargeback dispute.
Be Proactive with Guests
Regularly check in with guests during their stay, resolving any issues before they escalate into disputes. This will help improve the guest experience while reducing the likelihood of chargebacks.
Provide Clear Billing Information
Ensure your hotel’s name and contact information appear clearly on guest folios, along with a detailed list of charges. Include your hotel name on credit card billing descriptors to avoid confusion.
Enroll for Early Fraud Warnings
Early fraud warnings (EFWs) are notices sourced from Visa TC40 reports and Mastercard SAFE (System to Avoid Fraud Effectively) reports that card issuers on these two networks generate to flag payments they suspect might be fraudulent. Contact your customer to determine if they have initiated an inquiry or dispute that can be resolved before it becomes a real dispute.
