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Hotel Chargebacks & Fraud Prevention Guide


With a better understanding of chargebacks and how to prevent them, you can protect your property from risky behavior and save hundreds to thousands a year.

Hotel Chargebacks 101

Chargebacks can happen when a customer disputes a transaction. It differs 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.

Three types of chargebacks exist:

  1. Criminal fraud chargebacks are when a person knowingly makes a purchase and intentionally files a chargeback with the goal of keeping the purchase and receiving a refund.

  2. Friendly fraud chargebacks are when a person unknowingly commits fraud by asking for a chargeback after a transaction has taken place. It’s generally associated with those that don’t realize they purchased something or didn’t understand what they were agreeing to pay for.

  3. Card Not Present chargebacks are when a guest was supposed to receive a refund but hasn't. Either the refund request was forgotten or doesn't meet the business' refund policy.

  4. Merchant error chargebacks are when a merchant makes an error, such as shipping the wrong or a defective product.

In a 2022 Chargebacks 911 report, the expected cost of a single chargeback in 2023 is $190. This doesn't take into account the time staff loses trying to remedy fraudulent activity and chargebacks.

Responding to Chargebacks

Dispute representment allows merchants to dispute a chargeback. To file your case, you must collect and provide evidence that proves the transaction was approved and completed properly.

There are two laws that protect customers from questionable business practices, making it difficult to win cases. However, there are ways to improve your chances:

  1. Maintain a thorough record of all your guests. This might
    seem tedious, but having evidence is a critical part of building a
    solid case.

  2. Understanding the chargeback reason code associated with a
    potentially fraudulent transaction. This can help you when you file a case.

A chargeback reason code is a number that helps inform a hotel
why a chargeback was filed, making it easier to address issues. Chargeback reason codes vary by the credit card company.

Ways to Reduce Criminal Fraud Chargebacks

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? Having these discussions is a good step to figuring out a plan for your property.

Advance deposits are a simple way to guarantee some payment
upfront in case a chargeback does occur. If this is something you can incorporate into your policies, be sure the update is reflected in external reference documents or websites. Guests should be aware that your hotel will require some form of payment before they arrive at the hotel.

Same-day reservations make it easy for fraudsters to take advantage of your property. It's not always possible to restrict same-day reservations, but it might be worth considering if you're seeing a high number of chargebacks related to them.

This might seem tedious, but a paper trail is extremely important
should you find yourself having to dispute a chargeback. You can use
the internal notes in your PMS to keep a paper trail. Note down any
unusual patterns, complaints, and/or requests.

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.

Your staff is a line of defense in protecting your hotel. Include fraud education and prevention as part of your guest-facing staff training program. If they’re trained and empowered to handle each guest concern
and complaint, then it will become second-nature for them.

Regardless of whether you get repeat guests or new ones, it’s
important to follow the same process with each person. The reality
is that anyone can file a chargeback, both intentionally and
unintentionally. There’s no need to look at each guest with suspicion.
However, following the same procedures with all guests helps to
enforce a standard procedure and creates consistency.

An important aspect of your fraud strategy should be a technology
investment. While this can be pricey, think of it as a long-term
investment that protects both your bottom line and reputation. Digital solutions can help you detect risk and avoid costly chargebacks before they strike. 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.

Ways to Reduce Friendly Fraud Chargebacks

One of the easiest ways for friendly fraud to happen is through a
confusing and vague hotel policy. Routinely review your existing policies, update accordingly, and make sure it's updated anywhere your guests have access to existing policies.

Here are five places to emphasize your hotel’s policies:

  • Your hotel’s website
  • Third-party booking sites
  • Your hotel’s social media channels
  • Confirmation emails
  • Hotel portal for guests

There’s no reason to use confusing billing descriptors on your hotel cc auth form and invoices. Ensure your hotel name, logo, and billing name are clear throughout a guest's entire payment experience.

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.

Take advantage of the internal notes section that’s in your PMS. You can keep a paper trail of all your guests, both returning and new, such as entering requests, questions, or complaints. Maintaining these notes is critical, especially if fraudulent activity occurs at your hotel. These notes can be used as evidence when building a chargeback representment case.

Your guest-facing teams are a critical part of your hotel’s guest experience. Because they interact so often with guests, they need to be equipped with the knowledge and power to handle guest interactions. Give them the power to make the call on how to handle guests so complaints can be addressed as quickly as possible.