Hotel Payment Processing Guide

When it comes to payment transactions, there are a few parties sitting between you and your guests:

1. The issuing bank, who issues credit and physical cards to your guest.
2. The card network, such as Visa or Amex, who connects the issuers and payment processors.
3. The payment processor/acquirer, who connects merchants (you) to the card networks.
4. The payment gateway, on-property technology, including PIN pads and web-based interfaces, needed to connect your property with a payment processor.

When a card is used, the payment gateway transmits the card information from your point-of-sale (POS) system to the card network and issuing bank involved in the transaction. The POS system is either an on-property pin pad (for card-present transactions) or a web-based interface (for card-not-present online transactions). The processor retrieves funds from the issuing bank account and releases them to your property for a fee, which varies across processors. In exchange for these fees, you receive beneficial services like security and fraud prevention tools.

Oftentimes, a third scenario plays out: hotel staff bypasses a POS system and manually keys-in payment information, e.g., keys-in event deposits and payments into a PMS – but your PMS is designed to accept payment information conveniently and securely from pin pads. Unbeknownst to your staff, their workaround creates expensive, unnecessary costs and leaves you more prone to hotel payment fraud. It’s important to understand the unique use cases, risks, and costs associated with online payments.

Check out our Hidden Costs in Payment Processing Guide for recommendations to reduce your costs.

You may also be interested in our Hotel Fraud & Chargeback Guide to learn more about your risks and ways to proactively defend your property against fraud and chargebacks.

To create a merchant account, merchants are required to provide a variety of verification information, a tax ID number, payment volume estimates, and the deposit bank account information.

In addition, they must provide personal identification to satisfy KYC banking regulations. KYC is a legal requirement for financial institutions and financial services companies to establish a customer’s identity and identify risk factors, helping prevent identity theft, money laundering, and other financial crimes.

Lastly, and seemingly one of the more basic elements requested, merchants will be asked to describe the type of business conducted, from which a Merchant Category Code (MCC) is assigned.

While an MCC seems like a simple label to identify a type of business, it’s far more complex. For example, Visa has roughly 750 unique MCC codes. You might be asking, “Why do we need so many?” There are almost as many answers as there are MCCs, but we’ll hit the highlights.

1. Risk and Pricing: Card issuers manage fraud and chargeback risk through the prices they charge for processing transactions. Recurring phone bill payments are far less likely to be paid with stolen credit cards than a retail transaction, deeming them safer, so they’re priced lower by the card issuer in turn. Hotel and restaurant transactions are near the highest because of the potential for customer disputes not just for fraud but for a poor guest experience.
   
   
2. Processing Method: Cards processed in store using the embedded chip are far safer than transactions processed online or, even worse, key-entered at the point of sale. MCC codes are assigned for businesses who primarily accept chip-enabled transactions, but they get downgraded (charged more) when they key enter a transaction which is outside the normal expectation for the MCC or business type.
   
   
3. Features: Some MCCs need special transaction types. For example, restaurants get special privileges to settle for an amount larger than the original authorization to account for tips. Hotels can incrementally raise the initial authorization amount during a guest stay as guests bill meals or other items to their room.
   
   
4. Rewards: Ever wonder how you earn double rewards for airlines or triple rewards for that hotel brand card? Those big brands that have their own branded card (Visa, MC or Amex) all have their own unique MCC code to track that spend.
   
   
5. Compliance: Some industries even have data compliance standards. For example, hotels must include a check in and check out date, and airlines must provide the departure and destination city when they process.