Mastering chargeback management in hospitality

As the global travel and leisure landscape continues to evolve, hospitality providers need to contain operating costs and boost guest experience to build strong foundations for future performance. One key area of operational resilience is bolstering loss prevention efforts and reducing fraud threats. But where to start? Research shows that first-party fraud* has emerged as the largest fraud threat to merchants globally, surpassing account-takeover fraud and other cybersecurity threats. This means that customers themselves, not third-party bad actors, are acting fraudulently in legitimate transactions with merchants in many industries.

The most common way that customers commit fraud is by illegitimately disputing a transaction – that is, claiming that they did not receive a service or experienced an error, when that is not the case. Chargebacks are a growing concern in the hospitality industry, costing businesses an average of $25–$30 per case*. These costs add up because if credit card issuer considers the dispute valid, the merchant is required to refund the amount of the transaction plus a chargeback fee to the payment processor.

We are here to provide a roadmap to help hoteliers and franchise owners understand, prevent and effectively respond to chargebacks. Taking the right steps can help protect revenue and enhance guest satisfaction.

The hidden costs of chargebacks

Chargebacks are more than lost revenue. They involve administrative costs, reputational damage, and operational disruption. Understanding these impacts is the first step toward proactive management.

Direct financial losses can come from:

• Transaction reversals: loss of revenue from the original transaction.
• Chargeback fees: Processors often charge a fee for each dispute, regardless         of the outcome.
• Operational costs: Time and labor spent gathering documentation,         responding to disputes, and managing follow-ups.

Hidden operational costs can come from:

• Staff time: Employees must divert attention from guest services to handle         disputes.
• Training gaps: Inadequate training can lead to errors that increase         chargeback risk.
• Technology gaps: Outdated or non-EMV-compliant terminals can increase         fraud exposure.

When it comes to reputational damage, there is no number that can be assigned to the value of guest confidence and the franchisor relationship. High dispute ratios* can affect both areas, potentially leading to damaged brand image and operational concerns.

Prevention is the best defense

Travel and hospitality merchants must work hard to prevent chargebacks before they happen, as the dispute resolution process can be lengthy, expensive and difficult to finalize. It is important to establish clear communication with customers about transaction information and their responsibility to pay – especially clear policies for how to handle rescheduled or cancelled reservations. Research from Mastercard* indicates that consumers are becoming increasingly aware of how credit card dispute processes work and may opt to work directly with their bank to get a refund, rather than with the hotel they booked with.

To enhance customer communications and proactively maintain documentation, hotels should:

• Clearly communicate booking terms, cancellation policies and refund processes. Require guests to click-to-accept terms and conditions on online booking platforms.
• Verify online bookings with personal identification and payment card at         check-in.
• Accept in-person payments only with the physical card present and use         EMV-enabled payment terminals.
• Maintain detailed transaction records for every customer – including         receipts, invoices and guest communications.
• Ensure receipts and folios are clear and legible.
• Address guest complaints promptly and professionally.
• Use the correct DBA name for cardholder recognition on billing statements.
• Train staff to identify red flags and handle disputes.
• Monitor chargeback trends to prevent future fraudulent disputes.

Adhering to these practices not only can help to reduce chargebacks but can also improve the overall guest experience.

Responding to chargebacks effectively

In the event that a customer does file a chargeback, it is important for hotel staff to act promptly and thoroughly; it is possible to resolve a dispute without losing the sale. Consider these best practices:

• Review and understand the reason code* to ensure your response is         appropriately tailored to the customer situation.
• Gather all documentation related to the customer transaction as evidence of         fulfilled services. This includes receipts, confirmations, and communication         logs.
• Organize evidence clearly and highlight key points to both the issuer and the         customer. When possible, communicate directly with the customer in effort         to reduce escalations.
• Follow issuer guidelines and meet submission deadlines to avoid automatic         losses.
• Provide all relevant documentation during the first chargeback cycle, as it         may not be reviewed during the pre-arbitration phase.
• Don’t store records by cardholder name, as payment processors do not         always receive the cardholders’ names with a dispute.
• If a customer disputes a transaction and you accept being debited for the         amount, do not also issue credit to the cardholder. The customer will be         credited via the dispute process.

Track and analyze dispute activity to identify areas for improvement

It is critical for hotel owners and franchises to invest in robust fraud detection tools and partner with a comprehensive payments provider; this will help flag high-risk transactions and potential dispute fraud quickly and effectively. The average chargeback ratio* in the travel and hospitality industry is 0.89% - 2.0% -- merchants who regularly experience higher rates of chargebacks should dive into their dispute data to uncover root causes and areas of improvement. For example, hotels should track online and in-person transactions separately to make it easier to identify risk factors like card-not-present fraud.

Chargebacks are inevitable in any industry – but with the right strategy, hospitality providers can manage and minimize these risks with ease. These tactics can help protect the bottom line while enhancing guest communications and experiences.