Chargebacks are Draining Hotel Revenues - Here’s How to Stop Them

Chargebacks are a widespread problem in the travel industry. 

Hotel chargebacks, a frequent yet often underestimated issue, can significantly impact a hotel's financial health. A chargeback occurs when a guest disputes a charge with their credit card company, leading to a payment reversal.  

They are particularly prevalent in hotels, where the nature of transactions and third-party booking platform involvement complicate the verification process.

Tim Doxzon, TTI Technologies' Vice President of Sales, discusses the pervasive problem of hotel chargebacks and offers insights into mitigating these costly disruptions.

How to Prevent Hotel Chargebacks

Understanding Hotel Chargebacks

A chargeback typically arises when a hotel guest disputes the credit card charge, claiming they did not authorize the payment or stay at the hotel. This can happen for various reasons, including genuine misunderstandings, fraudulent activities, or issues with the booking process.

"A lot of hotels call us saying they're getting too many chargebacks," explains Doxzon

n. "It's simply a guest who stayed at the hotel and then told the credit card company they didn't stay there or fought the charge for some reason."

The problem worsens when hotels deal with online travel agencies (OTAs), where the credit card information is often on file, but the physical card is not presented at check-in. This lack of a physical card swipe makes it easier for guests to dispute charges, increasing chargebacks.

Chargebacks Financial Impacts

Chargebacks can cost hotels thousands of dollars in lost revenue and the administrative burden of managing disputes. According to Doxson, the financial impact can be staggering.

"I've had accounts tell me they got taken for $17,000 in one week," he says. "The cost of scanning an ID is insignificant compared to the hassle of trying to clear a chargeback."

Disputing a chargeback is time-consuming and often frustrating for hotel staff. The accounting department must gather evidence to prove that the guest did stay at the hotel, which can involve sifting through records, communicating with the credit card company, and dealing with repeated rejections.

"It's a daunting task for the accounting department to constantly have to fight chargebacks with MasterCard, Visa, and American Express," Doxzon says. "Being told 'no' because they don't have proof that the guest stayed there is a common scenario."

Common Reasons for Chargebacks

One of the primary reasons for chargebacks is the need for proper verification at check-in. Historically, hotels would photocopy IDs, but this practice could be safer and more efficient.

"In the old days, they would have made a photocopy of an ID,” Doxzon explains. “Well, photocopying an ID is dangerous and not secure. Having a copy of the ID allows them to go to the credit card company and say, 'This person stayed here. We have his driver's license, a picture of the ID, and his credit card information.'"

Despite improvements in credit card technology, such as the introduction of chip cards, the chargeback issue persists.

"There was a thought that with the new chip cards, that would improve things," Doxzon notes. "It has improved a little bit, but because many groups have their credit cards on file with the OTA and hotels do business that way, they haven't resolved this issue."

Solutions to Reduce Chargebacks

To combat chargebacks effectively, hotels need to adopt better check-in verification methods. 

One solution is the ID scanning technology TTI Technologies offers, which integrates with most property management systems (PMS) to scan, capture, and store ID information securely.  

"It scans the ID either into the PMS or, if the PMS doesn't allow it, into a hard drive or share drive," Doxzon says. "The picture is small, but it allows them to pull it up, print that picture, and send it with the chargeback information right back to the credit card company."

Hotels can provide compelling evidence in chargeback disputes by having the guest's credit card information and a scanned copy of their ID, significantly increasing their chances of winning these cases.

The Future of Chargebacks in the Hotel Industry

While technological advancements have helped reduce the chargeback occurrence, the problem still needs to be fully resolved. Hotels must continue to adapt and implement robust verification processes to protect their revenue and streamline operations.

As Doxzon points out, "A lot of hotels don't know that scanning exists, and for many years, they just wouldn't photocopy IDs, not realizing that photocopying an ID and keeping it in a folder in chronological order is difficult and unsafe."

Education and awareness are key to addressing the issue of chargebacks.

Hotels need to stay informed about the latest tools and practices available to safeguard against fraudulent disputes. By investing in secure ID scanning technology and training staff on its importance, hotels can reduce the financial impact of chargebacks and focus on providing exceptional guest experiences.

Hotel chargebacks are a significant challenge that requires a proactive approach to manage effectively. With the right technology and procedures, hotels can reduce chargeback frequency and financial impact, safeguarding their revenue and reputation.

By adopting secure ID scanning solutions and staying informed about best practices, hotels can turn the tide against chargebacks and ensure smoother operations.

Contact us to learn more about our products and put an end to hotel chargebacks for good.

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