Chargebacks are one of hospitality\u2019s toughest realities. They eat into profit, waste valuable time, and frustrate the teams left to fight them.<\/p>\n
For hotels, the problem isn\u2019t if chargebacks will happen, it\u2019s how damaging they\u2019ll be. Fraud, cancellations, and so-called \u201cfriendly fraud\u201d all chip away at margins.<\/p>\n
The way forward is prevention. With the right processes and payment safeguards, hotels can reduce chargebacks, protect revenue, and keep staff focused on serving guests.<\/p>\n
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A chargeback begins when a traveler or hotel guest files a dispute with their card company or issuing bank.<\/strong> Any number of reasons could trigger the dispute; for example, their card was charged twice, or the card processor identified fraudulent charges made with the card in question.\u00a0<\/p>\n The card issuer uses that information to determine the specific reason code, such as \u201ccard-not-present\u201d or \u201cduplicate processing.\u201d<\/p>\n Regardless of the reason, after the dispute has been filed, the cardholder\u2019s issuing bank and the merchant\u2019s acquiring bank investigate the claim\u2019s validity. Until the chargeback\u00a0claim is resolved, the guest will get a credit from the bank for the charge.<\/p>\n However, suppose the issuing and the acquiring banks can\u2019t resolve the dispute. In that case, the acquiring bank will send a chargeback notification to the merchant, who can accept or fight the decision. If the merchant decides to fight the chargeback, they\u2019ll have to resubmit the charge to the acquiring bank, along with any evidence to support their claim. The customer may also be asked to provide evidence to support their claim. The issuing bank will then review and decide based on the evidence. <\/div>\n\n \n\n\n \u00a0<\/p>\n When the bank or the credit\u00a0card company initiates a chargeback to your property, you won\u2019t receive funds for the guest\u2019s transaction while the dispute is investigated. Even if the issuing bank rules in favor of you, the other party can request that the case be further reviewed, causing the claim to enter pre-arbitration.<\/p>\n While the claim is in the pre-arbitration or arbitration phase, it can take several months to be resolved. Worse still, if you lose the dispute, you\u2019ll also lose the funds and several fees charged by the banks for handling the chargeback process.<\/p>\n It\u2019s important to note that a chargeback is NOT a refund \u2013 a chargeback is initiated by the credit or debit card company in response to a consumer complaint. By contrast, a refund is initiated by you, the merchant, in response to a complaint from the customer.<\/p>\n A chargeback can severely harm your hotel\u2019s reputation and dent your profitability. If you have too many of them, it\u2019s even possible that you\u2019ll lose the ability to accept credit card payments<\/a> completely. Chargebacks tend to favor customers and are therefore costly to the hotel industry, which the chargeback rate reflects.<\/p>\n \u00a0<\/p>\n A \u201cchargeback fee\u201d is a special fee imposed by the bank. This fee is charged to recover incurred costs while they handle the chargeback dispute. The bank calculates the rate by adding the incurred costs, additional fees related to managing the consumer chargebacks, and any customer disputes associated with their account.<\/p>\n According to Verifi<\/a>, the typical chargeback fee is between $20 and $100, depending on the number of chargebacks. However, keep in mind that there are also hidden costs to chargebacks. If a merchant loses a dispute, they can incur a transaction fee, penalty fees, and operational costs.<\/p>\n With costs related to operations and customer acquisition, businesses can often lose 2-3 times the original transaction amount. According to research from Today\u2019s Hotelier<\/a>, for every dollar of losses, chargebacks, fees, and merchandise replacement accounts for $2.40. Essentially, even a $50 chargeback can become $125 with all the extra fees.<\/p>\n In short, chargebacks are costly. But why do they happen?<\/p>\n \u00a0<\/p>\n Before the cardholder can file a chargeback, they must give a reason to their card provider. The card provider then processes this information and determines the specific cause.<\/p>\n James Lemon, Global Lead of Travel, Transport, and Leisure at Stripe, and Chad Brubaker, Senior Director of Product at Cloudbeds, discuss different types of fraud and how a surprising amount isn\u2019t actually malicious (plus how hoteliers can prevent \u201cfriendly fraud\u201d from occurring).<\/p>\n\n What does this mean for you as a hotelier?<\/h3>\n
What is the chargeback fee & how is it calculated?<\/h2>\n
4 common types of hotel chargebacks<\/h2>\n