They’re eroding hotel bottom lines everywhere: customer chargebacks, which typically occur when a past customer disputes all or part of a charge on their credit card bill. It hardly seems menacing at first—you may not even know the exact frequency that it’s happening at your own hotel—but the truth is, chargebacks are still very much a worrisome issue in the industry. And the problem is only getting worse.
Meticulous auditing and the establishment of paper trails is essential to combating these threats, but it’s a constant headache for hotel accounting staff and a major drain on already limited resources. A streamlined, technology-driven solution that removes the human labor component offers a far more sustainable outlook.
But first, a deeper dive into the current problem facing hoteliers.
Why are chargebacks such a big deal for hotels?
A chargeback occurs when a hotel guest files a dispute with their card company or issuing bank. The dispute could be triggered by numerous reasons; for example, their card may have been charged twice, or the guest and/or card processor identified fraudulent charges made with the card in question. Regardless of the trigger, after the dispute has been filed, the cardholder’s issuing bank and the merchant’s bank will investigate the claim. Until the chargeback is resolved, the guest will be credited by the bank for the charge.
When a chargeback is filed and the issuing and the receiving banks can’t resolve the dispute, the receiving/acquiring bank will notify the merchant (hotel) of a chargeback, and the property can then accept or dispute the decision. If the hotel fights the chargeback, it must resubmit the charge to the acquiring bank, along with evidence to support the claim. The guest may also be asked to provide evidence. The issuing bank will then review the dispute and make a decision.
Finger-pointing aside, it’s an issue hotels would rather not deal with, for a number of reasons. When a customer files a dispute, regardless of the merit of that chargeback, there are several ways that the hotel is adversely impacted:
- It affects a hotel’s bottom line. Chargebacks can often hurt most in the form of revenue that is taken away from the hotel, from guests who have actually stayed at the property, but then disputed the charge later. So there are costs—the cost of cleaning the room, charges billed to the room, lost sales and the possible distribution cost of the booking itself—but now with a chargeback, the hotel doesn’t have the revenue to match those costs.
- It’s not so simple for hotels to handle. Disputing chargebacks is a very detailed, particular and time intensive process. It’s mainly a hotel’s finance/accounting department who will look into chargebacks, taking them away from other tasks. These departments also need as much information as possible for their hotels, thus putting an audit trail at their fingertips becomes essential.
- Hotels often don’t know what information to collect to submit. Combing manually through audits, receipts and paper trails in order to dispute a chargeback can be confusing and convoluted. Multiple attempts may have to be made in order to satisfy the processor’s documentation requirements.
- Hotels might not be aware of chargebacks. Being informed about chargebacks isn’t simple or readily transparent. Hotels don’t get a notification; it’s not that easy to even know when a charge is being disputed. By the time it gets to the merchant, it’s already become an issue. You want to be able to tackle these chargebacks before they even get submitted to the vendor.
Steps Toward a Solution
So, what are the smart hotels doing to prevent and handle chargebacks today? For many, addressing the reporting and evidentiary requirements of chargebacks is the part of the process where hotels have the ability to gain better leverage and control. Clearly, relying on technology is the key to making this undertaking possible. Instead of bogging down your accounting staff in a quagmire of receipts, an automated process can quickly and accurately handle these events instead.
The potential answer comes from a technology sector that may surprise you: Some digital check-in/keyless entry providers are already building chargeback dispute functionality into their systems. Why? Because these systems may know even more about your guests’ specific activities at your property than you do.
Mobile contactless hotel check-in and keyless entry systems can double as your property’s fraud and chargeback defender. The core benefits include:
- These systems may not be able to ascertain every bit of information about what the guest did during their stay, but most critically, they can prove the guest was in fact there at the hotel and stayed in the guestroom. This is especially useful when a customer in a chargeback dispute claims they did not ever physically visit the property.
- Contactless hotel check-in and keyless entry systems can also provide a complete audit trail in the event of a chargeback, while automatically submitting the audit info to the vendor that handles the chargeback.
- Vendors and clients get notifications through the automated system, and the situation can therefore be managed swiftly and proactively, rather than the process being delayed while waiting for various parties to respond.
- Updates and paper trails are also available to the hotel via reporting, for ongoing reference.
The anti-chargeback automation strategy gives back to the hotel bottom line both in successful chargeback disputes and enhanced labor productivity, by taking the chargeback burden off the shoulders of accounting and finance departments. When considering the return-on-investment of this method, in many cases, just saving four to five nights’ worth of chargebacks per month through automation pays back multiple times on the cost of a quality contactless hotel check-in and keyless entry service.
Armed with the right technology, your hotel can silence this silent killer once and for all.
Nadav Cornberg is the co-founder of Virdee.