It’s the monster that strikes fear into every hotel owner or manager. They’ve all faced it, and it keeps them up at night thinking about the next time it will rear its ugly head.
One of those dreaded envelopes announcing a credit card chargeback arrived on Patty’s desk. A previous guest, Roger, told his credit card company that he did not authorize the $250.00 charge on his bill.
Patty’s hotel had a non-smoking policy clearly stated both online and on the registration card that all guests sign when they check in, including Roger.
When housekeeping went in to service the room, not only had Roger smoked, he had smoked marijuana. The smell was undeniable. To make matters worse, he had left in a hurry for work that morning so he left some of his “tools of the trade” out for all to see.
Patty had no choice but to approach him when he arrived back from his work day. Roger replied, “What was she doing in my room?” as if he’d never stayed in a hotel room before and had his room serviced.
Roger was told that there would be an additional charge on his bill and that if he was caught again, he would be asked to leave. Just to have evidence of the conversation, Patty pulled his reg card, circled the no smoking policy and had him initial and date the information for a second time.
Most rational people would have taken that as a sign to stop, but not Roger. Two days later after several other guests complained, he was sent on his way. Needless to say, Roger was rightfully charged the non-smoking violation fee.
When Roger saw the fee, he called his credit card company and disputed the charge.
Credit card chargebacks like these are one of the most persistent and expensive credit card frustrations in the hotel industry. They affect every property, no matter how big, or luxurious, well-run, or efficient the business is.
You can do everything right and still have a customer disagree and call their bank.
How to dispute a credit card chargeback completely depends on how the hotel is set up with their payment processing.
How Expensive are Chargebacks?
In short, very expensive.
Let’s take Patty’s example. Roger was charged the $250 smoking fee. When Roger’s folio payment was processed, the hotel was charged a 3% processing fee (your fee might be higher or lower, these fees vary quite a lot).
When Roger disputed the charge, not only did Patty’s hotel have to return the charge (and the payroll expense of cleaning up the smell), they also lost the 3% fee the hotel already paid, and to add insult to injury, she also had to pay a chargeback fee, which is usually around $25.
Now imagine the guest is disputing a night’s stay. In that case, the hotel is out the cost per night (which you could have sold to another customer), the payment processing fee, the chargeback fee, plus the cost of turning the room around.
Either way you slice it, that’s a lot of sunk revenue.
To make matters worse, if a hotel receives enough credit card chargebacks, it can run the risk of not being allowed to process credit cards anymore.
The sad truth is unless a hotel is set up correctly, no matter what they do, there’s no way of definitively proving the guest is wrong.
The worst case scenario
Situations like Patty’s happen to can happen to any hotelier, and hotels that have not yet upgraded to EMV payment processing and a chip reader have almost no chance of disputing and turning around chargeback.
When Patty appealed the credit card chargeback, she included all of the documentation including the circled and signed reg card, but lost anyway. The bank sided with Roger who ended up not having to pay the smoking fee.
Sadly, Patty’s is not an uncommon story.
Before EMV payment processing, the credit card companies usually sided with the customer over the hotel, even if the hotel knew the customer’s complaint was fraudulent. Bottom line, if the customer says they didn’t use the card, the bank will consider you liable for the chargeback.
That means without EMV and a chip reader, the hotel is exposed.
Disputing a chargeback takes a lot of time and work for the GM, and let’s be honest, general managers have much more important things to do. Anyone who has tried to dispute a chargeback can tell you, your chances of turning it around are low.
Or are they? Read on to see how Vital Guestl can help dispute a chargeback.
The Solution: EMV and Chip Reader
Hotels who do have EMV and use a chip reader experience chargebacks in a completely different way.
Since banks consider the chip on a credit card as more secure, chip transactions are considered proof the customer is there. That means hotels exclusively using a chip reader have a much lower risk of incurring a credit card chargeback.
Not to mention, a guest who uses a chip card at your property will be less likely to request a chargeback. A quick Google search for “how to chargeback” will show recommendations from other credit card customers that chip cards mean the guest stands a lower chance of getting their money back.
Even if the hotel does incur a chargeback, EMV and chip cards make disputing it much more straightforward.
Hopefully it’s clear an EMV card reader is an absolute necessity for any modern hotel, but if you don’t already have one, how do you get setup?
First, let’s talk about the cost, and how you can get around paying outrageous fees.
Most property management systems offering payment processing will charge customers hefty fees to use their gateway. The reason is simple: EMV processing requires direct connection to each credit card company (Visa, MasterCard, Amex, etc), which requires a major investment in programming each connection. That means even once they connect with Visa, they have to invest a lot more money just to connect with the other major credit card companies.
For PMS companies that have invested in EMV integration, they will want to recoup that investment, so of course they will charge you a gateway fee to use it. Usually you will also be charged a setup fee for credit card processing as well.
So is there a way to get EMV and chip card functionality without paying exorbitant fees?
Yes. At Vital Guest, we believe customers shouldn’t be nickel and dimed for every feature, so we automatically offer EMV processing for every customer.
Vital Guest has teamed up with a direct credit card processor that uses no gateways, which eliminates gateway fees, and improves services through the use of a dedicated, US-based hotel specialist serving your hotel property. And if that weren’t good enough, there’s also no setup fee for the credit card processing.
Vital Guest's payment processor will even help dispute the chargeback on your behalf.
While there’s no way to completely eliminate chargebacks in your business, there are things you can do to lower your chances of getting that dreaded envelope plopped on your desk, and fighting back when one does inevitably arrive.
Do you have a good chargeback story? We’d love to hear about it in the comments.