What is a Hotel Chargeback?

December 20, 2024 Nicky. M
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A hotel chargeback happens when a guest’s bank steps in to reverse a transaction because the guest disagrees with a charge on their card. 

Over $2 million—that’s the staggering amount independent hoteliers lost to fraud and chargebacks in 2024 alone, according to Adyen’s Hospitality Report.

Chargebacks are designed to protect cardholders from fraudulent charges, but they can pose significant challenges for hotel businesses by causing unexpected revenue losses. 

 

Good to know 💡

Chargebacks aren’t just a potential risk—they’re a harsh reality for many hotel businesses. These unexpected profit-stealers not only disrupt cash flow but also come with nonrefundable administrative fees, regardless of the dispute outcome. Win or lose, those fees are a guaranteed hit to your bottom line.

The good news? With the right strategies, you can reduce the likelihood of chargebacks and be better equipped to dispute them effectively when they occur. Let’s explore practical steps to safeguard your revenue and protect your business.

What are the main reasons for hotel chargebacks?

A major reason for chargebacks in hotels is something called “friendly fraud.” This is when guests dispute legitimate charges just to skip out on paying. A survey found that 86% of chargebacks fall into this category. It usually happens because it’s easier for guests to call their bank than to sort things out with the hotel.

Other reasons for chargeback include: 

 

  • Billing mix-ups: Guests might challenge charges they think are wrong, like being charged for services they never got or if room rates don’t match what they were told. 

 

  • Unexpected charges: Extra fees, such as for items from the minibar or parking, that guests didn’t remember agreeing to can cause disputes. 

 

  • Disappointment with the stay: If the experience doesn’t live up to what guests expected in terms of cleanliness, amenities, or service, they can contest the charges. 

 

  • Fraudulent charges: Unauthorized use of a guest’s credit card, whether from identity theft or other scams. 

 

  • High-risk payments: Charging a guest’s card as a Card-Not-Present (CNP) transaction or without 3D Secure (3DS) authorization increases your exposure to chargebacks.

How does a chargeback work?

The chargeback process has three main steps:

Step 1: The dispute is initiated

A cardholder disputes a transaction on their card, citing a specific reason. This reason is communicated to their bank and then converted into one of the bank’s predefined ‘reason codes.’

What are chargeback reason codes?

Chargeback reason codes are alphanumeric identifiers used to explain the cause of a transaction dispute. Each major card network—Visa, Mastercard, American Express, and Discover—has its own set of reason codes. 

These codes are generally grouped into four main categories: 

  • Issues related to fraud
  • Concerns about service
  • Errors during processing 
  • Problems with authorization

 

Adyen payment gateway summarized all these reason codes into eight categories for simplicity: Adyen reason codes 

 

Step 2: The evidence is submitted

The hotel receives a chargeback notification through its payment gateway. This notification includes details about the chargeback, such as:

  • The amount
  • The transaction date and 
  • The reason code assigned by the card network (see above).

 

At this point, the hotelier must accept or dispute the chargeback. If you believe the chargeback is invalid (e.g., the service was delivered as promised, or the claim is fraudulent), you can choose to dispute it.

To dispute the chargeback, you must quickly submit evidence to your payment processor by the specified deadline. This evidence typically includes documents like:

  • Signed receipts or proof of purchase;
  • Proof of identification;
  • Delivery confirmation or tracking details;
  • Hotel policies (e.g., cancellation or no-show policies); and/or
  • Communication with the guest, such as emails or messages.

 

Step 3: Revision and decision

The evidence submitted will be reviewed, and a decision will be made whether to uphold the chargeback or reverse it in the hotelier’s favor.

Who is involved in a chargeback cycle? 

The chargeback process involves more than the cardholder, the bank, and the service provider. All those who play a part in this process include the following:

  • The cardholder
  • The card issuer
  • The card brand (Visa, Mastercard, Amex)
  • The acquirer, payment gateway (RoomRaccoon, Stripe)
  • The merchant, service provider

 

Who is involved in a hotel chargeback cycle?

How long does a chargeback process take? 

The duration of a chargeback cycle can vary significantly, typically ranging from 30 to 120 days.

7 strategies to reduce and prevent chargebacks

Frequent or unresolved chargebacks can negatively impact your hotel’s chargeback ratio, which may lead to penalties or higher transaction fees from payment processors. 

Here are 7 strategies to reduce chargebacks at your hotel:

1. Clear communication of policies

Ensure that guests are fully informed about your cancellation, refund, and no-show policies at the time of booking and in confirmation emails. Clearly stated policies help prevent misunderstandings that could lead to disputes.

2. Implement secure payment processing

Stick with payment processing systems that follow the Payment Card Industry Data Security Standard (PCI DSS) and the General Data Protection Regulation (GDPR). Using secure payment options helps keep the chances of fraud down.

3. Improve customer service

Address guest concerns promptly and courteously. By actively engaging with guests, whether through direct communication or by responding to reviews, you can identify and resolve issues before they escalate into chargebacks.

4. Use chargeback prevention tools

Consider integrating fraud detection tools that monitor transactions for multiple failed payments and block bookings from high-risk countries. Plus, using 3DS to authenticate payments can help ensure that cardholders are fully authenticated when making a payment securely online.

5. Keep detailed records of reservations 

Keep accurate records of all reservation details, including digital receipts, guest agreements, and communication. Having all this information in one place and accessible is important if you need to dispute any chargebacks later.

6. Use a card machine to take in-person payments

Using a card machine to accept payments at your hotel reduces the risk of chargebacks by ensuring payments are authenticated in person with PIN entry or chip-and-pin technology. This creates a secure, verifiable transaction trail that makes it harder for guests to dispute charges later.

7. Allow guests to pay for their reservation in advance

Allowing guests to pay before their arrival date strengthens your position against chargebacks, as it indicates they are proactively initiating the payment process. Enabling pre-payments during booking or online check-in with 3DS verification is an effective way to capture payment before arrival.

How to resolve chargebacks efficiently and accurately 

The sooner you dispute a chargeback, the faster you can initiate the process and recover your funds. 

That’s why it’s super important for hotels to have the right tools and processes in place to handle chargebacks efficiently and accurately. 

RoomRaccoon Payments is an integrated payment gateway designed specifically for hoteliers. It features a Chargeback and Dispute Dashboard to easily monitor, dispute, manage, and track chargeback statuses.

 

RoomRaccoon Chargeback and Dispute Dashboard | Hotel payment software

 

3 easy steps to dispute a chargeback with RoomRaccoon

 

1. Chargeback notification

Keep an eye out for a chargeback alert in your Inbox. Click the notification to access the Chargeback and Disputes dashboard. To defend, choose a reason from the dropdown menu.

2. Document submission

Compile supporting documents, including cancellation policies, guest communications, reservation details, and any relevant information. Combine them into a single file and submit them through the platform.

3. Status tracking

Keep track of your dispute status. Successfully defended chargebacks are marked in green.

Simplify payments—book your demo today!

Payments are an integral part of hotel operations but are often treated as a separate entity, leading to friction, added costs, and frustrated guests.

RoomRaccoon Payments streamlines your processes and provides clear, reliable reporting. Book a demo and try it free for 30 days—no payment details needed. 

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Nicky. M

Nicky is RoomRaccoon's Senior Content Manager, combining a love for travel with a practical approach to improving hotel performance through tech and insightful tips. Join her journey where travel, hospitality, and technology meet.

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