2021 Hotel, Flight & Reservation Chargebacks Guide
Table of Contents
- What Kind of Chargeback Fraud is Prevalent in Travel?
- What Can Be Done About Travel Chargebacks?
- What About True Fraud and Travel Chargebacks?
- Frequently Asked Questions
In the travel and hospitality field, you get used to selling a lot of relatively ephemeral products—tickets, bookings, reservations. They’re intangible, they hold no inherent value, and they expire. You’re also part of an industry that does a lot to encourage an “all-inclusive” mindset among consumers. We’re long past the days of free meals and champagne on five-hour domestic flights, but travelers have never quite shaken the idea that flying on an airplane or renting lodgings entitles you to some free goodies.
How common are chargebacks in travel and hospitality? More than you think. With all the factors discussed, airlines and hotels face serious costs from chargebacks. That doesn't mean that they have to take it, however. Chargebacks don't need to be just another cost of doing business.
What this all means, of course, is that travel companies get hit with a lot of chargebacks. In fact, a recent study indicated that the travel industry has twice the chargeback rate of the average business, and more than double the average dollar amount per chargeback. If you’re in the business of facilitating travel, you’d better have a very robust strategy for dealing with chargebacks.
While many of the standard best practices for preventing and fighting chargebacks are as applicable to the travel business as they would be for any other company, the unique characteristics and expectations of the travel and hospitality industries create some scenarios where a more industry-specific outlook may be called for.
What Kind of Chargeback Fraud is Prevalent in Travel?
The biggest problem is with friendly fraud: chargebacks that started out as legitimate purchases, but were disputed for false or improper reasons by the cardholder after the fact. There are nearly endless potential reasons for a customer to initiate a friendly fraud chargeback. Some of them do so knowing that they’re breaking the rules and disputing a valid charge, but others commit friendly fraud out of ignorance or confusion. Either way, travel companies must protect themselves by challenging friendly fraud chargebacks no matter why they happen.
Non-refundable tickets and reservations are a major source of friendly fraud chargebacks, and no-shows are among the most frequent perpetrators. What often happens is that a person purchases a non-refundable ticket and fails to show up at the appointed time—they’re a no-show. Under the terms of their agreement, they’re liable for the charge even if they’re unable to make use of the ticket. But they dispute it anyway.
Even when the reason they’re a no-show has nothing to do with the company that sold them the ticket, these consumers often feel “punished” by the non-refundable charge for the non-usable ticket, and they retaliate by demanding a chargeback.
The mini-bar in the hotel room (and the phone on the nightstand, and the pay-per-view movies on the television) is another big chargeback generator. When the customer sees that they were charged thirty dollars for a diet soda and a candy bar, they decide that the price is unreasonable and dispute the add-on charge. The reason the hotel should be willing to negotiate the add-on charges, on the grounds that the prices were inadequately displayed, their child raided the fridge without permission, etcetera—and when the hotel refuses, they go straight to their credit card issuer to ask for a chargeback. Sometimes this ends up with the entire room charge in dispute.
The worst part? Some travel blogs and “life hacking” websites actively encourage travelers to dispute these charges, and give them tips on how to phrase their claim and present the best case for themselves when they call their banks.
What Can Be Done About Travel Chargebacks?
One universal piece of advice for avoiding friendly fraud chargebacks is to make sure that the terms and conditions of purchase are posted in a visible place on your website and on any documentation you provide to your customers. This goes double for travel businesses that sell non-refundable bookings or other ephemeral products. Your cancellation, rebooking, and refund policies should be crystal clear.
To some extent, you can delay disputes and protect yourself from chargebacks by placing authorization holds when a customer pays for a product or service they won’t be able to utilize right way. There’s no actual charge to dispute while the authorization hold is in effect.
It’s also a good idea to call customers back after they make a purchase and ask the cardholder to confirm the details of their transaction. This can help weed out true fraud.
Finally, don’t be afraid to blacklist customers who burn you with friendly fraud. If they get away with it once, it’s highly likely that they’ll try to do it again. The car rental industry is notorious for their unforgiving attitude about this. Dispute a charge because they dinged you for not returning a vehicle with the gas refilled and you’ll never be able to rent from that company again!
How to Fight Travel Chargebacks?
When you are faced with a friendly fraud chargeback, you can usually fight them and win if you have the right evidence documented. Maintaining detailed and accurate records is an extremely important aspect of chargeback defense.
A chargeback can be challenged during the chargeback process. When a cardholder disputes a charge, their issuing bank must find evidence of fraud or merchant error. If they do, or believe they do, then they give them a provisional credit and then debit the amount from the merchant's bank through the credit card network.
The merchant (in this case, the hotel or airline) can fight the chargeback by disputing the dispute. This process, called representment, involves resubmitting the transaction with a dispute package proving that the transaction was legitimate.
That's all well and good. It's important that these companies fight chargebacks with a combination of prevention and recovery:
- Provide excellent customer service, including transparent refunds and clear labels for all transactions so the customer knows what they are.
- Fraud prevention, including AVS and advanced authentication tech, to stop true fraud before it turns into chargebacks.
- Chargeback recovery, typically with a chargeback representation firm, through the representment process.
What About True Fraud and Travel Chargebacks?
It’s important to note that true fraud afflicts the travel industry, too—travel businesses fall heavily on the side of card-not-present transactions, which makes them a magnet for fraudsters, hackers, and phishers who probe for vulnerabilities that will allow them to get their hands on cardholder data. Travel companies may also present an attractive target for thieves looking for a place to test or utilize stolen payment credentials.
For true fraud, your best defense is to adhere to rigorous payment industry security standards.
Require AVS/CVV matching, use fraud prevention tools like 3-D Secure, and make sure your website and all third party services you use are up-to-date and patched against known threats.
Travel can be stressful and emotional for people. A big, long-planned trip is a high stakes event, and when budgets get stretched by unexpected charges or unforeseen events cause people to miss flights and reservations, there’s a natural tendency to get angry and seek some form of redress wherever you can find it.
Can cardholders dispute airline purchases?
How can I avoid chargebacks as an airline?
Can customers dispute non-refundable hotel rooms?