money with rope tied in a knot reflecting possible damage of chargebacks to hotel profitability

For hotel managers, dealing with unhappy guests is part of the job: you do your best to smooth ruffled feathers, address the underlying problems and make sure that you manage similar situations better in the future.

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In some cases, however, disgruntled guests take matters into their own hands and ask their credit card company to reverse the payment to your establishment.

Such reversals, known as chargebacks, are becoming a big problem for hospitality brands, and not just because of the lost revenues they represent. Increasingly, chargebacks, which can also stem from honest mistakes or from fraudulent and criminal behavior, are causing serious damage to hoteliers’ key business metrics, eating into their long-term profits, and hindering their ability to win new business and retain existing customers.
To solve this problem, hotel managers need to look at the looming chargeback crisis with fresh eyes and think creatively about how to manage the risks they represent for their business.

Why Chargebacks Matter

There are many different kinds of chargebacks, from reversals that occur after a stolen credit card is used to make big-ticket bookings to those that happen when customers are simply dissatisfied with the experience they had, to the ones that are due to technical errors in payment processing. 

It’s possible to prevent some of these chargebacks by getting ahead of the problem and using proactive countermeasures. If you’re being targeted by fraudsters, automated anti-fraud systems along with better training for front-desk teams can make a big difference. If you’re struggling to provide experiences that delight your guests, that’s something you’ll need to address directly as well.

The reality, though, is that no matter how much work you put in perfecting your anti-fraud systems or training your team to deliver amazing experiences, there’s a limit to how effectively you can prevent chargebacks. With “friendly fraud” by customers on the increase, chargebacks are increasingly part of the business landscape for today’s hotels and other travel businesses. 

That’s a problem not just because transaction reversals eat into profits, but also because of the significant burden that chargebacks place on both employees and customers. 

To contest chargebacks, businesses must swiftly gather detailed information about the incident in question, compile documentation and submit it in the correct format for adjudication. That places a huge strain on hotels that are often struggling with labor shortages already, because it forces establishments to divert some of their best-trained and most-trusted employees away from critical guest-facing roles.

Over time, then, chargebacks lead to frustration among employees, worsening labor shortages and a diminished customer experience. With poor guest experiences being one of the core drivers of chargebacks, there’s a real risk of creating a vicious cycle that leads to poor reviews and permanent damage to a hotel’s reputation.

What Hoteliers Can Do

The key takeaway here is that you can’t solve the chargeback problem simply by wishing it away. Trying harder to proactively keep customers happy, identify and intercept criminal behavior and avoid preventable mistakes is always a good idea, of course. But the scale of the chargeback crisis is such that hoteliers can’t solve this on their own – they need a smarter and more expandable approach.

The good news is that hospitality businesses have already learned to operate in smarter and more scalable ways in many other aspects of their business. Most hotels are now comfortable using digital tools to efficiently market themselves to customers, handle their advertising needs, automate the bookings process, and dynamically optimize their room rates. 

Data, in short, already flows through hospitality businesses—and that’s precisely what’s needed to effectively address the chargeback crisis, too. Booking information and digital paper trails, including emails or other messages between the hotel and the guest, along with data such as logs from contactless check-in systems or keyless hotel room logs, can be used to validate transactions and show that services really were provided to guests. 

By aggregating this and other data across your operations, and using AI tools and automated analytics, it’s possible to spot potential problems more quickly. It’s also possible to rapidly collect and curate the information needed to effectively contest improper chargebacks, cutting back on revenue losses while also keeping your guests and employees happy. 

That’s especially true, of course, when hotels are part of a larger franchise. Third-party operators can aggregate data from numerous properties to identify shifting patterns of consumer behavior, reducing the risk of criminal activity and friendly fraud while also putting robust and efficient processes in place to collect information and respond quickly to chargebacks when they occur. 

The Guest Comes First

With a more streamlined approach to chargebacks, it’s possible to move responsibility for handling transaction disputes away from frontline teams. That’s important, because it reduces the potential for negative interactions between hotel guests and employees while also freeing up frontline team-members to focus on making guests’ stays memorable for all the right reasons. 

Ironically, perhaps, that’s the best way to reduce the number of chargebacks a hospitality business faces. With the right attitude and a focus on putting the customer first, it’s often possible to solve guests’ problems in real time, and turn unhappy customers into loyal repeat visitors. But of course, that’s only possible if you’re giving your frontline teams the time and resources they need to succeed, and not bogging them down with documentation requests and other red tape associated with chargeback disputes.

For hoteliers, the bottom line is that it’s no longer possible to ignore chargebacks. No matter how many chargebacks you face, the customer always needs to come first. To ensure that remains the case, hospitality businesses need to put a connected and data-driven strategy in place. Using data, automation and AI, it’s possible to offload much of the annoying and labor-intensive process of managing chargebacks—and free up your team to keep on providing amazing experiences for your guests.

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