Six ways to protect your property from chargebacks

Most industries deal with chargebacks, or at least any merchant who accepts credit card payments can, and they can be a costly line item on your operations budget. Chargebacks happen when a customer reverses or disputes a charge on their card and many credit card companies add an additional $25 fee to chargebacks.

Chargebacks are a result of fraud, whether it’s malicious, friendly, or true. Malicious fraud is when an individual purchased services but then disputes the charge for a refund. Friendly fraud is similar but in this case the individual forgot about the charge or didn’t understand who it was coming from and disputed it; their intent is not to game the system like malicious fraud. Finally, true fraud is legitimate identity theft from data breaches, card skimming, or stealing others’ financial information. In 2016, LexisNexis found that 71% of chargeback fraud was friendly or malicious and only 29% was true.

In the hospitality industry, we also run into “no-show” chargebacks. Perhaps you’ve seen a reason code C18 from American Express or a 4840 from MasterCard. This is essentially because the reservation was truly fraudulent or the customer didn’t review follow the cancellation policy and is now disputing the charge with their bank instead of you.

Unfortunately, chargebacks will continue to happen but there are several ways you can avoid them as best you can:

• Use a clear descriptor: Have you ever looked over your credit card statement and see an item like “KTGS 1055” and have no idea what that purchase was for and even less remember going to a place named that? You might be tempted to dispute it (hello, friendly fraud!) even though you probably did shop there. Use a clear payment descriptor for your business name so guests immediately recognize who that charge was from.
• Follow PCI standards: Make sure when you take payments that you’re collecting all the information necessary for your payment processor to correctly handle the payment and that you have all the right information in case a dispute comes through. Your payment processor can provide guidance on what information you need to collect to run payments through them.
• Mitigate upfront risk: Some processors even offer fraud prevention services so the transaction never even posts to an account. Talk with your provider to see if they can assist in managing fraud risks from the start of a transaction. 
• Respond ASAP: Respond to retrieval requests within two work weeks. Though most companies give merchants between 30 – 39 days to respond to requests, the sooner you respond the sooner it’ll be resolved. Be sure to file all the right documentation to prove your case.
• Have clear cancellation and refund policies: Make your payment, cancellation, and refund policies clear and included in your reservation process. If you can prove that the guest agreed to the terms at the time of purchase, it can stop a dispute from going through.
• Imprints are valid for disputes: Invest in an imprint machine if you don’t have an electronic reader as card imprints are valid documentation that the card was present whereas photocopies are not.