What is Charge Back?
A chargeback may be a new term for all of you…But you all will be familiar with the concept.
In essence, a chargeback is a refund made at the bank level. After a transaction is complete, the bank of a dissatisfied cardholder aggressively withdraws money from a seller’s account and returns it to the cardholder.
Chargebacks had originally been developed as a means of consumer security. Many customers, however, use chargebacks as a way to take advantage of shops, sometimes without even understanding that they are doing so.
The data collected show that without the full knowledge of the user, 49 percent of all chargebacks filed were done so. In cases like this, consumers may simply have requested the bank to look into the transaction or cancel their behalf’s subscription, with the bank misinterpreting their inquiry as a full-fledged conflict.
Eighty-one per cent of customers surveyed reported to have approached their bank before exhausting all choices for communicating directly with the seller. Although this doesn’t sound like a very big deal, this activity has a name — it’s called friendly fraud.
Chargeback Process
Consequences
For Cardholders :
Once a chargeback is filed, cardholders are implicitly claiming that that they have already exhausted all other means by which the matter can be directly resolved through the merchant. Thus they could be marked as potential fraudsters, and the bank can bill the cardholder for the fees associated. It can also lead to the bank closing cardholder’s account damaging their credit score. Annually, Friendly fraud is growing at a rate of 41% and suspicion regarding chargebacks and friendly fraud has even driven some merchants to take drastic action.
For Merchants :
Chargebacks reportedly cost merchants over $40 billion per annum. Although charges are not the merchants’ responsibility in many cases, they will still be on hook for lost sales, lost products and charging fees for each dispute they lose. These higher costs compel retailers to increase rates, which eventually cost consumers more. Also, win or lose, acquiring bank is tracking each merchant’s chargeback cases. When a merchant’s number of disputed transactions surpasses 1% of their total transactions, credit networks like Visa and MasterCard could assign them a “high risk” designation. Some high-risk merchants are responsible for additional fees, limits on sales and expensive daily policy reviews. But some would actually get their accounts terminated and doom the company effectively.
Reducing Chargebacks at Your Hotel
Processing fees increase with the chargeback. So you should take a strong stance against fraudulent chargebacks and avoid artificial inflation of your property’s processing expenses. Just 18 percent registered won at least 60 percent of their charging-back conflicts. So you can never completely expect on winning the chargeback disputes. So you must take some measures to avoid risk.
Here are some ways to reduce valid (and fraudulent) chargebacks.
- Have a clear process for exchanging itemized invoices with your guests, whatever, be it a front desk printout, an invoice slipped under the guests’ door, or an email sent right at checkout. Also make sure to fix any overcharges while the guests are still on the property. The best time to fix any overcharges is while the guest’s still on a property to avoid a dispute once they are home reducing your profit margin from that booking!
- Verification of govt-issued ID match with the payment card is one of the easiest methods to prevent fraud. And if a reservation has been paid for online, when it comes to potentially documenting a possible chargeback, there is value to authentication.
- Your chargeback ratio must be monitored. A ratio greater than average will signal processors that you may be a high-risk merchant. As the risk increases, fees follow. This rise indicates some fail in your billing processes.
- Always be well prepared and systematic. Save copies of the sales draft, folio, or rental agreement — especially one that has been initiated or signed by the customer in question. All folios/receipts should be itemized, with the date and transaction amount to face any chargeback trigger from any transaction.
- There will be codes for specific chargeback reasons for issuer. Ensure one or two persons in your financial team is familiar with all the codes thus you can be sure to orient your dispute documentation around the specific reason for the chargeback.
- Incorrect payment entries and inaccurate bills are a reason for high chargebacks. Therefore, assure that your staffs are well trained periodically and aware of proper payment processing procedures.
- React soon. Chargebacks are a distasteful chore. But don’t ignore them, since answers have a time limit. Each issuer has its own process so get acquainted with it and stay on top. If you don’t respond on time, you immediately lose the revenue — even though you have the paperwork showing validity.
- Assure you to keep your records for at least 3 years. Most card issuers require a minimum of a 13-month retention timeframe. You may be able to access digital versions, but be sure to review your agreements to be sure.
Each chargeback diverts the workforce that can go to more efficient uses and reduce your profits, too. These are two unexpected outcomes, which should be avoided at all costs. Instead, good operations and consistent protocols secure your hotel, addressing chargebacks with a structured, thoughtful approach to reducing chargebacks.
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