What Merchants Need to Know About Hotel Chargebacks
Chargebacks have been a pain point for hoteliers since they were introduced way back in the 1970s. Originally designed to protect consumers from fraudulent transactions, these financial safeguards have evolved into a double-edged sword for the hospitality industry.
On the one hand, when used as intended, they protect consumers from fraudulent transactions and motivate hotels to maintain high standards and clear communication. On the other, when they’re abused, they can cut deep into hotel revenues, with some hotels losing up to 20% of their annual revenue to both legitimate and fraudulent chargebacks.
In this article, we’re going to explore current trends in hotel chargebacks, why they happen, the rules surrounding them, and what merchants can do to prevent them. We’ll also give you some practical tips on how you can fight your corner if a dispute does escalate to a chargeback.
Current Trends in Hotel Chargebacks
The hotel industry has experienced a substantial increase in chargeback rates. According to Adyen’s Hospitality Report 2024, independent hoteliers lost over $2 million to fraud and chargebacks alone. This trend is expected to continue as chargeback rates in general rise throughout 2025 and beyond, spurred by factors like friendly fraud and changing consumer behavior.
What’s notable is the increasing volume of chargebacks. Global chargeback volume reached 238 million in 2023 and is projected to increase to 337 million by 2026. Certain industries have seen a dramatic increase in chargeback rates, including online travel and lodging, which has experienced an 816% rise.
What Causes Hotel Chargebacks?
Chargebacks happen when guests dispute charges on their credit cards, often leading to lost revenue and extra fees for hotels. Most hotel chargebacks fall into five main categories:
1. Fraud (Including Friendly Fraud)
Stolen credit cards and identity theft are common sources of chargebacks. Criminals book stays using someone else’s information, and the actual cardholder disputes the charge once they notice it. But most fraud-related chargebacks aren’t from real fraud—they’re “friendly fraud.” This happens when a guest disputes a legitimate charge, either because they don’t recognise it or because they want a refund they don’t qualify for. Some guests claim they never stayed at the hotel, even when they did, hoping the bank would side with them.
2. Service Complaints
If guests feel their stay didn’t match what was promised, they might dispute the charge. This includes complaints about cleanliness, poor service, or amenities that didn’t meet expectations. If the hotel photos or descriptions don’t reflect reality, guests may claim they were misled. Some chargebacks happen because a guest requested a refund at checkout due to a bad experience, but the hotel refused, so they go straight to their bank instead.
3. Billing Errors and Double Charges
Processing mistakes can lead to chargebacks when a guest is charged incorrectly. This includes double billing, incorrect amounts, or failed refunds. If a guest is charged twice for the same stay or sees unexpected fees on their statement, they’re likely to dispute it. Technical issues, like glitches in payment systems, can also cause errors that result in chargebacks.
4. Unauthorised Charges and Payment Holds
Some chargebacks happen when a guest claims they didn’t approve a charge. This can include incidental fees for minibar items, late checkouts, or room service. If these weren’t clearly explained at check-in, guests may dispute them later. Another common issue is authorisation holds: Hotels often place a temporary hold on a guest’s card for incidentals, but if the hold isn’t released properly or is later converted into a charge without clear communication, guests may contest it.
5. Cancellation and No-Show Disputes
Guests sometimes misunderstand cancellation policies and dispute charges when they don’t get a refund. If a guest cancels too late or fails to show up, they might still be charged. The problem is if they don’t remember agreeing to the policy (or pretend they don’t), they’ll argue the charge is unfair. This is a notorious problem with bookings made through third-party travel sites where refund policies can be unclear or inconsistent.
There are valid reasons for filing a hotel chargeback, such as fraud, billing errors, or being charged for a service that was never provided. However, it's always best for hoteliers and customers to come to an amicable arrangement first. Customers should only file chargebacks as a last resort, and hotels should be willing to correct mistakes, issue refunds, or offer alternative solutions when they’re in the wrong.
Preventing Hotel Chargebacks
Although chargebacks can be a painful and expensive headache, many disputes can be avoided by taking simple steps. Clear communication, secure payment practices, and proactive customer service all have their part to play.
Make Policies Clear and Accessible
Many chargebacks happen because guests don’t fully understand cancellation, refund, or no-show policies. To prevent this, clearly display these policies on your website, booking platform, and confirmation emails. Don’t bury them in fine print. Instead, place them where guests will see them before completing a reservation.
After a booking, send a detailed confirmation email outlining reservation details, check-in/out times, cancellation rules, and any additional fees (such as resort fees, parking, or incidentals). When guests know what to expect, they’re less likely to dispute charges later.
Another common issue is confusion over who handles refunds when bookings are made through third-party sites like online travel agents (OTAs). Make sure your policies specify whether the hotel or the OTA is responsible for cancellations and refunds, and communicate this clearly to guests.
Use Secure Payment Processing
Fraud-related chargebacks are a major concern, but using secure payment systems can shift liability away from your hotel. Always process in-person transactions using EMV chip readers instead of magnetic stripe swipes, as this places fraud responsibility on the card issuer rather than the merchant. For online payments, use certified and compliant payments (e.g., PCI DSS-certified and GDPR-compliant systems in the UK) to protect customer data. If a guest disputes a charge, having a secure, compliant payment trail strengthens your case.
Authorisation issues can also trigger chargebacks. Always post transactions with valid authorisation codes, and if the final charge is higher than the initial authorisation (for example, if a guest adds room service or extends their stay), obtain a new approval before processing the final amount.
Keep Detailed Records
Having thorough records can help you fight a dispute successfully if a guest files a chargeback. Maintain transaction details, receipts, emails, and customer communications for at least three years. Keep digital copies of signed agreements, reservation confirmations, and invoices.
If a guest disputes a charge, you’ll need to provide proof that they booked the stay, agreed to the terms, and used the services. Sending invoices via email or providing printed copies at check-in ensures guests have a record of what they’re paying for.
Verifying a guest’s identity at check-in can also help prevent fraud. Always compare the name on the credit card with a government-issued ID. If a guest is paying with a third-party card, get a signed authorisation form from the actual cardholder.
Train Staff in Disputes and Fraud Prevention
Employees play a crucial role in preventing chargebacks. Train front desk and payment staff to handle transactions correctly, recognise fraud indicators, and address guest concerns before they escalate. A well-handled dispute at the hotel level is much easier (and cheaper) to resolve than a formal chargeback.
Staff should also be trained to remain calm and professional when dealing with upset guests. Sometimes, a simple refund or service recovery gesture can prevent a chargeback altogether.
Implement Transaction Monitoring and Fraud Detection
Using fraud detection tools can help catch suspicious activity before it leads to a chargeback. Set up real-time alerts for unusual transactions, such as multiple bookings under different names using the same credit card. Automated dispute response systems can also help streamline chargeback management.
Similarly, transaction monitoring, dispute management, and anti-chargeback solutions like ChargebackStop can be used to configure pre-chargeback and fraudulent activity alerts that reduce dispute rates by up to 95% and help you fight back when chargebacks do happen.
How to Win Hotel Chargeback Disputes
The challenge with winning hotel chargeback disputes isn’t so much that it’s a complex process. It’s relatively straightforward. The problem lies primarily in the evidential burden placed on the merchant to prove that their charge is legitimate. If a merchant can’t do this, they’ll lose their chargeback case 100% of the time.
This evidential burden is compounded by the fact that hotels provide an intangible service, making it more difficult to prove that the service was delivered as agreed. Then there’s the subjective quality of a hotel stay: A guest might claim that their stay didn't meet expectations, which is harder to disprove than, say, whether a product was delivered.
With all this in mind, hoteliers need to do all they can to put their best foot forward when fighting a hotel chargeback. Ultimately, this boils down to three things: 1) knowing the reason for the chargeback, 2) compiling strong evidence, and 3) writing a winning response.
1. Knowing the Reason for a Chargeback
All chargebacks can be categorised by what is known as a ‘reason code’. This is an alphanumeric code, typically two to four digits long, issued by the issuing bank when a merchant receives a chargeback. These codes are used to translate the customer's justification for raising a dispute into a standardised form that the merchant can understand.
Chargeback reason codes serve several important functions:
- Categorisation: They group chargebacks into broad categories such as fraud, authorisation issues, processing errors, and customer disputes.
- Standardisation: Each card network (e.g., Visa, Mastercard, American Express) has its own set of reason codes, creating consistency within each network.
- Communication: They provide a quick way for banks and merchants to understand the nature of the dispute without needing lengthy explanations.
Some examples of common reason codes include:
- Visa 13.1: Merchandise/Services Not Received
- Mastercard 4853: Cardholder Dispute
- American Express C08: Goods/Services Not Received
Merchants need to understand these codes because they can help to build a targeted response. That said, while reason codes are meant to clarify the dispute cause, they don't always tell the full story. In cases of friendly fraud, for example, the assigned reason code may not accurately reflect the true reason for the chargeback.
2. Compiling Strong Evidence
Your evidence needs to be specific, well-organised, and directly relevant to the chargeback claim. The stronger your documentation, the better your chances of winning the dispute. Key documents to collect include:
- Transaction records showing the date, time, and amount of the charge.
- Reservation details like booking confirmations and cancellation policies.
- Check-in and check-out logs with guest signatures and timestamps.
- Guest communication including emails, text messages, and call logs.
- Signed agreements such as credit card auth forms and policy acknowledgments.
Organise your evidence logically, making it easy for the reviewer to follow. Highlight key details within the documents so they stand out, and submit everything within the required timeframe, which typically ranges from 30 to 120 days depending on payment processor and/or acquirer rules.
3. Writing a Winning Response
Your rebuttal letter is the foundation of your chargeback response. Start with your business name, contact details, the chargeback case number, reason code, card number used, and the response deadline. This ensures the reviewer can quickly identify your case.
Begin by summarising the cardholder’s claim and your counter-argument. Keep it brief, to the point, and factual. Then, clearly explain how your evidence disproves the chargeback. For example:
"We respectfully dispute the chargeback initiated by [Guest Name] for reservation [Booking ID]. Attached are the signed guest agreement, payment confirmation, and pre-arrival communication that clearly outline our cancellation policy. The guest did not meet the conditions for a refund, and the charge is valid as per our terms."
Maintain a calm, factual tone throughout. Avoid emotional arguments or accusatory language. Keep your letter concise. One page is ideal unless the case is exceptionally complex.
Place your rebuttal letter at the top of your evidence packet, followed by supporting documents in a logical order. Use highlights or annotations to draw attention to key points that directly address the chargeback reason.
Submit your response before the deadline set by your payment processor. Late submissions typically result in an automatic loss, regardless of the strength of your case.
Don’t Get Caught Out
Hotel chargebacks, originally intended to protect consumers from fraud, have become a growing challenge for the hospitality industry, with some hotels losing up to 20% of their revenue. The volume of chargebacks is rising, driven by fraud, friendly fraud, service complaints, billing errors, and disputes over cancellations or unauthorised charges. Many of these disputes stem from unclear policies, miscommunication, or technical errors, making it essential for hotels to implement preventative measures.
To reduce chargebacks, hoteliers should prioritise clear policies, secure payment processing, and detailed record-keeping. Training staff to handle disputes effectively, using fraud detection tools, and maintaining strong documentation can help prevent and contest chargebacks. If a dispute arises, compiling solid evidence and submitting a well-structured response promptly increases the chances of a successful resolution.
Schedule a no-obligation call with us today and learn how ChargebackStop can help you take a proactive and preventative approach to chargeback management.
