Automatic refunds in the hotel business

Chargebacks are unavoidable in the hotel business, yet there are ways to minimize them to protect income and reputation. For instance, automatic refunds. This Maxpay article is dedicated to chargebacks and automatic refunds when it comes to hotel businesses: their nature and how they differ. 

What is an automatic refund?

An automatic refund is when the funds a client has paid for the merchandise or service are returned to them automatically because they were dissatisfied with it. To compare, in the case of general refunds, the customer reaches out to the company, and they discuss the money return reasons. An automatic refund happens without this step. 

Meanwhile, chargebacks occur when customers contact their bank to request their funds back. In this case, merchants will have to pay fees in addition to the money they have to return, so chargebacks are much more harmful than automatic refunds. Read more about the differences between these here. 

Initially, chargebacks were authorized by banking networks as customer protection and insurance for using credit cards. Today the right of a chargeback remains absolutely legitimate. There are a set of reasons to request a chargeback, most of them are lawful, and only one is illegal.

Reasons for a chargeback request

1. Dissatisfaction with the product or service;
2. Inability to contact the company’s customer service, especially for the return or refund;
3. Delivery issues such as no product received or the wrong item delivered;
4. Technical problems on the website like unwanted purchases, double purchases, wrong item or service purchase;
5. Friendly fraud: a customer forges one of the mentioned reasons to get the money back;

Examples for the hotel business case

Chargeback reasons	Example
Dissatisfaction	A customer books an apartment on Airbnb that looks appealing, but, upon the arrival, it is in a much worse state
The inability of the contact	A customer finds a hostel through Booking and purchases beds for a certain period. But when trying contacting received no feedback
Delivery issues	In the case of the service industries, delivery issues occur when a confirmation email is not received, such as if a customer would book a room on Hotels.com and would not be reassured of it
Technical problems	A customer books a place twice on the Agoda, or rents it for the wrong dates
Friendly fraud	A customer is completely satisfied with the Airbnb apartment but still fakes the reason to get an automatic refund

How does an automatic refund work?

Automatic refunds are more sophisticated than regular ones, as merchants don’t have to deal with clients directly and save time and funds that otherwise can be lost due to chargebacks. 

Not all merchants can get an automatic refund feature set up, as not all banks and providers offer it. Likely, we at Maxpay provide merchants with access to automatic refunds service known as Rapid Dispute Resolution. It was created by the collaborative efforts of Verifi and Visa.

It is an exceptional tool for keeping chargebacks away from hotel businesses, allowing them to keep their chargeback ratios as low as possible and their reputation flawless.

This is how it works:

1. Get a merchant online account at Maxpay if you don’t have it already;
2. Contact your account manager and ask them about RDR and automatic refunds;
3. Next, our specialists will ask you what rules you want to be established for issuing automatic refunds. For instance, you can request that all disputes under 40 euros are refunded automatically, leaving customers satisfied and you with – no chance of getting chargebacks for said transactions;
4. Once you describe the rules to us, we will send the necessary data to Verifi to set the RDR solution in motion. Nothing more is required from you!
5. You will be getting reports on all the transactions that underwent automatic refunds to your online account. So you can analyze and fully control the process!

Also, Maxpay provides even more tools for chargeback protection which we recommend you check out! 

Why are chargebacks so damaging for the hotel business?

A chargeback does have a definition of a monetary return, and in fact, it is. But, this return is not the direct reverse transaction between a merchant and a customer. But, as we have seen above in the explanation of how chargeback works, money passes through third parties, which take chargeback fees for this kind of service.

The more chargebacks a merchant receives, the higher fees will be so that the business can become a high-risk one. But not just that, if the number grows, a chargeback ratio can be exceeded, and an online account of the merchant can be terminated. It means that the particular business would not be able to accept electronic payments through any payment system.

Automatic refund vs. standard refund: what is better?

When it comes to the direct refund, it can be provided as an option on the website. Usually, clients contact merchants and request it, but the acquiring and issuing banks are not involved in the process. And so the money goes straight from a merchant to a customer without all the negative consequences. That is why a refund policy is so essential.

In the case of automatic refunds, this whole process is automated, and both clients and merchants don’t waste time contacting each other. 

Both options are better than chargebacks, and both standard and automatic refunds can be used interchangeably and simultaneously

How to avoid chargebacks in the hotel business?

Deal with each reason for the chargeback separately and make sure that all processes work smoothly both in the inner system and for the client.

1. Provide a simple way to contact the company, most of the disputes can be sorted with a simple refund without the banking network involvement.
2. Compose a clear and simple refund policy, making refunds easy to solve problems directly.
3. Describe and depict items and services on the website precisely and honestly to avoid higher expectations.
4. Communicate with a customer on each of the interaction steps: booking, confirmation, reminder, and feedback.
5. Set up fraud and chargeback protection to minimize dishonest behavior. 

How to set up chargeback protection?

First of all, to be well protected from friendly fraud, a merchant should implement fraud protection. At Maxpay, we ensure financial security for our merchants with Covery. Covery is AI-based fraud protection and risk management. It detects malicious actions using complex algorithms, keeping hotel businesses safe in Europe, the USA, and the UK.

Regarding chargeback protection, there are dedicated chargeback alert services that detect any potential disputes. Partnering with Maxpay, merchants get an Ethoca chargeback prevention alert. It freezes disputes, giving a hotel business 24 hours to contact a dissatisfied customer directly and return the funds via a refund, as well as cancel delivery. Start an online account with us and gain access to it all. 

FAQ

Can you get a refund for a hotel room?

Yes, you can. A simple refund is usually easy to claim through the hotel web page. In other ways, there is always a customer care team.

How do you get a refund after staying in a hotel?

First of all, for any kind of refund, there must be a valid and legitimate reason. Contact your hotel and describe the issue to it. 

What is chargeback in the hotel business?

It is a money return to a customer. But this money return is damaging for the business, as it is conducted through banking networks but not directly. Networks that are involved take fees, and record chargebacks to moderate the situation. 

Can I get a chargeback for a hotel booking?

Yes, absolutely. There are different reasons for chargebacks, one of them is dissatisfaction with the item or service. But notice that if the reason was faked, it is considered to be fraud, which is illegal.

Can you dispute charges from the hotel?

Yes, it is called a chargeback. But we recommend setting up a process of a clear refund policy. A refund is cheaper and safer than a chargeback.

How do I dispute a hotel stay?

First, try contacting customer service or issuing a refund. If not, contact the bank of the payment card, and dispute a chargeback. Be careful to provide proof of the dispute.