This is a guest post by AcroCharge, a tailored payment dispute solution that combines technology with human-powered know-how to significantly improve chargeback win rate.
The dreaded chargeback
What was once designed as a mechanism for protecting cardholders has become a system slanted against the merchant and rife with abuse. Chargebacks are payment reversals that merchants, including property managers, have learned to dread. Yet, it wasn’t always this way. What chargebacks were intended for and what they’ve become are two separate things, and we have tips to share for how property managers can avoid them.
A short history of chargebacks
Chargebacks were created by Congress to encourage consumer trust in paying with plastic. Three relevant pieces of U.S. legislation underpin the creation and use of chargebacks: the Truth in Lending Act (TILA) of 1968¸ the Fair Credit Billing Act (FCBA) of 1974 and Electronic Fund Transfer Act (EFTA) of 1978.
The FCBA was the key piece of legislation. According to its own wording, it was passed “to protect the consumer against inaccurate and unfair credit billing and credit card practices.” It gave credit cardholders the right to dispute charges that were allegedly due to credit card fraud or billing errors. The law includes under the umbrella of billing errors, unauthorized charges, and charges for goods or services not accepted, not delivered or not delivered as agreed.
Nature of chargebacks changes
The FCBA was intended to provide recourse to cardholders who were the victims of credit card theft or unscrupulous merchants who were making unauthorized charges. Over time, though, it became a way for spendthrift cardholders to skip out on their bills. Today, over 80 percent of chargebacks are illegitimate and due to friendly fraud.
Friendly fraud is when a person files a chargeback for a transaction they or a family member made with or without the intent of defrauding the merchant. While friendly fraud has existed as long as chargebacks, it experienced a sharp rise both during the 2008 financial crisis and during the Covid-19 outbreak in 2020. In general, when money gets tight people have a habit of claiming their credit card charges were unauthorized.
How to prevent chargebacks
That begs the question: What can you do to prevent chargebacks from people staying at your property? Here are eight things that can help.
- Use a clear billing descriptor with a recognizable business name. If your legal name differs from your trading (i.e. brand) name and you use the former in your descriptor, you risk increased chargebacks.
- Provide clear, easy-to-find billing, cancellation and refund policies on your website and booking pages, so guests know what to expect. Less surprises for customers mean less chargebacks.
- Manage guest expectations before charging cards. If you take deposits or charge guests a non-refundable portion of their stay before they arrive, ensure that you let them know. If a guest sees a charge on their statement before their stay, they may file a “non-receipt of merchandise/service.”
- Communicate policies on delayed transactions clearly. You may bill guests for additional charges discovered after they have checked out, such as restocking the fridge or damage to the room. Explain your policy regarding amended or additional charges at check-in. After the guest checks out, deposit a separate sales draft for delayed transactions and mail the transaction sales receipt and a detailed explanation of the additional charge to the cardholder.
- Provide top of the line customer service. Respond rapidly to all emails and social media inquiries and provide live phone support in the evenings and over weekends as well during the workweek. Make sure your customers know you are there to answer their concerns.
- Shift chargeback liability to the cardholder’s bank by using 3D Secure at checkout. This will reduce legitimate chargebacks you receive for true fraud. Note that in some countries, including the U.S., 3D Secure might significantly increase checkout abandonment, so only use in accordance with customer preferences.
- Use an address verification service (AVS) to confirm the mailing address of the cardholder matches the billing address of the credit card. Not only will this cut back on true fraud chargebacks, but it will provide you with compelling evidence to fight a friendly fraud chargeback when one happens.
- Be lenient when it comes to using refunds to resolve customer complaints. Refunds are easier to manage and less expensive than chargebacks.
Mitigating chargebacks
There will still be chargebacks that make it through despite your best preventative efforts and fighting them is a complex endeavor. Which is why you may want to look into a technology to help you fight chargebacks, like AcroCharge. Rather than wasting your limited time and resources trying to understand the complicated rules of the different card networks, a chargeback mitigation solution can help you regain focus on managing your properties, while experts help you handle the chargebacks and improve your bottom line.
Learn more about Acrocharge in the Guesty Marketplace.