Chargebacks and fraudulent charges and how can you use Mews to prevent them

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Guests can request chargebacks for several reasons, including merchant error, unauthorized payments or even fraudulent activities. Understanding how these fraudulent chargebacks occur and how you can Mews to prevent them can help reduce their frequency.   
 
In this article you can learn about the following most common examples of fraudulent activity in the hospitality industry and the ways you can prevent them: 

 

Different ways fraudsters gain access to someone's card details

  • Phishing: Phone calls, fake websites, and sales emails.
  • Malware and spyware: Through file download from suspicious sources.
  • Skimming: Card readers at ATMs and anyplace where scammers can place a skimming device.
  • Data breaches: Through stealing card info stored online. Note: Mews is 100% compliant when it comes to card storage. You can learn more about this here.
  • Public Wi-Fi networks: Unsecured public Wi-Fi networks can be dangerous if you enter sensitive information while connected.
  • The trash, literally: While it may seem old fashioned, criminals can dig through your garbage to find credit card statements, account information, and other information they can use to their advantage.

 

Fraud scenarios  

Here are some representative scenarios to illustrate how fraud happens in the hospitality industry. 

Fraud scenario 1: Mr. and Mrs. Smith are a young couple who love to travel around the world but can’t always afford it.

They decide to buy a credit card and an ID on the dark web, which would end up being cheaper than paying for a stay in a luxury five-star star hotel. Note: The minimum price per credit card on the dark market is 70 cents.  

They get their card and have an ID, and then go to make a reservation. The important part here is that they use accommodation services within the next few days in case the real cardholder notices suspicious activity and notifies the bank. It usually takes a few working days for the bank to start investigating the transaction, which is why fraudsters prefer short stays and pay on the day of arrival or at most a few days before the actual stay.  

Note: Fraudsters use various sources to book a stay, but more common are via direct emails and phone calls.  

Mr. and Mrs. Smith email the property with the below inquiry:

Looks authentic at first glance, but there are several red flags here that hotels need to be aware of:

  • There is no request for pricing details. They are happy to pay any price.
  • They request a short-term stay and have sent the inquiry the same day as the check-in date.
  • They request to charge the card asap; fraudsters want to check if the payment went through.
  • The card details are emailed, which is not a secure way of sharing information. 

But since the reservations desk receives all the required information, and can charge the card, they confirm the reservation. Mr. And Mrs. Smith have a wonderful stay and go back home. 

What happens next is that in the next few weeks or months, depending on the issuing bank, a chargeback claim comes along with the reason, “Fraud.” 

 

Fraud scenario 2: The so-called “reservation cancellation scam.”

In this scenario, you receive a booking via email paid for using a credit card. The guest cancels the booking shortly afterward and asks the property to refund some or all of the payment by sending the funds via a bank transfer or some other method.

These are possibly stolen credit card details, and the scammer is hoping that you transfer the money into their account before you realize what’s happening. 
 
In cases like these, you should refund the credit card transaction to the credit card used initially. Otherwise, you can lose not only the money billed to the credit card but also the money you sent to the scammer. 

How can you prevent fraudulent chargebacks

When a cardholder looks at their bank statement, they should immediately recognize their purchase. Avoid using parent company names and shorthand that are only meaningful to you. 

  • Manually review payments

    • Does the customer’s contact information seem legitimate?
    • Does the customer’s email address match the name on their card?
    • Did the customer try to make other payments that were declined? If each failed attempt is associated with a different card, there is a greater risk of fraud.
    • Did the customer make multiple payments, including the declined payments?
    • Did they use:
      • several different cards to make the payments, i.e., more than just a couple? or
      • the same card but different addresses?

  • Verify your customer's identity

Regardless of whether a payment seems suspicious, it’s good practice to ask your customers for proof of identity before check-in. In case if an advance payment, i.e., a payment made on booking the stay seems suspicious, Mews recommends you contact the customer directly to verify their details before confirming their reservation. 

If you suspect a payment is fraudulent, refund it as soon as possible to avoid a chargeback later. 

In case the customer argues about your rate policies or anything else for which they were charged, your best defence is to show that the customer accepted the terms and conditions of the rate on the website, and received a confirmation email which clearly stated the terms and conditions. 

Credit cards are usually kept on file and then charged retroactively for additional services or charges, and since the customer may have already left the hotel at this point, they won’t know the reason for the charge.  

 

Mews helpful solutions for fraudulent chargeback prevention

3DS is a very useful tool for securing yourself when accepting payments over email or by phone. Enable 3DS then send a payment request and you have 100% protection from fraudulent chargebacks. You can learn more about how to make 3DS authentication default here. 

There have been no chargebacks claimed on a Mews Terminal transaction since the day of the launch of Mews terminal. You can learn more about Mews Terminals here. 

You can minimize chargebacks by letting guests pay ahead of the automatic payment schedule stated in your payment policies. When a guest chooses Pay now during online check-in and is presented with 3DS verification, they are the ones initiating the payment which in turn contributes to fewer chargeback claims. You can learn more about it here.  

Note: The Pay now option is currently only available during online check-in for: 

    • Reservations, where the booker and reservation owner are the same.
    • Unpaid reservations, with automatic payment policies you configured to trigger before or on Start date. 
    • Reservations, booked through Mews or a third-party booking engine. Reservations booked through an Online Travel Agency i.e., OTA can only pay during booking or by following the automatic payment schedule. 

  • Integration with Autohost.ai

    Connection with Autohost.ai can help with the screening of guests and reduce fraudulent chargebacks, especially for properties with no front desk. Autohost helps short-term rental operators and hotels check in online, with advanced guest screening to help reduce issues such as regulatory compliance, fraudulent chargebacks. You can learn more about it at Autohost.ai.

 

You can learn more about chargebacks here.

 

 

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