How Chargebacks Can Slowly Kill Your Vacation Business

    With the convergence of the digital era, mobile revolution and sharing economy, a successful business in the vacation rental industry must deliver a mobile-first experience with a frictionless payment experience that accepts online payments, usually debit or credit cards. Yet, on a yearly basis, businesses lose billions from chargebacks and fraud, proving that accepting online payments brings a certain amount of risk.
    So how does your business accept online payments and mitigate the risk of chargebacks?
    What is a chargeback?
    A guest books a vacation home through an online transaction and then later disputes the charge with their credit card company. The dispute will fall into either one of two categories:
    • “Non Fraudulent” Chargeback – the cardholder (guest) acknowledges they engaged in a transaction yet is unhappy or dissatisfied with their vacation home experience and is attempting to be refunded, or
    • 2) “Fraudulent” Chargeback – the cardholder (guest) was a true victim of fraud (and rightfully) worked with their respective credit card issuer to get their money back, or the cardholder (guest) is trying to scheme their way out of paying for their vacation home by claiming they were a victim of fraud.
    In either case, the merchant (your business) is still responsible and must address the chargeback claim.
    How does a chargeback work?
    Once a cardholder (guest) files a chargeback claim with their credit card issuer, the amount of the transaction is credited back to the cardholder, and in most cases, the merchant (your business) is debited for the amount along with a chargeback fee. The fee will start at a minimum of $20 per claim and may be as high as to $500. The fees are solely determined by card network regulations.
    As a vacation business owner, you are probably thinking, “One chargeback doesn’t affect me that much.”But it can quickly add up and impact the bottom line of any growing business. Depending on annual sales volume and the number of chargeback claims, your business could lose thousands of dollars each year in chargeback fees alone.
    And it could get worse from there. In the eyes of the Card Associations, which govern chargeback regulations, the Card Not Present (CNP) merchant is considered guilty until proven innocent and the burden of proof is on you – the merchant.
    If you lose the chargeback claim, you may also be responsible for any extra fees associated with fighting the chargeback – even if your guest benefited from the disputed transaction. Finally, the credit card issuer may also penalize you if a certain threshold of chargebacks is reached.
    For your business, the best way to fight a chargeback is to prevent it from occurring in the first place.
    How do you prevent chargebacks?
    Taking time to implement best practices for chargebacks is the most important step to preventing them.
    1. Implement the proper policies. For your business, take the time to inform your guests of the cancellation policy, return policy and/or refund policy. Each policy should be extremely clear and cover all use cases for the vacation rental industry.
    2. Know your customer. Identify opportunities to validate the legitimacy of each guest and more importantly, tell your guests up front what you are doing and what information you will require. Generally, fraudsters are looking for an easy opportunity. By conveying to a fraudster that your business is fully engaged and has a thorough process, they are less likely to target your business.
    3. Track transaction activity. Be curious of all transactional activity and implement tracking to look for specific activity known to be fraudulent. For bookings where there is a short period of time between the reservation and the arrival, contact your guest and request a copy of the ID of the bank card holder.
    4. Communicate with your guests. Engage with your guests by requesting phone numbers and valid email addresses and then regularly look for clues that suggest something isn’t quite right. For example, look for unusual email addresses where the guest name and email do not match, or the email sequence or domain does not make sense (e.g., bob123@xyx.com).
    5. Documentation is your friend. Be prepared to document all guests and their respective transactions – start by having your guest sign and return a comprehensive rental agreement that highlights important clauses. Then, confirm the reservation with a confirmation email to your guests and remember to include the policies. With the chargeback claim process, it will be your responsibility to prove that the claim is fraudulent. The card issuer or card associations will not rely on just your word and a confirmation email will be a good first step.
    6. Be social. Use social media to investigate any chargeback claim, if possible.
    7. Rely on an expert payments partner. With best practices in place, your business is still susceptible to fraud or chargebacks. The next step is to partner with an expert in online payments that can offer a sophisticated payments platform with the proper risk and fraud protections in place, as well as provides customer support, specifically to dispute a chargeback.
    8. Provide A-list customer service. Throughout the vacation planning process, the guest may book a vacation home and then contact you multiple times with questions about their booking. It is important to deliver a rewarding customer experience at each touch-point as it may allow you to avoid and/or eliminate unnecessary chargebacks. Here are a few tips to deliver a rewarding guest experience – provide accurate descriptions of the property and include up-to-date photos; take time to address any guest concerns in a timely fashion before they escalate into a dispute; be clear and concise on the reservation agreement and policies; track each guest exchange with confirmation emails summarizing the agreements.
    9. Win by losing. If you issue a refund to avoid a dispute, always issue the refund in the same payment method of the original transaction. Also, do not issue a refund after a chargeback is received on your account – because through the chargeback process – the card holder has automatically been refunded at this stage, and it may result in the card holder receiving a second refund.

    What to do when a chargeback has been placed on your account:
    1. After receiving a chargeback notification, make sure that you are armed with the proper steps and/or have the right partner to “dispute a chargeback.”
    2. Because the chargeback notification includes a “work by date,” it is imperative to respond immediately to the notification.
    3. A “work by date” is provided because the card issuers have a limited amount of time to dispute the chargeback.
    4. Be prepared to provide the following information to dispute the chargeback:
      1. Signed rental agreement
      2. Reservation details
      3. Compelling evidence that the cardholder (guest) participated in the transaction
      4. Rebuttal letter addressing the cardholder’s (guest) claim, including your attempts to resolve this matter directly with the cardholder (guest)
      5. Copy of credit receipt
      6. Copy of ID/Passport
    5. Stay involved in the dispute as it may take 45 days to receive an outcome on a chargeback claim.
    Know your chargeback risk.
    Most enterprise level businesses have a higher payment volume, which will increase the risk of chargebacks. On the other end of the spectrum, a small business may not have high payment volume, yet they may not have the bandwidth to manage the intricate chargeback dispute process. And if you are a sharing economy business, like a marketplace, then unfortunately, you have a very large target on your back from fraudsters.
    By their very nature, a marketplace is at increased risk because they have to validate both sides of the transaction - the buyer and seller - by employing in-depth risk processes known as “KYC” (know your customer) and “AML” (anti-money laundering).
    If the transaction is completed with unknown individuals, and does not properly onboard businesses and/or individuals, then the marketplace business may find themselves losing thousands, or even millions, in sophisticated fraudulent activity.
    With the convergence of the sharing economy, mobile and payments, the risk of fraud and chargebacks will remain a major concern. Chargebacks aren’t going to magically disappear and will probably continue to grow. It’s important for your business to constantly be mindful of the inherent risk, implement best practices and arm your staff with knowledge and make sure you have a strong payment processing partner.
    For more information on payment processing and chargebacks, visit yapstone.com or vacationrentpayment.com.
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