Hotel Chargebacks: A Business Nightmare You Can't Ignore

Learn how hotel chargebacks are hurting profit margins and how to address this hidden threat.
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by Ronen Shnidman
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Published: July 20, 2023
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Hotel managers probably know the term "chargebacks," but do you realize the damage they can do to your business? Let's uncover the truth about chargebacks and their impact on your hotel's financial performance.

So, what exactly are chargebacks? Customers dispute credit card charges and ask their card issuer to reverse them. Fraudulent activities, billing mistakes, or unsatisfied customers are all reasons why this can happen.

Now, here's where it gets crucial: chargebacks can seriously affect important metrics for hotel managers. It can result in lost revenue, increased costs, and even damage your hotel's reputation. 

Let's not forget about your profit margins! 

Chargebacks are extremely damaging to your finances, which is why understanding them and minimizing their impact is essential to maintaining them.

The article examines how chargebacks can affect key hotel metrics, what typical chargebacks look like, and, most importantly, how to effectively manage and tackle them. Taking proactive steps to avoid chargebacks will help you protect your hotel's bottom line and ensure a positive guest experience.

How Do Chargebacks Affect Important Metrics for Hotel Managers?

A hotel manager monitors a variety of metrics to gauge the performance and profitability of their properties. The occupancy rate and employee turnover are particularly important metrics. For hotel management, understanding the impact of chargebacks on these metrics is crucial.

A hotel manager's key metric is the occupancy rate, which measures the percentage of occupied rooms. Chargebacks directly affect this metric by disputing bookings, often ones that already took place, leading to revenue loss. When chargebacks occur, rooms that were considered  occupied do not produce revenue, distorting the value of using this as a success metric. For disputed books that have yet to take place, the booking is effectively canceled, resulting in a drop in occupancy. This is also bad. Either way, hotel revenue and profitability are directly impacted by this.

Another important metric for hotel managers is employee turnover. A high turnover rate means higher recruitment and training costs, as well as the loss of experienced employees. 

Hotel chargebacks affect employee turnover by lowering morale, as employees with other primary tasks are forced to deal with complex rules for producing evidence of a charge’s validity and handling dissatisfied customers. 

Managing chargebacks is crucial for hotel management since they have a real  impact on these metrics. By effectively managing chargebacks, hotel managers can minimize revenue losses, maintain a healthy and valid occupancy rate, and reduce employee turnover. 

Effective management of chargebacks ensures customer satisfaction and loyalty by handling customer disputes  quickly and efficiently and protects the bottom-line in multiple ways.

Typical Characteristics of Chargebacks for Hotels, Including Fraud Chargebacks

Chargebacks can come in many different forms, and hotels need to be aware of the typical characteristics of these disputes. 

One of the most common types of chargebacks for hotels is fraud chargebacks. Instances like these arise when a customer  objects to a transaction as  unauthorized, which could be attributed to situations like credit card theft or data compromise.

Other common reasons for chargebacks in the hotel industry include billing disputes, dissatisfaction with the service or product, and non-receipt of merchandise. 

Hotels should be mindful of these potential triggers and take steps to prevent them, such as ensuring that all charges are accurately and clearly communicated to customers and that all documentation is properly stored and accessible.

The 3 typical types of hotel chargebacks include:


  1. Unauthorized Transactions - When someone uses a stolen or compromised credit card to make a purchase at your hotel, the real cardholder can dispute the charge and initiate a chargeback. These types of chargebacks are typically higher ticket items and are for a full stay at the hotel (i.e. not partial chargebacks). This category often includes illegitimate, friendly fraud chargebacks by customers looking to get their stay for free.
  2. Cardholder Dispute - Customers may dispute a charge for various reasons, such as if they didn't receive the product or service they paid for if it was defective, or if it wasn't as described. This category includes partial chargebacks.
  3. Technical Errors - Sometimes, chargebacks happen due to technical glitches in the payment processing system, like when a transaction is accidentally duplicated or the cardholder is charged the wrong amount.


Across these three categories (especially the first two), there are friendly fraud chargebacks. These are invalid chargebacks consumers file, using one of the three reasons above but for which they aren’t actually entitled to receive their money back. 

In these cases, the hotel provided everything it was supposed to as part of the guest’s stay, fulfilling its transactional obligations. The friendly fraudster cardholder for their part either does not realize that they are in the wrong (e.g. they don’t recognize the hotelier’s billing descriptor on their credit card, so they filed a chargeback) or they are intentionally trying to get something for free to which they are not entitled.

Understanding the typical characteristics of hotel chargebacks, including true fraud and friendly fraud, is an important first step in preventing and managing disputes. 

By implementing proactive measures to prevent true fraud, such as monitoring transactions and verifying customer identities, hotel managers can reduce the risk of chargebacks and protect their profit margins. 

Plus, by automating and centralizing chargeback management processes, hotel management groups  can streamline the dispute resolution process and minimize the impact of friendly fraud chargebacks on their business.

How Third-Party Operators (TPOs) Typically Handle Chargebacks for Major Chain Hotels

Third-party operators (TPOs) manage everything in major chain hotels, acting as franchisees. Among the myriad of tasks they handle, managing chargeback disputes is a significant one.

For TPOs overseeing multiple establishments, centralized chargeback management is a game-changer. This is where solutions like Justt’s come into play, as it allows them to monitor chargeback management both centrally and on a per location basis. By aggregating chargeback data from individual properties, Justt’s  solution provides an all-encompassing view of disputes, offering better visibility into emerging trends and potential issues. This is  valuable to TPOs, as it empowers them with actionable insights and facilitates informed decision-making.

However, chargeback management is fraught with unique challenges. One of the main issues is the high employee turnover rate in the industry, making it hard to maintain continuity and preserve the accumulated knowledge on handling different types of chargeback disputes. Furthermore, the sheer volume of transactions and disputes can overwhelm TPOs, irrespective of their size. Larger groups face bigger challenges as the number of chargebacks tends to increase in proportion to size.

To counter these challenges, the automation  of chargeback processing and evidence building for cases  proves to be effective. The use of machine learning also provides a boost to win rates, as the system’s results continually improve over time. A robust chargeback management system not only reduces the administrative burden but also equips TPOs with deeper insights into emerging patterns and potential issues. This proactive approach to managing chargebacks allows them to protect their profit margins through mitigation and by preventing future disputes.

Introducing Justt: A Solution for Handling Customer Credit Card Disputes

Justt stands at the forefront of chargeback management within the hospitality industry, utilizing  technology and innovation to provide an unparalleled solution. By harnessing the power of machine learning, Justt can automate the collection and compilation of evidence for chargeback cases, and submit optimized representments tailored to the preferences of credit card issuers.

One of the key features that distinguish Justt is the data aggregation capability across multiple properties. This delivers an all-encompassing view in a single  platform, granting hotel management groups a clearer understanding of emerging trends and potential issues. With such insights at their fingertips, they can preemptively address and prevent future disputes, ensuring the chargeback management process remains a step ahead.

In our most recent update, we introduced three new features: Win Rate Predictability, Performance Explainability, and the Data Point Value Indicator. The Win Rate Predictability feature empowers businesses with accurate predictions for chargeback wins for each 120-day chargeback cycle, enabling informed financial decisions. Performance Explainability provides  analysis and explanation of win rate fluctuations and the Data Point Value Indicator offers data-driven recommendations for optimizing chargeback win rates with better evidence.

Justt goes beyond just managing chargebacks; it provides a detailed reporting and analytics feature, enabling hotel managers to track essential metrics and pinpoint areas requiring improvement. This fosters an environment of continuous improvement and efficiency.

Ultimately, with Justt, hotel managers don't just handle credit card disputes – they optimize their entire operations, leading to reduced costs and improved processes.

Final Thoughts

Hotels’ revenues, profitability, and customer satisfaction are all negatively affected by chargebacks,. Hotel managers and management groups must  take proactive measures to prevent chargebacks to overcome this challenge.

Solutions combining automation and AI can streamline chargeback management processes and reduce costs. 

With Justt, you can resolve credit card disputes in the hospitality industry with ease. Leveraging advanced technology, we automate chargeback management processes and aggregate data across various properties. This allows both hotel managers at individual locations and larger management groups to access and review relevant data. 

Through this aggregation of data, companies can discern emerging trends more effectively to reduce costs and enhance customer satisfaction.

Click here to learn more about how we're revolutionizing chargeback management for the hospitality merchants.

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Written by
Ronen Shnidman
Ex-journalist and major fan of fintech and OSINT, I write regularly for leading industry outlets in finance and fraud prevention. Outlets I contribute to include Payments Dive, Finextra, and Merchant Fraud Journal, and I have been cited by
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