How Does a Chargeback Work?

Modified on Wed, 11 Oct 2023 at 04:04 PM

A chargeback, also known as a payment dispute, occurs when a guest questions a transaction and asks their card issuing bank to reverse it. Although payment disputes protect guests from unauthorised transactions, they can be a big headache for hotels, especially when issued incorrectly.


When a chargeback happens, the disputed funds are held from the hotel until the card issuer resolves the issue. 

If the bank rules against the property, those funds are returned to the cardholder. If the bank rules in the cardholder's favour, they'll return the disputed funds to you. Unfortunately, this can be a complicated and time-consuming process involving a lot of paperwork and documentation. 


There are a few common causes for chargebacks:


Fraudulent transactions: If a cardholder sees a charge from you but never made a purchase, it could mean fraud is at play. This motivates them to file a dispute.


Credit not processed: In this case, a cardholder cancels the booking expecting a refund or account credit and receives neither. Sometimes customers will mistakenly believe they are entitled to a refund, but they are not because they did not follow the correct return or cancellation policies. 


Sometimes the property processes a credit too late for it to show up on the cardholder’s most recent statement, and they file for this chargeback without realising that the refund has already been posted to their account.


Dissatisfaction with the booking or service: Cardholders sometimes file a dispute if they are dissatisfied with your product or service.


The general chargeback process explained.


The chargeback process can differ between payment processors. Traditionally it can take between 60–90 days to resolve. 


Here is an overview of how the general chargeback process works:


The process: 


Step 1: A purchase occurs. All chargebacks start with a guest making a purchase in person or online. 

Step 2: The guest initiates the chargeback. After the guest reviews their credit card statement at the end of the month, they may notice a charge they didn’t authorise. The guest then contacts their credit card company (known as the issuing bank), asking to investigate the charge in question.

Step 3: The issuing bank then reaches out to your bank, asking you to provide evidence to refute the claim. This can include invoices, receipts, or anything else proving the purchase was valid.

Step 4: After reviewing all the proof provided by your bank as the hotelier, the cardholder’s bank must decide whether the purchase was valid. 

Step 5: The guest is informed. At this point, the guest must accept the proof provided by the acquiring bank and either pay for the booking or continue to dispute the purchase and begin a process known as arbitration. If the acquiring bank determines the purchase was invalid, the cardholder (guest) receives a refund.

Step 6: If the issuing bank and your bank disagree, as a last resort, they will enter the arbitration process. The issuing credit card company governs the arbitration process, and its decision is final.

Step 7: The credit card company Visa, Mastercard, or American Express reviews the proof provided by the parties and has the last word on who must pay for the charges. 


If a property loses the arbitration process, they may seek recourse and repayment in a court of law at their own expense. That already demonstrates how complicated the process is. 

How RoomRaccoon handles chargebacks for you!

Step 1: RoomRaccoon notifies you of the chargeback, and we will expect you to respond within ten working days.


Step 2: You decide how you’d like to proceed. You can either accept the chargeback as valid or challenge it by sending the payment provid the documentation you have related to the transaction.


Step 3:  If you want to challenge the chargeback, collect the information and submit it to the acquiring company (email below).


Step 4: The bank determines whether the purchase was legitimate or not. If the bank rules in your favour, the transaction stands. You must pay the fee if the bank rules in the guest’s favour.


What paperwork do you need to submit to dispute a chargeback?

  • Copy of the payment order

  • Copy of the reservation invoice

  • Receipts of purchase, especially if those receipts have signatures. 


If a hotel has a 72-hour cancellation policy and the customer decides to cancel the reservation on the day of arrival, they are not entitled to a refund. If the customer demands a refund and takes the matter further, the hotelier can submit proof of their cancellation policy to back up their story. 

Email the info to: disputes@cm.com

Attention: Merchant Accounting Team

Reference: Your rr-Demo-wine-house_nl (sample only) - check your invoices to confirm your reference.


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