Managing Chargebacks Deluge Due to COVID-19
The COVID-19 crisis has created unprecedented risks in the travel industry. Due to “shelter in place” orders, travelers that had vacations scheduled have been forced to cancel their plans and are taking actions to get their money refunded. This has created a significant challenge for property managers and owners, who need to manage their cash flow in light of rising cancellations, refunds and reschedulings. Managing chargebacks represents one of the biggest challenges for property managers in this new environment. In the normal course of business, chargebacks are rare for a healthy property manager, but due to COVID-19, chargebacks are becoming commonplace across the travel industry.
The overwhelming majority of chargebacks due to COVID-19 occur because a guest is cancelling a reservation and did not receive a credit, whether or not the cancellation occurred in violation of the property manager’s cancellation policy. The formal chargeback process is paper intensive and can take as long as 120 days with multiple claims and counterclaims and involves issuing banks, card networks and payment processors. The process steps include the following:
Dispute Initiation: The cardholder initiates a dispute with their card issuer. The dispute is sent to the card networks (Visa, Mastercard, Amex, Discover) and the cardholder account is credited (the charge is removed from the cardholder’s account).
PMC Notification: The payment processer receives notification of the dispute and debits the property manager’s account for the amount of the chargeback.
Documentation: The property manager provides documentation to support the cardholder payment (showing that the charge was valid and authorized and/or was not rightfully disputed -- thus, disputing the chargeback) or accepts the chargeback (resulting in the disputed amount remaining with the cardholder). The payment processor reviews the documentation and, generally, sends it to the issuing bank.
Decision: The cardholder’s issuing bank will either repost the charge to the cardholder’s account or may reassert the chargeback to the property manager’s payment processor, whereupon a second documentation process will ensue. If the chargeback dispute is resolved in the property manager’s favor, the charge is reposted to the cardholder’s account and the property manager’s account will be credited for the amount of the chargeback (that is, if the chargeback is decided in the property manager’s favor, the charge is reinstated on the cardholder’s account and funds are returned to the property manager’s payment processor).
Card Networks and Payment Processor Responses
Card Networks:Visa implemented the COVID-19 Dispute Monitoring Program beginning April 1st to help maintain the integrity of the dispute process by reducing invalid disputes initiated into the system. The program monitors dispute volumes for Airlines, Entertainment, Lodging, Transportation, and Travel Services. Practices that may be inconsistent with current Visa dispute rules are flagged and issuers may be required to resolve invalid disputes. Yapstone is also working with the card networks to negotiate for additional time to process disputes when possible.
Payment Processors: Many payment processors like Yapstone have fully staffed chargeback teams that work closely with the card networks. These teams advocate on behalf property managers and provide the latest information from the card brands on their processes. Because of the significant increase in chargebacks due to COVID-19, payment processors in the travel industry are taking steps to limit potential losses, such as requesting financial statements that can support cash on hand relative to the current exposure of existing reservations.
Strategies to Protect Yourself
Proactively Communicate with Customers and Encourage Refunds or Credits: Property managers are making tough decisions and adjusting their policies for cancellations and refunds during this crisis. Where possible, it’s beneficial to provide credits for a future stay or refunds to lower the chargeback volume and protect your brand for the long term. If you are issuing a refund for a reservation made with a credit card, always process the refund on the credit card provided by the traveler. Do not issue a check as the traveler may initiate a chargeback even after receiving the refund payment. Due to the unprecedented travel disruptions, refunds may take up to 30 days to flow through the banking system.
Documentation: It is very important to cooperate with your payment processor’s financial document requests to demonstrate that you are correctly handling your escrow/holding accounts and that you have the appropriate amount of cash on hand to prevent your processor from taking additional risk mitigation measures on your business. In the event of a chargeback, make sure you have your documentation in order to support your dispute of the chargeback. This includes screenshots and other documents that prove that the refund cancellation policy was disclosed before the reservation and payment, documents that prove that the cardholder agreed to the disclosed policy, records of any communications (email, texts, etc.), and written summaries of conversations related to the documentation provided.
Control Your Money, Terms and Policies: Certain channel managers may be able to control refund, cancellation, and dispute management policies on your behalf, limiting your ability to make decisions to manage your cash flow in the event of a dispute. Payment processers like Yapstone enable property managers to control their cancellation policies and dispute management decisions.
Work with Travel Payment Experts: There are over 100 chargeback codes that are applied differently to various industries. Make sure you work with a processor who understands the Vacation Rental space and knows how to apply the card brand rules and regulations, guide you on your cancellation policies, and advocate on your behalf.
Yapstone, whose brand VacationRentPayment is a leader in providing payment services in the travel industry, has deep industry-specific processing expertise and a leadership team with sophisticated payments experience. We deliver our payment services to thousands of vacation rental properties across the country.
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