5 types of hotel credit card scams and how to prevent them

What is a credit card scam? 

A hotel credit card scam occurs when someone uses a stolen or fake credit card for fraudulent activities. Usually, the aim is to obtain credit card information or manipulate payment processes within the hotel's systems. With the increasing prevalence of eCommerce and digital payments, the risk of phishing scams, hacking, or credit card theft has grown. 

These scams pose significant challenges for hotels, leading to lost revenue from chargebacks and fees, and risking damage to their reputation. Guests are less likely to trust a hotel where their personal information has been compromised.

Different types of credit card fraud in hotels 

With numerous scams occurring regularly, it's crucial to recognize credit card fraud promptly. Below are five of the most common types of scams: 

Reservation fraud 

Hotel reservation fraud occurs when someone uses a stolen or fraudulent credit card to make a hotel reservation. They may try to make a deposit and then cancel the reservation, requesting a refund to a different account. Alternatively, they might book expensive rooms for extended stays with no intention of paying or try to resell the room to others at discounted rates, earning unauthorized commissions on the reservation. 

Chargeback fraud 

Chargeback fraud occurs when fraudsters make hotel bookings, enjoy the services, and then dispute the charges by claiming that the transactions were unauthorized, resulting in chargebacks for the hotel. This can lead to disputes with payment processors and financial loss for the hotel. Chargeback fraud may also occur when a guest's credit card has been stolen or when they have been a victim of a data breach. This represents one of the significant challenges related to hotel data protection. 

Card testing 

When a credit card is stolen or a fake credit card is being used, fraudsters may make small purchases to validate the card. This is a widespread practice because although the credit card needs to be authorized, it won't be charged until checkout. Essentially, they are testing to see if they can use the credit card for larger and more costly purchases.

Insider fraud 

Insider fraud may occur when a hotel employee gains access to the payment system and engages in fraudulent activities, such as making unauthorized charges or stealing credit card information for personal gain.  

Loyalty fraud 

Loyalty fraud occurs when someone gains access to another guest’s loyalty card and uses it to book hotel stays, redeem gifts, or trade points. Since loyalty programs are not as closely checked as credit cards, they are an easy target for scammers. This type of fraud can lead to loss of guest loyalty even if your property is not at fault, so it’s important to monitor loyalty program bookings as closely as you would regular bookings.  

How to combat credit card scams 

The first step in combating credit card scams is recognizing the most common traps so your hotel is aware and ready to implement its cybersecurity plan. Let’s explore some of the best ways to combat hotel credit card scams. 

Train your staff 

Prevention starts with training. Ensure that fraud awareness and education are key components of your staff training. This way, your staff will be better equipped to detect suspicious activity and know what steps to take if fraud occurs. The more prepared your staff are, the less likely it is for fraud to occur in the first place.

Monitor transactions closely

It's important for your financial auditors and management teams to closely monitor transactions so they can easily detect suspicious charges. You can set up automatic notifications to alert you when charges are declined, allowing you to address any potential problems before they escalate. Maintaining close oversight of transactions is crucial for ensuring the safety of your guests and preserving your hotel's reputation. 

Create policies and stick to them  

Implement vigilant procedures and ensure your staff adheres to them consistently. Favor digital authorization methods over written ones, which are easier to impersonate. Additionally, set up a policy against allowing refunds to be processed on credit cards different from the one used for the original reservation, as this can often result in chargebacks.  

Implement robust cybersecurity measures 

Implement robust security measures – data encryption for payment information, regular security audits, and other compliance with industry standards like PCI DSS. This approach ensures your data is safe and reduces the risk of a breach. 

Instate ID checks 

Don’t underestimate the importance of cross-checking IDs. Verify that the name on the ID matches the name on the reservation and the credit card used for the reservation. Keep detailed records of this information in your system so you have the necessary documentation to support your case in case of a chargeback. 

For digital registration, use scanning or uploading IDs and credit card details to verify guests' identities and credit card information. This diligence helps your hotel prevent identity fraud and ensures the accuracy of guest information. 

Conclusion

Now that you’re more familiar with hotel credit card scams, you can better prepare to prevent them. Regularly reviewing and updating security protocols will equip your property to spot irregularities more effectively. Your reputation depends on how vigilant you are, especially in protecting your guests’ sensitive data.

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