Economic volatility spells rise in friendly fraud for hotels

For three years, the 2020 pandemic temporarily ended all travel plans, confining consumers to their homes and allowing for a considerable build-up in cash. Since then, the hotel and broader hospitality industry has faced a historic influx in new bookings. However, as money saved during the pandemic begins to dry up rapidly alongside a volatile economy, the phenomenon known as “revenge travel” may finally be starting to lose steam.This puts hotel owners and operators at a critical inflection point in 2024; not only is there reason to expect a notable decline in demand for both domestic and international travel, but consumers who do continue to book new trips this year may be increasingly tempted to turn to “friendly fraud,” disputing legitimate purchases in order to save money and lessen the overall financial burden of their travel plans. But what exactly does friendly fraud mean in the context of the hotel industry, and what can owners and operators do to protect themselves? Let’s take a closer look. What is friendly fraud? Friendly fraud is a popular term used to describe chargeback fraud, which involves a consumer being issued a refund on a legitimate credit purchase once the goods and/or services have been delivered. While friendly fraud is by no means new, it has become much more dynamic and widespread in the age of online shopping and digital commerce. In the context of the hotel and hospitality industry, friendly fraud tends to occur in a variety of different ways. For example, a consumer may simply contact their credit issuer to dispute a legitimate mini-bar purchase or other in-stay service provided by the hotel owner. Additionally, consumers may seek to recoup money withdrawn fairly by the hotel in accordance with its no-show or late cancellation policy. Needless to say, friendly fraud represents a serious financial and operational risk to businesses. In many instances, the burden of proving a charge was legitimate is left on the business owner, who either must cut their losses immediately or engage in a time-consuming exchange of documentation with credit issuers to recoup the funds. Critically, friendly fraud is already far from rare, but studies show that it may in fact be increasing as consumers come to terms with depleted savings accounts and particularly volatile economic conditions. Three tips for preventing friendly fraud in 2024 With a potential rise in chargebacks and the threat of declining travel demand looming over the hotel industry, owners and operators will need to start taking the possibility of friendly fraud seriously in 2024. Here are just three particularly effective strategies for prevention that any hotel or hospitality business can deploy: Crystal Clear Policies Corporate policies can go a long way toward preventing friendly fraud, especially when they are transparent and communicated clearly to consumers before, during, and after their stay. By ensuring there is no ambiguity around everything from refund and additional charge policies to those surrounding cancellations and no-shows, hotel owners have a much better chance of minimizing costly disputes. Exhaustive Documentation Exhaustively clear and repetitive documentation should also be the rule when issuing written statements such as booking confirmations and receipts. The more detailed these documents are, the more difficult it becomes for consumers to make a fraudulent dispute over a legitimate purchase or violation of a clearly stated policy. Fraud Prevention Technologies Finally, as fraud tactics become more cunning and sophisticated, hotel owners and operators may need to reassess and ultimately bulk up their arsenal of fraud prevention tools. More specifically, in addition to utilizing strategies such as AVS and CVV matching to authenticate payments, many hotel businesses today are turning to increasingly advanced technologies such as machine learning in order to enhance processes like rule-based fraud scoring and real-time monitoring and alert systems for online bookings. This can help prevent instances of friendly fraud and better position oneself to respond swiftly and confidently after a fraudulent chargeback has been issued.