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Understanding Credit Card Processing for Hotels
When it comes to credit card processing for hotels, the needs of the hospitality industry are far more intricate than what regular businesses typically deal with. Hotels process a range of unique transactions that include advance bookings, deposits for reservations, extended stays, and incidentals. Each of these transactions requires the ability to authorize, adjust, and capture payments differently than a typical retail or eCommerce setup.
Here are some of the key differences:
- Pre-Authorization of Funds: Hotels often pre-authorize an amount higher than the cost of the room to cover incidental charges (like room service or damage to the room). This temporary hold on the customer’s card must be adjusted when the final bill is settled.
- Post-Charge Adjustments: Unlike standard retail transactions, hotels often need to make adjustments after the initial charge—whether for added services or other fees.
- High-Volume Transactions: With a large number of bookings and payments processed daily, the payment gateway needs to handle high volumes efficiently and securely.
These added complexities mean that the payment gateway for hotels needs more advanced features compared to other businesses. A well-designed hotel payment processing system should be flexible enough to accommodate all these different scenarios without any issues.
Why Is Hotel Credit Card Processing Considered High Risk?
Not all hotels are deemed high risk, but many can fall into that category by underwriting banks for several reasons. Hotel credit card processing companies might label a hotel as high-risk due to factors such as:
- Long Booking Windows: Guests often book weeks or months in advance. If the guest cancels or disputes the charge after such a long period, it can lead to higher chargeback rates.
- Chargebacks and Disputes: Due to cancellations, no-shows, and disputes over charges for room damage or extra services, hotels often experience higher chargeback ratios than many other industries.
- Third-Party Bookings: Hotels often rely on third-party booking websites. If something goes wrong in that process, the guest may dispute the charge with the hotel itself, increasing the risk of chargebacks.
- Seasonal Business: Hotels, especially those in resort destinations, often see large fluctuations in revenue depending on the season. Sudden spikes or dips in transaction volume can cause banks to flag accounts for suspicious activity.
Being considered high-risk doesn’t mean a hotel can’t get a merchant account—it simply means the underwriting process might be more thorough, and the hotel may need to provide additional documentation.
What a Hotel Needs to Provide for Credit Card Processing
In order to get approved for credit card processing for hotels, it’s important to provide thorough documentation during the application process. Underwriting banks want to ensure your hotel is stable, compliant, and a low chargeback risk. Typically, hotels will need to submit:
- Business Financials: Profit and loss statements, balance sheets, and cash flow documents to show financial stability.
- Proof of Ownership: Documentation that demonstrates the legitimacy of your business.
- Business License: Proof that your hotel is legally operating in the area where it’s located.
- Processing History: If available, past processing statements that reflect your transaction volume, average ticket size, and chargeback ratio.
- Refund and Cancellation Policy: Hotels need to clearly outline these policies for underwriting banks to assess risk.
If you don’t already have them Durango Merchant Services will provide guidance as you gather these materials and streamline the application process to make it as smooth as possible. We’ll work with you to tailor a payment solution that fits your hotel’s needs.
Features Needed in a Hotel Payment Gateway
Given the complexity of hotel credit card processing, choosing the right payment gateway can prevent future hassles. A hotel payment gateway should be able to handle the diverse needs of the hospitality industry, from online bookings to in-person check-ins. Key features include:
- Pre-Authorization and Adjustments: Ability to pre-authorize cards for deposits and incidental holds, then adjust those amounts when the guest checks out.
- Tokenization: Secure storage of card information for future use, especially for repeat bookings or room upgrades.
- Multi-Currency Support: For international guests, hotels need a gateway that can handle various currencies and process cross-border payments smoothly.
- Integration with Property Management Systems (PMS): Seamless integration with hotel management software to streamline booking, payments, and accounting.
- Fraud Prevention: With large volumes of transactions, hotels are prime targets for fraud. A good gateway should offer robust security features like tokenization, encryption, and real-time fraud detection.
At Durango Merchant Services, we recommend and support leading payment gateways such as Durango Pay Gateway, NMI, Fluidpay, and Authorize.net. Each of these gateways offers:
- Virtual Terminals: For processing payments made over the phone or manually entering card details.
- POS Systems: We provide and support modern point-of-sale systems to handle payments in-person, at check-in, or at other touchpoints within your hotel.
- Gateway Emulator: If you’re switching providers or need compatibility with an older system, these gateways can emulate the existing system to make transitions smoother.
With Durango Merchant Services, we can help integrate these systems into your existing workflow, or we can assist with upgrading your hotel payment solutions to more modern technology.
Online vs. In-Person Hotel Payment Processing
When comparing online and in-person hotel payment processing, there are distinct differences in how payments are handled:
- Online Payments: Typically used for advance bookings, where guests make a deposit or pay in full before arrival. A secure payment gateway is essential here to protect sensitive customer data and prevent fraud. Online payments also need to support refunds or partial refunds in the case of cancellations.
- In-Person Payments: Most commonly processed when the guest checks in or checks out. This involves the use of POS systems that can handle multiple payment methods, including contactless payments. In-person transactions often include pre-authorizations for incidentals, which need to be adjusted or voided during checkout.
Both types of transactions require robust and flexible hotel payment processing solutions. Durango Merchant Services can help you implement a system that handles both seamlessly, ensuring your hotel can process payments effectively, regardless of how your guests choose to pay.
Can Hotels Use Aggregate Payment Solutions Like Stripe, PayPal, and Square?
While popular aggregate payment solutions like Stripe, PayPal, and Square are often attractive for smaller businesses due to their simplicity, they may not be the best choice for hotels. Here’s why:
- Limited Features: These platforms are typically designed for smaller transactions and may not support advanced features like pre-authorizations, multiple currency processing, or large volume payments.
- Risk of Account Freezes: Aggregate payment processors are known for freezing accounts with little warning if they detect what they deem to be unusual activity. Given the high volume and variety of transactions that hotels handle, this can be problematic.
- No Dedicated Merchant Account: With these solutions, you’re sharing a merchant account with other businesses, which means less control over your funds and processing options.
If your hotel experiences an account freeze, suspension, or closure with an aggregate payment provider, it can significantly disrupt your operations. Durango Merchant Services can help you secure a dedicated merchant account that gives you more control and flexibility.
What to Do If Your Hotel’s Current Payment Account Is Frozen, Suspended, or Closed
If your hotel’s credit card processing account is frozen, it’s important to act quickly. Here’s what you should do:
- Contact Your Payment Processor: Reach out to them directly to determine why the account was frozen or suspended and whether it can be reinstated.
- Review Your Transaction History: Look for any issues that could have triggered the freeze, such as a spike in chargebacks or suspicious transactions.
- Find an Alternative Processor: If the account can’t be reinstated, contact Durango Merchant Services. We specialize in helping businesses that have had accounts frozen or closed find new processing solutions.
At Durango Merchant Services, we work with hotels to secure reliable merchant accounts, even if they’ve faced challenges with previous processors. Our team can help you review your options and find a solution that meets your hotel’s specific needs.
More Details on Documents Needed to Get a Dedicated Merchant Account
It’s mandatory to gather and submit all the necessary documentation that will allow underwriting banks to thoroughly evaluate your hotel’s financial health and assess the risk involved in providing a merchant account. These documents include:
Financial Statements: These should include detailed profit and loss (P&L) statements and balance sheets from the past two years. These documents give a clear picture of your hotel’s revenue, expenses, and overall profitability. Underwriting banks will use this information to evaluate the stability of your business, especially during peak and off-peak seasons, which is common in the hospitality industry.
Tax Returns: Submit both federal and state income tax returns for the past two years. Tax returns verify the financial information presented in your financial statements and show that your hotel is compliant with tax regulations. Underwriters use these returns to cross-check reported income and expenses.
Processing History: If your hotel has previously processed credit cards, provide at least six months of processing statements from your current or past payment processors. These statements should detail transaction volumes, average ticket sizes, chargeback rates, and any refunds. A clean processing history with low chargebacks and consistent transaction volume can greatly improve your chances of approval.
Bank Statements: Submit the last three to six months of business bank statements. These help underwriters confirm that your hotel has a steady cash flow and sufficient reserves to cover potential chargebacks or refunds.
Business License and Permits: Provide copies of your hotel’s operating licenses and any permits required by your local government. This demonstrates that your hotel is a legally registered and compliant business.
Ownership and Corporate Structure Documents: These include the Articles of Incorporation, ownership agreements, or any documentation that outlines the legal structure of your business. This is essential for verifying who owns the business and how it is managed.
Refund and Cancellation Policies: Outline your hotel’s policies on cancellations and refunds. These policies are particularly important for hotels, as they help underwriters understand how you manage guest cancellations and potential chargebacks, which are more common in the hospitality sector.
Providing these documents in full and accurately will help underwriting banks better assess your hotel’s financial stability, transaction volume, and overall risk, making it more likely that you will receive approval for a merchant account tailored to your needs.
How Durango Merchant Services Can Help Medical Device and Supply Firms with Credit Card Processing
Durango Merchant Services specializes in credit card processing for hotels. Here’s how we can help:
- Custom Payment Solutions: We provide tailored solutions for hospitality credit card processing, ACH, and eCheck payments.
- High-Risk Merchant Accounts: We specialize in securing merchant accounts for high-risk businesses, including hotels.
- Expert Guidance: Our team will walk you through the application process, assist with compliance, and ensure your payment system fits your needs.
- Ongoing Support: We offer continuous support to help you manage chargebacks, maintain compliance, and protect your business from fraud.
