Credit Card Processing for Hotels: Your Definitive Guide

In today’s digital age, hotel guests expect a fast, seamless, and secure payment experience throughout their hotel stay. However, for hotel owners and staff, navigating the complexities of credit card processing can be challenging.

Hotels must contend with holds on funds, high transaction fees, reduced profit margins, system integration issues, refundable deposits, slow and complicated payment processes, and more. Not to mention various payment windows, such as prepayments, same-day online payments, in-person payments, and amenity purchases.

This definitive guide unravels credit card processing to arm all hotel personnel—from owners and managers to front desk staff and accounting teams—with the knowledge to optimize credit card transactions, reduce costs, and ensure a smooth experience for both guests and hotel employees.

Key Takeaways

• Credit card processors seamlessly connect the hotel’s POS, the guest’s bank, and the hotel’s bank, making booking easy and transferring funds quickly.
• Online and in-person payment processors are integral to a smooth check-in experience for hotel guests, whether they book online or in person.
• For customer satisfaction, it’s important to offer various payment options, such as credit cards, debit cards, prepaid cards, mobile wallets, cash, and checks, to suit all guests.
• Implementing security measures like encryption, fraud detection and prevention, and ensuring PCI-DSS compliance improves security and helps keep your guests’ information safe.

Credit Card Processing for Hotels

Below, we break down credit card processing for hotels, how it works, and what’s involved.

What is credit card processing?

Simply put, credit card processing is the electronic transfer of funds from a guest’s credit card to the hotel’s account. It involves authorizing, verifying, and settling the payment. Credit cards are one of the most popular and common payment types, so hotels must accept and process them reliably and efficiently.

Merchant vs. payment processor vs. payment gateway

Accepting credit card payments involves several key players working behind the scenes. These include:

• The merchant: This is the hotel itself, which accepts payments from guests.
• The payment processor: This is a financial institution, like Square or Stripe, that facilitates credit or debit card transactions. Payment processors keep data secure, verify funds with banks, and transfer the funds to the merchant’s account.
• The payment gateway: This is the bridge between the hotel’s point-of-sale (POS) system and the payment processor. It uses software to encrypt sensitive payment card information and transmit it securely to the processor for authorization.

How payment processing works for hotels

Hotel payment processing systems allow guests to pay online or in person with a credit card, debit card, cash, or mobile payment options like digital wallets. The hotel’s POS uses a payment gateway to encrypt the data and send the charge request to the payment processor.

Next, the payment processor requests authorization from the guest’s bank to charge their credit or debit card. The issuing bank responds and authorizes the payment, and the payment processor charges the card and places the funds in the hotel’s bank account, typically within one to three business days.

When guests pay for hotels, there are three main transaction types:

• Card not present transactions: These happen when guests pay for their stay online or over the phone, which could occur minutes to months before their check-in date.
• Card present transactions: This type of transaction occurs when the guest books their stay in person at the hotel and presents their credit or debit card to the front desk. These transactions also take place at the hotel bar, in the dining area, and in hotel gift shops.
• Mobile wallet/contactless payments: Mobile wallets have become increasingly popular in recent years and are the same as charging a credit or debit card, just with the tap of a phone instead.

Processing fees

Every time a guest pays with a credit card, the merchant (hotel) must pay processing fees. Processing fees can include both percentage fees and dollar fees. There are three different types of processing fees, and they can vary based on the size of the transaction, the type of credit card being used, and whether the guest pays online or in person.

These fees include:

• Transaction fees: Payment processors charge these fees for processing transactions. Transaction fees can range from 0.10% to 0.40% plus $0.07 to $0.25 per transaction. Some payment processors charge a monthly fee, generally $10 to $20.
• Interchange fees: Credit card networks, like American Express, set these based on factors such as transaction type and card type. Interchange fees generally cost from 1.15% to 3.3% plus about $0.10 per transaction.
• Assessment fees: These are additional charges imposed by credit card networks to cover their operating costs. They generally range from 0.01% (for large transactions) to 0.15% (for smaller transactions).

Common payment processing solutions used in hotels

There are several types of payment processing options for hotels. Some are simple online and in-person systems, while others are complex, fully integrated systems. The right solution for your hotel will depend on budget, transaction volume, integration needs, and more.

• Credit card terminals: Credit card terminals are desktop or mobile interfaces that allow guests to pay with credit cards quickly and easily by tapping, inserting, or swiping.
• Point-of-sale (POS) systems: POS systems are designed to accept payments throughout the hotel, whether at the front desk or the poolside bar.
• Mobile card readers: These allow payments to be accepted anywhere, such as by bartenders or hosts in hotel bars, restaurants, pools, etc.
• Online payment gateways: An online payment gateway allows your hotel to accept payments on its own website and partner travel websites.
• Property management systems (PMS): A PMS is a specialized system designed specifically for hotels that allows them to integrate payment processing, booking management, accounting, and back-end support into one comprehensive system.

Pros and cons of credit card processing for hotels

Though it’s imperative hotels accept credit cards as a payment option for guests, there are benefits and potential downsides to consider.

How Hotels Can Streamline and Optimize Credit Card Processing

Below, we’ll share several ways hotels can improve their credit card processing to minimize costs and enhance and streamline operations.

Choose a reliable payment processor

It’s essential to select a payment processor with a strong reputation, robust security features, and competitive pricing. The processor should be able to collect payments online and in person and accept various payment methods, such as credit cards, debit cards, prepaid debit cards, mobile wallets, cash, and potentially even checks.

Popular options include Payment Depot, National Processing, Square, Dharma, PayPal, Payline, Stripe, and FattMerchant. It’s important to note that some processors focus on smaller businesses, while others cater to large enterprises, like global hotel chains.

Pricing, services, and integrations will differ between providers, so consider these factors when choosing the right payment processor for your hotel. For example, ensure it integrates with your booking management system; the two systems should work together seamlessly to manage bookings from beginning to end.

The right payment processor will reduce administrative burdens and wasted employee time, improve efficiency, and streamline operations.

Implement a property management system

A property management system (PMS) allows you to manage bookings online and in person. It can connect to your website and automatically list available rooms, remove booked ones, and factor in turnover time for cleaning and setup. Guests can book rooms as soon as they become available, improving efficiency and satisfaction.

These systems also provide data-driven reports to help you understand vacancy rates, average booking to arrival times, and other related information so you can better target and serve future guests.

Ensure the PMS can integrate with your chosen payment processor. This will allow the two systems to streamline bookings and payments and reduce the risk of unhappy guests and potential chargebacks.

Use online booking software

Online booking, whether directly through the hotel’s website or via third-party partners like Kayak, Travelocity, or Hotels.com, offers a host of benefits. Not only can this software be integrated with other hotel systems for optimized management processes, but it also allows for secure payment processing and streamlined booking.

In addition, hotels can take advantage of the enhanced efficiency online booking software offers to drive profitability and boost occupancy rates via upselling opportunities, 24-hour availability, and loyalty discounts.

Implement fraud prevention measures

Most payment processors offer built-in fraud prevention tools, which all hotels should use when accepting bookings. These include:

• Address Verification Systems (AVS): Credit card processors use AVS to match and verify the ownership of a guest’s credit or debit card with its associated address when accepting bookings online.
• Card Verification Values (CVV): These are the three-digit numbers located on the backs of credit and debit cards. CVV input assures the guest has the card in their possession rather than using skimmed card details. It’s good practice to require CVV input with online bookings to reduce the risk of fraudulent transactions.

Check with your payment processor to see if it offers these tools. Implementing these features will help prevent fraudulent activity, reduce the chances of chargebacks, and subsequently help reduce costs and improve profitability.

Reduce processing fees

Processing fees of a few percentage points might not seem like a lot, but they can add up over time, especially during your hotel’s busier months.

When you work with a payment processor, try negotiating your rates to keep them as low as possible. Additionally, regularly review your agreements and compare other providers to ensure you receive competitive rates.

Unsuccessful charges, such as a declined or failed transaction, may also result in paying processing fees. To minimize unsuccessful charges, process a $0.01 test charge to the card. If the test charge is successful, refund the $0.01 and charge the full amount.

Reduce chargebacks

A chargeback happens when a guest disputes a transaction with their bank or credit card company, resulting in the funds they paid for their booking being sent back to their account. Chargebacks generally happen either when guests are unsatisfied or when they’re willing to commit credit card fraud.

A few actions you can take to reduce chargeback requests include:

• Implement fraud prevention measures. Use tools like AVS and CVV, set up alerts with your payment processor, and use test charges to limit the chances of chargebacks.
• Keep guests informed with clear and comprehensive terms of use, hotel policies, and cancellation policies.
• Educate staff on hotel best practices, customer service, and how to handle payment disputes, refunds, and chargeback requests.

Train your staff

Ensure staff members are educated in best practices for payment processing to streamline operations, reduce error rates, and ensure quick and efficient customer interactions. For instance, train them on your hotel’s terms of use, hotel rules and policies, cancellation policy, and what amenities are included (or not) with bookings.

Hotel staff should also maintain exceptional customer service with all guests. This will improve guest satisfaction, increase the chances of repeat stays, and minimize disputed transactions and chargebacks.

Minimize manual data entry

Train staff to use hotel payment and management software effectively, entering only necessary data. This will reduce manual errors and enable the software to work optimally. By automating data storage and recordkeeping processes, you can streamline your data management and accounting and reduce discrepancies.