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Fraud Trends in the Hospitality Industry and How to Combat Them

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Sept. 18, 2019

 

As the hospitality industry grows more complex, so does its susceptibility to fraud. Globally, the hospitality industry generates an estimated $3 trillion of revenue per year. According to the Association of Certified Fraud Examiners, between 5-6% of this annual revenue is lost to fraud. That amounts to $150 billion in direct loss of revenue.

Property managers in the short-term rental industry are particularly vulnerable. With thousands of guests cycling through your properties every year, there’s a lot that can go wrong. High turnover rates make it nearly impossible to thoroughly screen each guest, and by not having a firm grasp on who you’re booking, you leave yourself open to issues like identity fraud, stolen credit cards, property damage, and more.

 

Falling victim to fraud will not only damage your company’s reputation but can cause major losses in revenue, whether it be from booking scams or turning away genuine reservations through over-screening. To maintain your company’s reputation, it’s imperative to strike a balance between protecting your properties and maintaining that 5-star guest experience.  

 

Protect yourself against fraud by staying up to date on current trends in the hospitality industry. To help you out, we’ve created a list of the three most common types of fraud in the short-term rental industry and how to combat them.

 

Types of Fraud: 

Bad Guests - While this is the most benign type of fraud (or, more accurately, “social engineering”), it’s also the most common. To a guest staying in one of your properties, it might not seem like a big deal to go behind your back and invite a couple of people over for a party. The resulting noise complaints and property damage, however, can have a severe impact on your company’s reputation and revenue stream going forward. 

 

By violating your house rules (no parties, no extra guests, etc.) guests are defrauding you. Excessive noise, consumption of drugs and alcohol, and inappropriate behaviour can get you in trouble with your neighbours, your building, and even the police. Not to mention irritating your cleaning staff who have to spend the next day collecting red solo cups and scrubbing vomit out of the carpet.

 

Worst of all, parties are prime situations for accidents—furniture breaks and guests get injured.

 

How to combat it - To ensure only the best guests book your properties, you need a thorough and comprehensive screening process. This involves collecting the personal and contact information for all guests who are staying in your property, and requesting their trip details. If anything seems suspicious, like the guest is a local or has only booked for one night on a weekend, your next step should be getting in touch with the guest over the phone to confirm details.

 

Each guest who books with you should also sign a legally binding rental agreement. This way you have the guest’s written confirmation that they agree to all of your house rules. To ensure your house rules are followed, install noise sensors in your property. If there’s an unwarranted spike in volume, you’ll be immediately alerted. To deescalate the situation, call the guest and give them a warning. It’s up to you how many warnings you give, but If the guest ignores you and the noise persists, send in a trained security team to evict the offending parties. Better safe than sorry!  

 

Criminal Activity -  Although less common, fraud via criminal activity reveals the darker more frightening side of the short-term rental industry. These are the incidents you see plastered on the front page of the morning newspaper: properties rented to gangs with automatic weapons, drug dealings, sex trafficking, properties falling victim to break-ins and theft.

 

Incidents like these should always be left to law enforcement. If there’s criminal activity going on in your property, contact your local police immediately. These kinds of activities threaten the safety of your property, the building, other guests, and society.   

 

How to combat it - Once again, this is when it’s imperative to have a thorough screening process so that you know exactly who’s booking your property. By not investigating each reservation, you leave yourself vulnerable to ill-intentioned guests. It is your responsibility to keep your property and the community safe by screening bookings. 

 

To deter these types of bookings, collect the guest’s personal information then cross reference it with the credit card they are using to pay. If the two don’t match, it’s likely that the guest is using a skimmed or stolen credit card. You also want to get in touch with the guest over the phone to find out exactly why they’re travelling and who will be staying in the suite.

 

To gather more information on the guest, google their name and phone number to see if anything comes up. Then, look at their social media profiles to figure out where they’re from and what they do—any information pertinent to their identity and character. If the reservation is really questionable, your team should meet the guest and vet them in person, making sure all the information matches their credentials.  

 

Fraudulent Bookings - Whether it leads to bad guests, criminal activity or both, a fraudulent booking is guaranteed to rob you of your hard-earned revenue. A guest may try to scam their way into a free stay by committing identity theft or credit card fraud. The guest could lie about who they are and use a stolen credit card to avoid having to pay for the stay themselves.

 

If the guest does use a stolen credit card, it’s likely you’ll be hit by a chargeback when the card is reported missing. This means that the money you received for the stay will suddenly be reclaimed by the credit card issuer.

 

And if the guest is willing to lie about their identity or steal a credit card, they probably won’t feel obligated to follow your house rules. Bad guests, as mentioned above, can lead to major issues during the stay. 

 

How to combat it - The number one way to avoid fraudulent bookings is to confirm the guest’s identity. This involves cross referencing their personal information with their credit card, as well as performing an internet search into their background and verifying their social media information. If you want to be absolutely certain, you could run a full background check, involving criminal records and credit scores, but this is time consuming and will cost you extra money. 

 

If the guest’s credit card doesn’t match their ID, it’s likely they’re using a stolen credit card. Keep an eye out for same-day bookings—they’re a major red flag. Criminals using a stolen credit card try to use the card as soon as possible before it gets cancelled. If you do process a stolen credit card, the guest will not only get a free stay, but the revenue accrued will be reclaimed by the credit card issuer, leaving you with nothing but a potential mess and a PR headache. 

 

Assuming the credit card and ID do check out, you should immediately process the guest’s payment after accepting their reservation. Ideally, use a global payment fraud prevention system while processing the payment. All payments should be made online by credit card with guests required to pay 100% of the booking fee upfront. This way, you guarantee payment for every reservation. As an added layer of security, keep the guest’s credit card information for incidentals and charge them a damage deposit.

 

If it seems like the guest is using a fake ID or stolen credit card, cancel the reservation immediately to free up the calendar. You should take no chances with risky reservations.

 

Try Autohost

The only surefire way to protect yourself against fraud in the short-term rental industry is to use Autohost, an intelligent, guest-screening assistant for vacation and short-term rental operators. It scans all reservations, using hundreds of tests and data points to collect and validate guests’ IDs, determining their level of risk. Based on the flagged risks, the software provides users with a list of action items to handle potential issues proactively. Autohost ensures property managers handle all bookings responsibly, keeping their business safe, their revenues rising, and their guests happy. 


To book a demo or find out more information about Autohost, visit our website: www.autohost.ai

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