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Hospitality fraud: What it means and how it threatens your business

Autohost - Fraudster

October 7, 2020

 

To many property managers, the term fraud conjures images of hackers and criminals siphoning hard-earned revenue. While there’s no doubt “fraud” is a scary term, not every incident is this severe. The more sinister incidents tend to be overreported in the media, giving the general public a false sense of what fraud actually means and how often it surfaces in day-to-day life. Fraud, in fact, covers a broad spectrum of crimes with some being more common than you might expect—especially in hospitality. 

     

The hospitality industry sees a wide variety of fraud, particularly as demand ebbs due to the COVID-19 pandemic and property managers are forced to accept riskier guests. While there are varying degrees of hospitality fraud, each type is significant and can result in security issues and revenue loss. To navigate and avoid fraud, here is a breakdown of what each type means for your hospitality business.


Friendly Fraud

Friendly fraud is one of the less serious types of hospitality fraud. It refers to a guest who files an unwarranted complaint against your business, initiating a chargeback. Specifically, this means the guest has claimed that something about your transaction was illegitimate and has brought it to the attention of the credit card provider, looking for a refund.

 

In a situation like this, the guest will typically argue that the property didn’t match the online description, they never actually stayed in the property, or they cancelled the reservation and were still charged.

 

It then falls to you to present the credit card provider with evidence that rebukes the guest’s claim, such as communication between you and the guest showing that they did check in and out as planned.

 

This form of fraud eats up time and resources as you combat the chargeback. And if the credit card provider deems the guest’s claim legitimate, you lose out on the guest’s payment and those nights the property could have been booked. Without sufficient evidence that the guest did stay in your property, you’re likely to lose the dispute. That’s why it’s so important to document the stay and all guest communications, and hold onto transactional records.

 

Find out how much friendly fraud can cost you


Deceptive Booking

As a property manager, you typically have a target demographic that you’re marketing your property to. Maybe it’s families, business travellers or vacationing couples. Regardless, the COVID-19 pandemic has complicated this process by limiting the types of guests travelling. As a result, property managers are being forced to accept guests they normally wouldn’t, giving them less control over who is entering their unit and for what purpose. This makes it easier for risky guests to slip through the cracks.

 

A deceptive booking is when a guest submits misleading information. This type of fraud has become more common since the start of the pandemic and leaves you unaware of what’s happening in your unit. Common examples are guests who lie about why they’re staying in your property or a guest booking for a friend. Any attempt at deception is a bad sign for your business. It could mean the guest plans to violate your rules and host a party, or worse.

 

These types of guests are often locals looking to book your property to throw a party and have a good time. Pay attention to a guest’s travel plans and whether they make sense. A red flag is when the guest books a property that is bigger than their needs—a three-bedroom condo for two people, for instance. 

Identity Fraud

Similar to a deceptive booking, identity fraud deals with people entering your property under false pretenses. But while a deceptive booking deals with a lying guest, identity fraud is a crime. Identity fraud means your guest is using fake or stolen documents to enter your property.

 

Incidents of identity fraud have been exacerbated by the recent COVID-19 pandemic as fraudsters leverage low demand and the introduction of age restrictions by some OTAs. By using a fake or stolen ID, the fraudster can use your property as they please without being held responsible.

 

Property managers hit by identity fraud can experience a range of consequences, including parties, drug and sex trafficking, and squatters—an incident that’s become more common with the trend of longer stays during the pandemic. 

 

Same as the deceptive booking, this could result in property damage, bylaw fines and noise complaints. But for the more severe incidents, like drug and sex trafficking and squatting, you are liable for the safety of your neighbours and building staff. It’s also much harder to identify these incidents when they’re happening as they won’t trigger noise sensors the way a party would. 

 

Check out our example of common fraud in STRs


Credit Card Fraud

Credit card fraud puts your business at serious financial risk. It consists of fraudsters using stolen cards to pay for a stay in your property. And once the card is reported as stolen, a chargeback is issued and you are forced to refund the booking. This type of chargeback is nearly impossible to argue. Pay extra attention to last-minute reservations as they are common with this type of fraud.

 

Aside from financial setbacks, credit card fraud gives the fraudster free access to your property. It can be particularly dangerous if credit card fraud is combined with a deceptive booking or identity fraud because then there is no verified ID or credit card to keep the guest accountable in case there is property damage or a more severe crime taking place. 


How to Combat Fraud: Know Your Guest

These types of fraud are serious, but if you know how to combat them, you can keep your properties secure and your business safe. The first step is to Know Your Guest. This means collecting and verifying information for every person entering your property, and learning about the guest and their intentions. 

 

Requiring the guest to provide their information will deter the less severe types of fraud, but to avoid more serious cases, you need to monitor and analyze each reservation. This, however, takes time and resources. An efficient way to handle the process is to use Autohost, the ultimate guest-screening toolbox, Autohost automates everything from booking to check-in, scanning for fraud and flagging risky reservations. 

 

With the right tools, fraud doesn’t have to be scary. Operate confidently knowing your property is protected.

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