The purpose was to ensure that the credit card being used by the consumer was valid, and had enough funds under the “credit limit” to pay for the hotel stay and incidentals. 

From this system, a number of problems occurred. 

First, the rate being charged to the hotel was determined by the merchant banks and organizations that were valid processors authorized by Visa and Mastercard.  These registered processors are called I.S.O.’s (Independent Sales Organizations).  They pay Visa and Mastercard thousands of dollars per year for that designation.  There are several major problems that no one processor or bank has yet addressed. 

Next, hotels have had a hard time getting paid for “No Shows”--guests who make a reservation and fail to cancel their room; thus the room could not have been resold that night. 

Next, some banks entice hotels with a low percentage rate plus transaction fee.  The percentage rate is called a “discount” rate.  However, because guests frequently do not come to the front desk to check out of their room, the front desk has to check them out by “keying” in their transaction.  This is costing the hotel 30-40% more, per transaction. It’s a hidden cost. 

Next, when a consumer disputes the charges of the hotel, which is called a “chargeback”, is the hotel charged a substantial fee, regardless of the outcome of the dispute?  Is the hotel paying 40% more, because its equipment doesn’t handle “address verification” of the guest. 

Finally, is the hotel entitled to be in special new programs designed by Visa and Mastercard that the processor or bank that they are using is not “certified” in?  In April 1998, Visa has announced a raise in its rates.  Does the hotel use a bank or processor with a “Rate Freeze Guarantee” program? 

 Because there have been a number of changes and new programs introduced into the marketplace, hotels need to review their credit card processing needs.