July 3, 2012

Debit (and “Open-to-Buy” Holds) in Hospitality

We recently attended the Choice Hotels International Convention, at the invitation of one of our largest Hospitality clients. Several members of Shift4’s staff were in attendance and we had a wonderful time. One of the most frequently asked questions we heard at this conference was, “What can you do about the annoying holds that are placed on my customers’ cards when they pay with debit?”
The unfortunate answer is that we (Shift4) cannot do anything to reverse the holds. But, we can explain where they come from and how to avoid them.

These “annoying holds,” of course, are the “open-to-buy” holds that Issuing Banks place on the cards when a guest reserves a room (or checks in). These open-to-buy holds are typically a percentage of the nightly room rate that is charged above and beyond the actual rate; they guarantee that the hotel can later bill incremental authorizations to cover things like spa treatments, room service, pay-per-view movies, etc.

When the holds are placed on a credit card, they tie up a portion of the customer’s credit limit but few people ever notice that. However, when that open-to-buy hold is put on a debit card, it actually holds funds in the guest’s checking account (this is one of the reasons bank accounts may sometimes show different amounts under “current balance” and “available balance.”)

These holds typically clear once the ticket is finalized and the transaction settled but the problem that aggravates hotel guests and merchants alike comes when the customer decides to check out using a different payment method. If the debit card has an open-to-buy hold but the customer pays using their credit card, that “open to buy” can remain on their debit account, tying up actual funds in their checking account for up to 15 days!

We want to make it very clear that Shift4 has no control over these holds. They are added automatically by the Issuing Banks, based on the merchant type. If you’re a Hospitality merchant and you accept a debit card for check-in, this hold will be added to the card. The only way to have the hold released is for the guest to contact their bank and have the bank resolve the issue. This can be a long, convoluted process and is not always successful.

Your best bet is to encourage your guests not to reserve their rooms using debit cards. Warn them about these holds that the banks will put on their cards and ask them if they wouldn’t rather use a credit card. (You may even be able to have your PMS manufacturer use BIN spinning to determine the card type and then trigger a pop-up alert for your clerk whenever a debit card is used.) You could then inform your customer that they can still use their debit card when they check out if they’d like (which, thanks to the Durbin Amendment and its limit on the debit processing rates, would mean less fees and more money for the merchant).

Ultimately, this is all about consumer education. We wish there were an easy way to reverse these holds, but there simply isn’t. We’re letting you know how it works and hope that helps you explain it to your customers. A little bit of education up front can save you a lot of headaches come check-out time!