June 4, 2013

Reversing Holds on Debit

Shift4’s world-class support team handles hundreds of calls each month and helps our merchant customers walk through everything from how to settle a batch to how to add a new account administrator. The most common question they receive, and one that we’ve covered a few times before in our newsletter, is “How do I reverse the holds that are placed on my customers’ cards when they pay with debit?”
Now, this is a problem that is unique to hospitality merchants, but before the rest of you quit reading and think it doesn’t apply to you, consider this: do you ever stay in hotels? If you do, be sure not to pay with debit when you are reserving a hotel room.

Here’s why: When you reserve a room with a debit or credit card, the issuing bank places an “open-to-buy” hold on the card. 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 is 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 hold 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.

Hoteliers, 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 would rather use a credit card. (You may even be able to configure your PMS to 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 was an easy way to reverse these holds, but there simply isn’t. We hope the information we provided helps you explain the situation to your customers. After all, a little bit of education up front can save you a lot of headaches come check-out time!