3638 Howard johnson

Introduction

• What it is: This MCC covers establishments under the Howard Johnson hotel brand, offering lodging services.
• Risk level: Medium — The hospitality industry can be subject to seasonal fluctuations.
• Acceptance difficulty: Medium — While generally accepted, some PSPs may have stricter underwriting criteria.
• Typical business models: Hotels; motels; resort establishments; franchise locations.
• For merchants: Expect moderate MDR, potential reserve requirements, and a focus on customer review management.
• What PSPs expect: Business registration; proof of franchise agreement; operational specifics related to accommodations and services offered.

Payment Insights & Benchmarks

Merchants in the Hotel and Lodging MCC (3638) should plan for various payment challenges, particularly focused on customer trust and security. Payments in this sector often involve higher risks, making it essential to understand acceptance rates and associated costs.

Payment methods

Cards: Widely accepted, though approval rates may vary based on issuer and travel fraud concerns.

• E-wallets: Gaining traction for convenience and security, appealing to tech-savvy travelers.
• Mobile payments: Increasingly popular among consumers for ease of use during bookings.
• Direct debit: Less common, but can offer lower fees for recurring stays or memberships.

Authentication & security

Strong Customer Authentication (SCA) is frequently mandated, increasing friction during booking processes.

• 3DS may be employed to curb fraud but can also lead to higher abandonment rates.
• Monitoring for fraudulent activity is crucial, especially around peak travel seasons.

Benchmarks (indicative, not guaranteed)

MDR: Often higher than standard e-commerce due to varying chargeback risks.

• Rolling reserves: May be applied, especially for new merchants or those with inconsistent booking patterns.
• Settlement times: Usually longer than average, often stretching 5-10 days.
• Chargeback ratios: Frequently elevated due to high-ticket items and customer disputes.
• Approval rates: Card transactions may be subject to more scrutiny, leading to lower acceptance.

Key metrics to monitor

Trends in authorization rates by payment method and time of year.

• Rate of chargebacks, particularly those related to fraud vs. service issues.
• Patterns in booking cancellations and their financial impact.
• Customer dissatisfaction metrics to identify potential payment improvements.

Risk & Compliance

Merchants operating under the MCC code 3638 face notable financial and reputational risks. This industry is often scrutinized by PSPs and acquirers, who expect businesses to proactively manage threats related to fraud, chargebacks, and compliance with AML/KYC regulations.

Chargebacks & fraud

Friendly fraud is prevalent, with customers claiming they did not authorize transactions, or disputing charges for services not received.

• Fraud patterns such as booking cancellations and multiple booking attempts can lead to increased chargeback rates.
• Tools like device fingerprinting, velocity checks, and chargeback alerts are essential for fraud mitigation.

AML/KYC expectations

Merchants must implement strong identity verification processes, including government-issued ID checks and sanctions screening.

• Source-of-funds verification is vital, especially for high-value transactions or unusual spending behavior.
• Manual review is triggered by indicators like inconsistent customer information, multiple accounts linked by payment methods, or patterns of high-risk transactions.

Operational red flags

Lack of transparency around ownership or unclear operational setups can raise concerns about accountability and compliance.

• Patterns of traffic sourced from high-risk jurisdictions typically attract attention from PSPs.
• Failure to provide clear customer service channels or refund policies can result in compliance issues around consumer protection.
• Limited or absent responsible gaming practices, such as monitoring for problem gambling behaviors, can flag operations as potentially irresponsible.

Onboarding Checklist

Merchants operating under the Howard Johnson MCC should prepare a complete onboarding package before approaching PSPs or acquirers. A well-structured submission improves approval chances and shortens review times.

Legal & corporate documents

company registration and incorporation documents

• disclosure of beneficial owners (UBO) and corporate structure
• valid licenses for the relevant business activities
• policies: Terms of Service, Privacy, AML/KYC, Refund Policy

Financials & risk management

recent financial statements and cashflow forecasts

• liquidity or reserve model for payouts
• description of antifraud setup and monitoring tools

Product & marketing

demo access or screenshots of the live platform

• marketing plan and traffic source overview (affiliates, SEO, PPC)
• geographic targeting information
• KYC flow details, including IDV providers and thresholds

Technical integration & security

payment architecture overview with supported methods/providers

• description of SCA/3DS flows, retry logic, and tokenization
• PCI DSS compliance status and data storage policy

Operations

customer support coverage (languages, 24/7 if available)

• SLA for dispute handling and chargeback response
• deposit, bet, and payout limits; self-exclusion mechanisms
• internal process for chargeback investigation and documentation

Regulation & Licensing

Licensing and certification are essential for merchants in this MCC, as payment service providers (PSPs) and acquirers require proof of compliance to ensure transactions meet regulatory standards. Recognition of licenses is influenced significantly by the merchant's jurisdiction and the markets they aim to serve.

Operator licenses

Local Business License — often required by municipalities to operate legally in a specific area.

• State Liquor License — necessary for establishments that serve alcohol, which can vary widely by state.
• Hotel and Restaurant License — may be needed to manage food and lodging services within the premises.
• Health and Safety Compliance Certificates — required to ensure the premises meet hygiene and safety regulations.
• Some jurisdictions may require a special lodging tax registration for hotel operators.

Geo-restrictions

Some jurisdictions impose restrictions on lodging services based on local laws and regulations.

• In certain cities, short-term rental licenses are mandatory for operating accommodations like hotels or motels.
• Compliance with fire safety regulations can vary significantly between regions, affecting operational capabilities.

Certifications & audits

PCI DSS compliance for handling payment card data securely.

• Health and safety audits to ensure the establishment complies with local hygiene standards.
• Environmental health inspections, particularly for food and beverage services.
• Regular assessments for fire safety and emergency preparedness.

Official Definitions & Network Comparisons

This section shows how major card networks define this MCC and highlights practical differences that affect merchant onboarding.

Explanation:

While the definitions across networks focus on lodging, terms like "establishments" versus "services" suggest different levels of detail regarding what qualifies. Merchant onboarding may require different documents or compliance due to network-specific regulations. Common reasons for merchant rejections include insufficient documentation of accommodations and failure to meet local regulatory standards.

Alternative MCC Codes

Merchants often confuse this MCC with other categories. The table below shows which codes are related, why they are confused, and what risks misclassification brings.

Rule of thumb for merchants:

If your business provides primary lodging services, use MCC 3638. Misusing alternative codes can lead to compliance risks, account reclassification, and potential loss of merchant status. Always select the MCC that accurately reflects your core business activities.

Best Practices for Merchants

Merchants operating under the MCC 3638, which encompasses services like Hotels and Lodging, must proactively manage their payment processes to minimize risk and enhance customer satisfaction. Following these best practices can help ensure smooth transactions and foster positive relationships with payment service providers.

Classification & transparency

always use the correct MCC for all transactions to avoid account issues

• ensure that terms and conditions, cancellation policies, and fees are clearly disclosed on the website
• provide transparent billing descriptors that align with customer expectations

Fraud & chargeback reduction

implement 3DS or step-up authentication for high-value transactions to mitigate fraud risk

• maintain clear and informative billing descriptors, and send instant confirmations to customers
• keep detailed logs of reservation and cancellation events to support dispute cases effectively

Payment acceptance optimization

offer multiple payment methods (credit cards, debit cards, e-wallets) to accommodate diverse customer preferences

• regularly test and evaluate payment service providers to optimize routing based on performance and costs
• consider utilizing separate MIDs for different business offerings or geographic locations to manage payment processing more effectively

Operational discipline

establish KPIs to monitor transaction performance, chargeback ratios, and customer satisfaction metrics

• conduct regular compliance audits to assess adherence to payment policies and industry standards
• designate a team or individual responsible for managing and resolving disputes efficiently

Payouts & liquidity

create a cash flow strategy that includes liquidity buffers to handle rolling reserves and payout delays

• incorporate automated checks for Anti-Money Laundering (AML) compliance related to withdrawals
• track payout patterns to identify any unusual withdrawal activities that may indicate risk

Business Scope & Examples

This MCC covers businesses primarily engaged in providing lodging and related hospitality services. Merchants classified under this category usually offer accommodations for guests, along with additional amenities such as dining, meeting spaces, and recreational facilities. The focus is on establishments that facilitate short-term stays for travelers and tourists.

Models

hotel chains (e.g., Howard Johnson, Hilton, Marriott)

• motels
• bed and breakfast establishments
• resorts and vacation rentals
• hostels

Borderline cases

Short-term rental platforms — services like Airbnb and Vrbo that facilitate vacation rentals; often require separate evaluation based on the nature of the transaction.

• Extended stay hotels — properties offering rooms for longer durations with more residential-like amenities; sometimes may not be aligned strictly with this MCC.

Signals for correct classification

business is primarily focused on providing overnight accommodations

• amenities include typical services like housekeeping and front desk support
• transient lodging is the primary source of revenue