3718 Karos hotels

Introduction

• What it is: This MCC covers businesses that provide lodging services, specifically focused on hotel operations.
• Risk level: Medium — Hotels often face chargeback risks due to fluctuating booking patterns.
• Acceptance difficulty: Medium — While commonly accepted, some PSPs may require additional scrutiny due to cancellation policies.
• Typical business models: hotels; motels; resorts; bed and breakfasts; boutique stays.
• For merchants: Expect moderate MDR rates; potential for reserves during peak seasons; straightforward onboarding processes.
• What PSPs expect: Proof of business operations; details on cancellation and refund policies; clear online presence with contact information.

Payment Insights & Benchmarks

Merchants in this MCC should expect a unique payment landscape influenced by travel-related experiences and customer behaviors. Payment acceptance can vary widely based on the channel and customer location, making it essential to understand these dynamics to optimize transactions and reduce friction.

Payment methods

Cards: commonly used for bookings; however, they may encounter higher declines due to risk assessments during fraud checks.

• E-wallets: gaining popularity for ease of use, especially among younger travelers looking for quick transactions.
• Bank transfers and A2A: increasingly favored for larger transactions given their perceived security and lower fees.
• Loyalty points or travel vouchers: often utilized for payment, enhancing customer engagement but can complicate reconciliation.

Authentication & security

Strong customer authentication (SCA) is usually enforced, impacting user experience but enhancing security.

• Fraud analytics should focus on device tracking and booking patterns, as travel transactions can exhibit unique fraud behaviors.
• Successful authentication may require additional steps during peak booking times, leading to potential cart abandonment.

Benchmarks (indicative, not guaranteed)

MDR: may be higher than standard e-commerce due to the travel industry’s perceived risk level.

• Rolling reserves: often implemented, particularly for high-ticket bookings, and usually in the range of 5-10%.
• Settlement cycles: typically longer (7-14 days) due to additional verification processes.
• Chargeback ratios: can be elevated due to travelers disputing charges more frequently.
• Card approval rates: generally lower; alternative payment methods may see better acceptance rates.

Key metrics to monitor

Chargeback rates with a focus on the reasons for disputes and frequent complaints.

• Authorization rates segmented by payment method and customer demographics.
• Time to conversion metrics to identify potential drop-off points in the booking process.
• Average booking value and payment method distribution for deeper financial insights.

Risk & Compliance

Merchants under this MCC are closely scrutinized due to elevated financial and reputational risks. PSPs and acquirers typically apply stricter controls, expecting merchants to proactively address fraud, chargebacks, and AML/KYC compliance.

Chargebacks & fraud

High incidence of friendly fraud (“I didn’t authorize this transaction”), especially in instances where guests dispute charges for no-shows or cancellations.

• Booking manipulation, such as using stolen cards or fake identities to claim benefits, can lead to bonus abuse.
• Mitigation tools include device fingerprinting, velocity checks on bookings, and implementing cancellation policies that minimize disputes.

AML/KYC expectations

Strong customer identity verification (IDV) processes must be in place, including checks against sanctions lists and politically exposed persons (PEP).

• Source-of-funds checks are expected particularly for high-value bookings or when there are unusual payment patterns.
• Manual review triggers include payments from high-risk countries, large deposits, or discrepancies between booking details and identity verification.

Operational red flags

Lack of transparency regarding ownership or governance, which can signal potential fraud or operational risks.

• Marketing through unclear channels, raising concerns about the legitimacy of traffic sources.
• Inadequate policies related to cancellations and refunds, leading to potential disputes with customers.
• Missing robust policies on guest verification and anti-fraud measures, which may lead to increased chargeback rates.

Onboarding Checklist

Merchants under this 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 critical for merchants in this MCC, as PSPs and acquirers will require proof of compliance before onboarding. Recognition of licenses depends heavily on the merchant’s jurisdiction and the markets they target.

Operator licenses

Gaming licenses (e.g., from state gaming boards) — necessary for operators offering gaming services alongside hotel accommodations, with recognition varying by state.

• Local business licenses — required for all hospitality-related businesses to operate legally in their area.
• Health and safety permits — essential for proper food handling, sanitation, and safety regulations, particularly in restaurants within hotels.
• Liquor licenses — if serving alcohol, operators must obtain relevant permits, which vary significantly by local jurisdiction.
• Some regions may require additional tourism-related certifications or licenses based on local laws.

Geo-restrictions

Countries with strict regulations regarding hospitality and gambling may limit operations or impose certain licensing requirements.

• In the US, state-level licenses are required, and acceptance by PSPs may vary depending on local gambling laws.
• International hotels may face challenges when operating in jurisdictions with different legal frameworks pertaining to hospitality.

Certifications & audits

PCI DSS compliance for credit card processing and safeguarding customer payment information.

• Health and safety audits to comply with local regulations and ensure the safety of hotel guests.
• Annual fire safety inspections to meet local building codes and insurance requirements.
• Quality assurance inspections by local tourism boards or associations to maintain standards and facilitate guest confidence.

Official Definitions & Network Comparisons

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

Explanation:

While network definitions broadly align on the concept of lodging, differences emerge in the specifics, such as the emphasis on local regulations or the need for additional documentation for risk assessment. Multi-property operations may face different requirements across networks. Common denial reasons include inadequate local licensing, failure to meet facility standards, and risks related to transient guest activities.

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 is primarily about providing accommodation, it should fall under MCC 3718. Misclassifying your services as something else may lead to compliance issues and potential account complications. Always choose the code that accurately reflects your main service.

Best Practices for Merchants

Merchants operating under the MCC 3718, such as hotels, must navigate a complex landscape of payment processing, customer expectations, and regulatory compliance. Implementing the best practices outlined below will enhance transaction acceptance, minimize risks, and foster lasting relationships with payment service providers.

Classification & transparency

always use the correct MCC for hotel-related services; this prevents account issues and service disruptions

• clearly display pricing policies, cancellation terms, and other essential information on your website
• ensure that billing descriptors match the services provided to avoid confusion for customers

Fraud & chargeback reduction

implement 3DS or step-up authentication particularly for high-value bookings or repeat customers

• provide clear billing descriptors and send instant confirmation emails or SMS to reduce disputes
• keep detailed logs of customer interactions and transaction details to support your case in any potential disputes

Payment acceptance optimization

offer multiple payment methods (credit/debit cards, mobile wallets, local payment options) to enhance customer convenience

• analyze transaction data to route payments based on geographic location or preferred payment methods to improve approval rates
• consider using separate MIDs for different room types or package offerings to better manage risk

Operational discipline

regularly track KPIs such as booking conversion rates, chargeback ratios, and customer feedback scores

• conduct routine compliance audits of your payment processes and policies to ensure they are up-to-date
• designate a specific team or individual responsible for resolving disputes promptly in line with service level agreements (SLAs)

Payouts & liquidity

establish sufficient liquidity buffers to manage potential rolling reserves or unexpected chargebacks

• incorporate automated AML checks for withdrawals, particularly when large amounts are involved, to mitigate risks
• monitor pattern changes in payout requests to detect any unusual behavior that may indicate fraud

Business Scope & Examples

This MCC covers businesses primarily involved in the operation and management of hotels, motels, and other lodging facilities. Merchants classified under this category usually provide services associated with temporary accommodations for travelers and guests, directly linked to the hospitality industry.

Models

full-service hotels (offering rooms, dining, and other amenities)

• budget and economy hotels (providing basic accommodations)
• motels (typically catering to road travelers)
• boutique hotels (unique, often themed accommodations)
• vacation rentals and resorts (including timeshares and rental properties)

Borderline cases

Hostels — while they provide lodging, they may not always fit the traditional hotel model; classification can depend on the amenities offered.

• Bed and breakfast establishments — often categorized under this MCC, but they may be classified differently if they primarily offer food services instead of lodging.

Signals for correct classification

primary revenue comes from room rentals or accommodation fees

• services offered include check-in/check-out and housekeeping
• establishment is designed primarily for temporary lodging and includes daily stays