During a recent stint in sunny Madrid, a series of decisions got me thinking about something we’ve all pretty much just resigned to happening – and that’s the credit card authorizations when checking in to almost any hotel.
The hotel tell you it’s all about incidentals or room damage, but it’s so much more than that. In today’s world of modern digital payments, a hotel putting an additional hold or “authorization” of any amount over what the room costs is pure consumer psychology. Specifically, the psychology of additional revenue.
Surprise, surprise, it often works.
Hotel Authorizations
Many hotels rates are pre-paid these days. You arrive and owe “nothing”, yet you still end up handing over a card. What gives, right?
Even if you haven’t prepaid, you end up paying more than what it says on the folio for the actual reservation charge, because virtually all hotels take an additional credit card authorization between $50-$150 per day, per room on top of the room rate.
What is this, and why? A hotel authorization can be justified by a front desk team in many ways. Some say it’s like insurance against room damage or theft while others will talk about it covering any incidental charges like clothes pressing or minibar.
In reality though, the hotel could very easily handle these things without taking an extra $50-$150 per day to hold onto from the start, in addition to what you paid for your room.
They take this because speed and ease of transaction makes you more likely to leave some of that deposit behind than if you pulled your credit card out every time you wanted to buy a round of drinks or order room service.
The Psychology Of Hotel Authorizations
We all know the phrase “don’t cry over spilled milk” and I think it’s fairly apt with this discussion. When a hotel takes an additional authorization of $50-$150 per day, even though it’s only a hold on a credit card and basically like non-existent money that was never actually spent, people feel like it’s money that’s already been spent.
- It shows up against your available credit.
- You see it listed in your transactions as pending spend.
- It doesn’t “fall off” as a charge for up to 7+ days.
Naturally, you feel in some way, however illogical it may be, as if this money is already gone in some way. With it already “gone”, people are more likely to spend more loosely than they might otherwise. They already took the $100 per day, so that $20 cocktail at the bar just feels more justified, right?
And then there’s speed and ease.
Anyone ever feel cheaper when holding actual cash than paying with credit card? You’re not alone. Watching each $20 leave your hands is a very different experience to handing over a piece of plastic. Yet simply signing your name is an entirely different level to both. You hardly think!
You don’t reach into your pocket for a card at all and all you need to remember is your room number and name. The server loves the ease, you love the ease and off you go. You simply sign and money is spent. And don’t forget — in your mind it’s money already spent, so it’s like it’s not even happening.
Extracting Extra Spend
Particularly with factors like jet-lag, fatigue and long days of meetings or touring a city, making transactions “easy” has significant benefit to a hotel. Think of that feeling of just getting up from breakfast without signing. It’s a treat in life.
Someone on the verge of going out but feeling fatigued will find it difficult to argue with the ease of spending that already swiped money and simply signing a folio charge for room service or at the cozy hotel bar.
The less someone needs to work or think to spend money, the more money they might spend. Particularly when traveling internationally as a family, I find myself falling into this clever trap more and more often, however aware I am. Sure, one more glass, it’s already spent anyway.
Just keep that in mind the next time you’re at a hotel.
Bonus Content
If you ever want to see anger, look at the TripAdvisor comments of people who put their debit card down to cover a stay not realizing that they’ll be charged the incidental too.
People’s generosity with stars starts to go down when they realize the hotel is holding an extra $150 per day and they won’t get it back for 7 days. Which is a good reminder never to use a debit card for an incidental charge at a hotel.
Great post, last week I checked into a low level Days Inn with a pre paid rate. At check in they asked for a credit card. When I got to my room I thought about this and realized they didn’t have anything for me to buy not even a candy bar, no restaurant or bar nothing. That’s why I enjoyed your posts.
Jim: The Days Inn has lots of things you can buy as long as you park near the fire exit and can run fast. You can buy the TV from your room, the pillows, bedding, and the mattress. Perhaps even the bathroom fixtures and copper wiring if you have the initiative. That is the real reason hotels need a valid credit card at check-in.
I completely agree with the reasons you stated in the article as to why hotels do this.I pointed this out to a check in agent when I refused to hand over my card for a prepaid one night stay,the agent laughed and told me I had to hand over my card or leave immediately.I ended up staying without giving my card details.
Now I simply refuse to hand over a deposit of any kind for something I might decide to buy in the future.Unless a hotel is ok with paying me 100% interest for every day they want to borrow my money they will not be taking it.
OK, I don’t know how many people look at their credit card website every day or worry about pending charges, you’d have to be operating pretty close to your credit limit for any of that to even matter. But I certainly don’t think there is any credence to your post.
Hotels place an authorization on your card for multiple reasons. First, it allows them to verify that the card is active and can accept a charge. That’s important because they want some assurance that they will be able to successfully charge you for your stay if you leave without providing any other form of payment. Absent that ability, they’d need to make everyone pay in advance.
Second, the authorization is a bit like a deposit. You are borrowing the hotel’s property (the room and all of its contents) and the charge card and authorization put guests on notice that if they don’t return the room and its contents in the same general condition in which they found it, they’re going to be charged for any damages.
I have been traveling frequently for decades and have stayed in hundreds of hotels, but never once have I considered spending money on incidentals because the hotel had put an authorization on my credit card. I think it’s ludicrous to connect those two things, personally. Maybe a very young and naive person who doesn’t understand what the authorization is, or that it’s just going to disappear in a few days, might fall into your logic, but I doubt it.
I know it’s hard to come up with content every week but this seems a bit silly.
So, I’d say first, technology puts all charges in peoples faces. Some cards flash alerts every time a transaction goes through on an app, others are engaging member platforms where seeing charges is inevitable. I think it has very little/nil to do with being close to card limits.
I also see a huge distinction between placing an authorization and charging the room. You pay for the room, that makes sense. That’s your deposit in borrowing the hotels property. The extra authorization is an exercise and you’d be amazed at how much the psychology I note appears in feedback studies.