Refunds and Chargebacks

Within the payment landscape, two primary mechanisms — Refunds and Chargebacks — operate. In here we dive deep into these concepts, shedding light on their significance for merchants and consumers alike. It's vital to understand their role, given their crucial position in resolving payment disputes.

Refund

A Refund is a transaction reversal primarily initiated by the merchant in favor of the customer. This reversal can either be in full, returning the entire transaction amount, or in part, sending back only a portion of the original amount.

When Does a Refund Happen?

• Product returns or service cancellations.
• Acknowledgement of an error or overcharge by the merchant.
• Non-delivery of a promised service or product.

How is a Refund Processed?

1. Customer Request: The customer reaches out to the merchant seeking a refund and provides the underlying reason.
2. Merchant Verification: Post validation of the refund request, the merchant accedes to it.
3. Transaction Reversal: The refund is initiated by the merchant through their payment gateway. Consequently, the funds make their way back to the customer's original mode of payment.
4. Notification & Settlement: Eventually, the customer observes the refunded amount credited back to their account. This process's duration can be variable and depends on the involved payment methods and banks.

Chargeback

A Chargeback is a mandatory transaction reversal, which is initiated by the consumer's card issuer or bank, often as a result of a transaction dispute. In simpler terms, the consumer 'charges back' the transaction, leading to a debit of the said amount from the merchant's bank.

When Does a Chargeback Happen?

• Disputed transactions due to suspected fraud or unauthorized purchases.
• Non-receipt of a product or significant deviation of the product from its described state.
• In situations where a merchant denies a valid refund request.

How is a Chargeback Processed?

1. Customer Dispute: Initiation is by the consumer raising a dispute on a transaction with their card issuer or bank.
2. Bank's Scrutiny: Post the receipt of the dispute, the bank critically examines it. If bank considers it a valid reason, a chargeback process kicks off.
3. Merchant Intimation: The notification of the chargeback is received by the merchant's, which then debits the transaction amount from the merchant's account.
4. Merchant's Contest: Merchants have the possibilty to dispute the chargeback. They can provide cogent evidence to underline the legitimacy of the transaction.
5. Final Verdict: A reversal of the chargeback is possible if the merchant's evidence is deemed satisfactory. If not, the chargeback remains in effect.