Not all transactions end up being successful. Some transactions go south, while others are bereft of any issue whatsoever. It is common practice that when a transaction goes south, you become compelled to request your money back. For instance, if you ordered a product and what you got was defective, you will want to request your money back. When such disputes occur, your money will be returned either via a refund or a reversal. What is the variation between a refund and a reversal? You may ask.
A refund occurs when a transaction is posted and the funds are already in the merchant’s account. On the other hand, a reversal occurs when the transaction is halfway through the process; that is, it is yet to post.
A payment refund or reversal can either be initiated by you, a merchant, or an issuing bank. However, most times, payment refunds or reversal are usually the doings of customers. And because the major credit card networks have more incentive to favor their customers, merchants usually find themselves as the guilty party. If you ever want to dispute a transaction for whatever reason, you must know the difference between a payment refund and a payment reversal.
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Difference Between Refund and Reversal Transaction
A refund and reversal are two important words cardholders need to be conversant with. This is because, at one point, the knowledge of these terms will come in handy. Besides, all merchants need to be very familiar with what a refund and a reversal are. In fact, any merchant who is yet to understand what these terms are is not fit to run a business.
Taking a good look at the two terms, you may notice a little bit of similarity. Of course, a refund and a reversal appear like synonyms. However, you’d be shocked to find out that they aren’t. A refund and a reversal transaction are two different terms, even if most individuals are fond of seeing them as synonyms or mistaking them for one another.
As we progress, I’ll provide you with a detailed explanation of what these two terms entail.
What Is a Refund?
A refund is a common term in the world of transaction. In fact, I don’t need to be a soothsayer to predict that each day thousands of refunds take place worldwide. This is a reflection of what I said at the beginning of this article. You see, not all transactions are successful, some go south, and when they do, the money involved will have to be reimbursed to the cardholder.
Most merchants hate refunds or reversal because it affects their profit. If a customer decides to return a $5,000 product probably because the merchant got the description wrong, who has lost? The merchant or the customer? The former of course!
Because all businesses’ core aim is to reel in profit and mitigate loss to the barest minimum, most merchants usually adopt the best measures to ensure that refunds, reversals, or chargebacks are extinct in their businesses. However, no matter how hard they try, they cannot eliminate it; the best they can do is reduce it.
Without much ado, let’s take a good look at what a refund is.
A refund occurs when a transaction has already posted. That is, after all the transaction processes (credit or debit card) have been completed, and the funds for the purchase have been deposited into the merchants’ account.
The process through which a refund is made is the same process through which a transaction is processed and completed. But, the major disparity between the two is that a refund happens in reverse.
When you request a refund, the fund will be sent to whatever payment method you used to make the payment. So, in the event that you use a credit card to make a purchase, the merchant will ask your credit issuer to credit your account for the returned amount. However, if you utilized a debit card to make a purchase, the fund will be returned to your bank account.
It takes 5 to 14 days for a merchant to initiate a refund. If after 14 days you are still yet to get a refund, don’t hesitate to contact the merchant. Here is an example of what a refund is:
Example/Case Study:
Mrs Kean purchased a microwave online. She paid for the device, and it was delivered the following day. Upon testing the microwave, Mrs Kean discovered a major flaw. The device was sparking like a torn high voltage wire.
Immediately, she called the merchant and requested a refund. Since Mrs Kean has already paid for the device, the money will have to make the same journey it made when entering the merchant’s account. However, this time, the journey will be in reverse, and its destination will be Mrs Kean’s bank account. That is how a refund works.
What Is a Reversal?
Unlike a refund, a reversal is less complicated, and this is because a reversal is usually made before the transaction post. In other words, a reversal occurs when a transaction is still in the processing stage.
Here are some reasons behind payment reversal
- The product is not available (sold out).
- The customer wants to commit fraud.
- The customers had a change of mind after ordering the product.
- The product wasn’t what the customer expected because of the inaccurate descriptions.
- The customer was charged the wrong amount.
- The transaction took place twice.
A reversal is usually the fastest way to receive your money after disputing a transaction. And this is because the transaction is yet to post, thus making it easy to make its way back to your bank account or wherever it came from.
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Example/Case Study:
Mr Jacob ordered a unique barbecue grill. He made payment and waited for the product to arrive. However, the next day, he was contacted and informed that his money will be returned because the product is out of stock. Later, Mr Jacob realized that the pending tag on his banking app has dropped off, and the money meant for the grill is displayed in his available balance and not his pending balance.
So, what is the difference between the two? Isn’t it obvious already?
You see, the difference between a refund and a reversal is that a refund occurs after the funds for the transaction has posted, while a reversal occurs when the fund is yet to post. That is when the fund is still in the early stages of the processing cycle.
