A merchant shortly after starting a business, realizes that a business is not about just selling. There are other factors apart from low selling which bother a merchant a lot. Their concerns include customers’ shopping experience, complaints, returns, reversals, ratings of the business, and what not! This article will discuss payment reversal which is comparatively worse than a refund and share tips to avoid it in future.

Let us begin with the definition of payment reversal:

Payment Reversal – What Does It Mean?

Payment reversals are glitches where merchants have to reverse the amount they received from their buyers after a successfully completed transaction.

From the smallest to largest businesses - all are facing payment reversals today.

Why Do Payment Reversals Occur?

Sometimes customers claim a reversal, and sometimes merchant has to reverse a payment for different reasons. A merchant may reverse an amount because:

• Product is not in stock anymore
• Fulfilment problem
• Accidentally additional amount charged
• Payment data cannot be processed as the customer entered incorrect data (Need to reverse only if deducted)

The reasons why customers want reversal include:

• Fraud or unrecognizable purchase
• Product or service not needed (change of mind)
• Incorrect product received
• Paid more than once for the same product
• Card lost

Payment Reversal And Returned Payment: Same Or Different?

Payment reversals are different from the returned payments though both sound pretty similar. During returned payments, the transactions are unsuccessful due to any reason (wrong details entered, insufficient account balance, network issue, etc.); hence, the amount does not reach the merchant. Rather, it stuck in between and then goes back to the source account after a certain time.

However, during payment reversals, transactions are successful, and yet the merchant has to reverse it.

What Are The Types of Payment Reversal?

There are 3 ways in which merchants can reverse the transactions – these are:

1. Authorization Reversal

These reversals are the ones that are raised before the completion of the payment. On finding no inventory in stock, a merchant can initiate it by contacting the bank and asking to cancel the payment. On finding extra charges, customers too can initiate it.

For offline purchases, merchants can use the POS devices (it comes with an option to cancel transactions before processing) to reverse a payment on request of a customer on changing his/her mind. For online purchases, authorization reversal is mostly seen when the ordered item is not in stock.

Authorization reversal comes with the least hassles, and it is the fastest reversal. The merchant does not need to bear any interchange fees, chargeback fees, or shipping fees. But, authorization reversal is possible only until the amount is settled.

2. Refunds

Only the customers can claim this on receiving incorrect and unsatisfactory items through the website or app. On receiving the refund request, merchants can accept or reject the request, and on accepting, merchant needs to initiate the process. Here, a merchant needs to return the amount along with the applicable interchange and return shipping charges.

3. Chargebacks

These nightmarish reversals occur when a customer reaches out to the bank and reports a disputed transaction. The possible reason behind the dispute is a fraudulent purchase – the customer does not place an order or pays more than once for one product – chargeback is a severe case where the merchant has to reverse the amount along with huge chargeback fees. If the merchants can provide evidence in their own support, they can avoid paying, but it will result in reputational damage.

Similarly, on canceling a subscription, customers can raise a payment reversal request. Refunds and chargebacks are raised by the customers, whereas authorization reversals are raised by merchants because of errors on their side (out-of-stock product, higher amount charged, etc.).

How Long Do Payment Reversals Take?

It depends on the type of payment reversal – if it is authorization reversal it is done immediately. Refunds take up to 7 business days (though there are instant refund solutions available) and chargebacks take one month or more.

How Do Payment Reversal Affect A Business?

Payment reversals mean that the merchants need to reverse the amount paid by the customers. But at the time of reversing it, the merchants have to pay other applicable charges which matters.

For one or two reversals, the additional amount may seem negligible, but for multiple reversals, the additional amount will hurt. And this revenue loss will keep growing unless the merchants take steps to avoid it.

And, not just that, delaying or not reversing the payment will bring bad reputation for the merchant, which is long-term damage to the business.

Chargebacks often come with a risk of termination/suspension/restriction on the card networks. So, reversals are overall harmful to any business.

Tips To Avoid Payment Reversals In Future

Today, a merchant must not sit back and reverse the amounts; rather they need to take safety measures to avoid payment reversals. Here are some tips to avoid reversals:

• Tip 1 – Speed Up: If settlement takes more time, the customer's account may run out of money, which may result in payment failure. If the amount is deducted, the merchant needs to reverse it. Therefore, submit transaction requests promptly.
• Tip 2 – Take Help of Latest Technologies: Use advanced technologies to update inventories and get out-of-stock alerts. Similarly, additional amounts may be displayed due to technical errors, which can be fixed easily. Customers may not notice this if a speedy authorization reversal is done.
• Tip 3 – Show Accurate Details: Many customers raise refund requests after receiving wrong items. To avoid this, display accurate images along with proper product details.
• Tip 4 – Use Advanced Security Features: Chargebacks are often due to fraudulent transactions where customers cannot recognize the payment. Use an advanced payment solution that provides fraud detection and blocking features.
• Tip 5 – Provide Detailed Bills: Many customers do not understand applicable charges and may file disputes. Clear billing descriptors help reduce this issue.
• Tip 6 – Use Authorization: Along with a secure payment solution, use authorization to protect transactions from fraudsters. Additionally, use a Transaction Identifier (TID) to keep all transaction-related messages organized.

The Bottom Line

Payment reversals are parts of a business no matter how premium or affordable products you offer or how good customer service you offer. There will always be a set of unhappy and unsatisfied customers who will claim payment reversals. So, once you receive a reversal request, it is better to reverse the amount (if the claim is valid) without wasting time to generate more customer retention and satisfaction. But in case the reversal claim is baseless, a merchant needs to act first to avoid reputational damage.

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