Chargebacks, Refunds, and Authorization Reversals: Payment Reversal Types

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There are three types of payment reversals that can take place after a transaction has already occurred. These are: authorization reversals, refunds, and chargebacks. Each of these is created differently, so it's important to understand them and how they can affect your business.

The first type of payment reversal is an authorization reversal. An authorization reversal occurs when a payment that was just authorized is reversed. It happens immediately after a transaction, but before settlement occurs and money has been withdrawn from the customer’s account. One example of this would be if a customer changes their mind immediately after placing an order. Out of all the payment reversals, this one is the cheapest, fastest, and best option for giving money back to a customer.

The next type of payment reversal is a refund. A refund is processed as a new and separate transaction that takes funds from the merchant account and credits it back to the customer’s payment card. Refunds are the best way to resolve a situation in which a customer is unhappy, so that it doesn't result in a chargeback with unnecessary fees.

Chargebacks are the third type of payment reversals. Chargebacks are different from refunds in that they are initiated by the consumer's bank. Instead of calling the merchant for a refund, the customer calls the bank in order to receive their money back. However, chargebacks bring fees that don't come with authorization reversals or refunds and receiving too many chargebacks can result in a merchant losing their account. Because of this, it's always better to handle issues with customers before they result in chargebacks.

Merchants who receive a high volume of chargebacks may look into outsourcing a company like Chargeback Gurus to help them prevent, fight, and recover their chargebacks. With their expertise, you can ensure that your chargebacks will be handled with expert knowledge and care.

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©Chargeback Gurus 2021
Production: Emily Woodward
Narration: Phil Claffey