Recurring card payments on debit: guide to setup and benefits
Buyers often don’t see the difference between chargeback and refund. They use both mechanisms to refund money on a completed purchase. But for businesses, these concepts are very different, both in terms of return mechanics and legal aspects, including the impact on reputation and attitude on the part of providers. Understanding the chargeback and refund difference will allow entrepreneurs to effectively manage risks, improve customer service, and protect their financial stability.
Payment reversal and refund: are they the same thing?
Despite having a similar end goal – returning money to the customer – the mechanisms differ fundamentally in terms of who initiates them, the procedure involved, and the consequences. The table below shows the main differences between chargebacks and refunds.
| Criterion | Refund | Chargeback |
|---|---|---|
| Initiator | Seller (independently or at the buyer’s request) by agreement from the merchant | Buyer (via bank or payment system) |
| Mechanism | Voluntary transfer of funds back to the customer’s card | Enforced collection of funds via card-issuing bank |
| Deadlines | Usually 3–14 days | Up to 180 days depending on the payment system and dispute circumstances |
| Commissions | No high commissions for the seller | High commission ($15–$100+) plus possible penalties |
| Need for bank involvement | The acquiring bank is not involved | Mandatory involvement of the customer’s card-issuing bank |
| Reason for refund | The seller’s internal policy is sufficient | Requires proof of transaction illegality (documents, screenshots, call records, etc.) |
| Impact on seller’s reputation | Neutral | Negative (increase in chargeback rate, risk of account blocking) |
| Possibility of dispute | No | Possible |
How does a refund work?
A refund is a voluntary return of money by the seller to the customer’s card. This operation takes place as follows:
- Customer request. The buyer requests a refund from the seller. Reasons may include defective goods, cancelled orders, discrepancies with the stated description, and other circumstances.
- Seller verification. The company reviews the refund request in accordance with its own refund policy.
- Sending a request. The seller sends instructions to the payment system or bank regarding the amount and reason for the refund.
- Refund. The client receives the money back, while the seller sets acceptable deadlines himself. This is usually 3-14 days.
The main advantages of refunds for businesses are control over the return process, no penalties or fees, preservation of the company’s positive image, and direct contact with the customer, which helps to strengthen trust.
How does a chargeback work?
A chargeback is a much more complex procedure initiated by the customer themselves through the card-issuing bank. The mechanism includes the following stages:
- Customer application. The cardholder contacts their bank with a complaint. For example, in the event of fraud, non-delivery of goods, double debiting, etc.
- The bank initiates the process. The issuing bank launches the chargeback procedure, debiting the specified amount from the merchant's account.
- Seller notification. The payment system notifies the merchant of the dispute.
- Representment. The seller has the right to present evidence of the legality of the transaction. For example, confirmation of delivery, customer consent, etc.
- Bank assessment. If the evidence is convincing, the amount is returned to the seller; otherwise, it remains with the customer.
The main consequences of chargebacks for businesses are commissions and penalties for the seller, a deterioration in the chargeback rate rating (exceeding the threshold threatens the loss of bank acquiring), the need to collect and provide extensive documentation, and the loss of time and resources to resolve conflicts.
Why do buyers choose chargeback instead of refund?
Buyers sometimes deliberately resort to chargeback, despite the existence of a simple refund mechanism. Here are the main reasons for this behaviour:
- Distrust of the seller. If the store ignores requests or deliberately delays the consideration of returns.
- Lack of transparency in the return policy. Confusing application forms, long processing times, unclear requirements.
- Lack of communication with the store. Situations where it is impossible to contact the seller – store closure, fraudulent schemes.
- Desire to speed up the process. Some believe that the bank will handle it faster than the seller.
- Insufficient understanding of the difference. Many buyers do not know that a chargeback is a last resort, not an alternative to a regular return.
It is important to note that sometimes the buyer can receive double reimbursement. For example, they first requested a refund and then initiated a chargeback. This is possible if the buyer decides that the seller has ignored the request. In practice, the funds are not received immediately, but with a delay of 3-14 days. If it happens that I got a chargeback and a refund, then one of the refunds may be disputed by the seller and debited from the customer’s card.
Psychological aspects of choosing a chargeback
It is important to note that the choice of a chargeback instead of a refund is often due not only to objective reasons, but also to psychological factors:
- Fear of losing money: the customer fears that the seller will refuse to voluntarily return the funds.
- Perception of fairness: contacting the bank is perceived as a fairer and more effective way to restore rights.
- Social approval: there is a widespread belief that chargeback is a simple and quick way to resolve a conflict.
These points should be taken into account when developing a customer communication strategy.
How can businesses minimise the risks of chargebacks and return issues?
Effective risk management requires a comprehensive approach that includes the following steps.
Simplify the return process
Clearly state the return policy on your website. Provide users with a simple automated application form. Process returns quickly – within 3–5 business days.
Improve communication with customers
Respond to requests immediately. Provide customers with complete information about the status of their orders. Organise convenient customer support for urgent requests.
Document every transaction
Keep proof of delivery of goods. Keep records of telephone conversations and correspondence. Record electronic confirmations of customer consent.
Work with customers
Explain the difference between a refund and a chargeback. Recommend that they first request a regular return.
Monitor chargeback metrics
Constantly monitor the chargeback rate. Analyse the causes of disputes. Make changes to work processes based on the data obtained.
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How BillBlend prevents refund fraud
The BillBlend platform uses a comprehensive approach to protect businesses from unjustified chargebacks and fraudulent refunds:
- Transaction monitoring. Real-time analysis of transactions for signs of suspicious activity (abnormal amounts, frequent payments from a single device, etc.).
- Behaviour analysis. Identification of patterns characteristic of fraudsters (e.g., bulk orders followed by chargeback requests).
- Identity verification. Multi-factor authentication and verification of customer data before payment is made.
- AI-based analytics. Predicting chargeback risks using machine learning that takes into account transaction history and behavioural metrics.
- Automated dispute resolution: assistance in gathering evidence for representation, including transaction logs and delivery documents.
Want to reduce chargeback risks and simplify refunds? Connect BillBlend, our platform with intelligent payment protection and automated refund management tools. Sign up for a consultation to learn how we can help you reduce costs and increase customer trust.
Common causes of chargebacks
Let’s look at some specific scenarios that lead to chargebacks:
- Fraud: unauthorised use of someone else's card.
- Product does not match description: the customer received a product of poorer quality or a different type than promised.
- Delivery delay: failure to meet the agreed delivery date.
- Technical failures: incorrect order processing, duplicate debits.
- Service issues: rude staff, poor packaging, damage to goods during transport.
Each such case requires an individual approach and careful documentation.
Legal and economic consequences of chargebacks
In addition to direct financial losses, chargebacks carry serious legal and economic risks.
Increase in chargeback rate
Exceeding the limit set by the payment system (usually 1%) can result in increased fees, restrictions on payment acceptance, or complete disconnection from the payment system.
Legal proceedings
In some cases, disputes escalate into litigation, increasing legal costs and damaging the company’s business image.
Loss of trust among investors and partners
A high chargeback rate signals to the market that there may be problems with service quality and business integrity.
For example, Mastercard has its own Excess Refund Program (ECP). It divides sellers into two categories:
- Seller with Excess Returns (ECM). The threshold is at least 100 refunds per month and the ratio of refunds to the number of transactions is from 1.5% to 2.99%.
- High Seller with Excess Returns (HECM). The threshold is 300 or more refunds per month and the ratio of refunds to the number of transactions is 3% or higher.
The refund statistics may be affected by friendly fraud. This is when the user initiates a refund on his card after he has paid for the purchase. To minimize the risks, such operations can be challenged. If the seller has a high percentage of refunds, the provider will increase the commission.
Conclusion
Chargeback and refund lead to a refund to the customer, but they do not mean the same thing. These are two different refund mechanisms, while having a different impact on the merchant’s rating in the eyes of the payment system. Refund is a quick way to get your funds back using the seller’s internal policy. Chargeback is an extreme measure if the merchant refuses to refund the money. Businesses use refund as a loyalty tool, while chargeback leads to costs and reputational risks.
Understanding the differences and adding refund allows you to:
- reduce the number of unjustified chargebacks;
- increase customer trust;
- minimise financial losses;
- maintain a reputation as a reliable merchant.
Using specialised platforms such as BillBlend offers additional benefits: process automation, risk analytics, and fraud protection.
Frequently asked questions
Can a chargeback be cancelled after it has been initiated?
Yes, the seller has the right to dispute the chargeback by providing evidence of the legitimacy of the transaction through the representment procedure.
In what situations will the bank reject a chargeback?
When the customer has not provided the necessary evidence (for example, there is no confirmation of non-receipt of goods) or the deadline for filing a complaint has been missed.
How long does it take to get a refund?
Usually, the refund is made within 3-14 business days, depending on the payment system and the customer’s bank.
Will a chargeback affect the customer's credit history?
No, a chargeback does not appear in the credit history, but systematic abuse of the mechanism may result in temporary or permanent card blocking.
Can the seller refuse a refund?
Yes, if the company’s internal policy does not provide for a refund in a specific case or if the customer has violated the established rules (for example, missed the deadline for submitting an application).
How can I reduce my chargeback rate?
Improve the quality of your service, simplify the refund process, document all transactions, and use advanced transaction monitoring tools (e.g., BillBlend).
