Chargeback and Refund: the difference between the two

Chargeback is the process of returning funds to the buyer's account from the seller's account if the buyer has been shown sufficient evidence to consider the transaction invalid or fraudulent.

If the buyer discovers on their statement a debit that was not made on their own initiative, they have the right to complain to the bank. The bank will investigate and decide on a refund if it believes that the buyer has been deceived or the transaction has been fraudulent. In case of a chargeback, the seller loses the goods or service sold, the payment, the commission that was paid for servicing the payment, the currency conversion fee if the payment was made in a currency other than the merchant account currency, and the penalty payable by the seller to the bank in case of each chargeback.

Here is a list of reasons for filing a chargeback, if proven:

  1. The cardholder has not received an itemisation of the transaction.
  2. The transaction was not approved by the cardholder.
  3. The account number does not match.
  4. The transaction was processed more than once by mistake.
  5. The transaction details were not printed.
  6. Refund was not executed at the customer's request.
  7. No authorization has been made.
  8. The buyer has not received the product or service.
  9. The card has not been used before its expiry date.
  10. Services have not been fully provided.
  11. An error in the payment amount field.
  12. Transfer confirmation statement is incorrect, incomplete or incomplete.
  13. Payment was incorrect amount.
  14. The product is not what was previously promised.
  15. A fraudulent transaction.
  16. Transaction completion time is longer than set by VISA or MasterCard.
  17. Buyer's signature not received.
  18. No specimen signature on the card itself.
  19. Signature on the card and on the invoice is different.
  20. The merchant has changed the transaction amount without authorization.
  21. The merchant knowingly participated in a fraudulent transaction.
  22. Incorrect date and time of transaction.
  23. Disputable transaction made via phone or email order.
  24. The seller refused to accept the item back.
  25. The transaction was not successfully refunded.
  26. Buyer is dissatisfied with the product or service.
  27. The transaction was accidentally approved by the issuing bank, but it turned out to be an error, for example, there were not enough funds or the card was already blocked.
  28. If the merchant is found to be incompetent.

What is refund?

Refund is a return of funds from the seller's account to the buyer's account, which is initiated by the seller. In this case, the bank or processor is not involved in resolving disputes between the seller and the buyer, they negotiate between themselves. The seller makes the decision to refund himself, in which case he pays no penalties to the bank, but loses the transfer and conversion fee.

No one is immune to chargebacks, but the seller strives to minimize both chargebacks and refunds. If the number of chargebacks exceeds the level allowed by the bank, the trading account may be closed. Therefore, if the seller is threatened with a chargeback, it is more profitable for the seller to get out of this situation by making a voluntary refund, i.e. refund. Even if he loses the goods, the proceeds from the goods and the commission payment, at least he does not pay a fine to the bank and does not spoil his reputation with a chargeback. Although the refund statistics are also taken into account by the bank, it is not so critical.

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