Refunds are often overlooked by merchants when choosing a payment supplier. Usually, the decision to partner with a supplier comes from customers’ familiarity with a specific payment method, with the operational efficiency of the supplier being in second place.
But refunds are an important part of an eCommerce merchant’s operations, so this blog post will go through how refunds work with different payment suppliers.
First and foremost, let’s make a clear distinction that people often find confusing…
Refunds occur when a merchant is making a voluntary, requested payment to a customer. For example, a customer purchases clothes from an online retailer and decides to keep only a few of the items. So, the customer sends the unwanted items back, requests a refund and if approved by the merchant, then the funds are returned.
A chargeback is when a customer requests their funds back from their bank after making a payment to a merchant. In this case, the bank moves the funds from the merchant’s account to the customer’s, often with little notice. Chargebacks, in contrast to refunds, can be very harmful to merchants. Besides losing revenue, penalties can be imposed by both the acquirer (merchant’s bank) and the payment processor (e.g. Visa, Mastercard, PayPal etc.) to the merchant, and if a merchant’s chargeback ratio increases to a certain point, then payment processing fees will increase.
So, the main difference between a refund and a chargeback is who issues it and its nature. Refunds are issued by the merchant, whereas chargebacks are issued by the customer’s bank. Chargebacks are harmful to the merchant, whereas the ability to process refunds in a timely manner can increase brand loyalty, sales and customer conversion.
The time and process of refunds depend on a number of factors, which include:
- the payment method through which the transaction was made,
- the merchant’s refund policy,
- the time it takes for the consumer to return the product.
Why should refunds be processed through the original payment method?
It’s advisable, if not obligatory (depending on your processor) for merchants to refund customers using the same payment method that was originally used. This is for good reason — it defends the merchant from abuse by money launderers.
Bad actors can pay for goods using stolen funds, and by requesting refunds to an alternative payment method they’re breaking the money flow, making it harder to trace. (This is another reason why software such as Citizen’s, which can help verify that an account belongs to a certain, identifiable, individual, is so useful — particularly in regulated industries or when a merchant is retailing high-value goods.)
So, let’s take a look into how refunds work for the most popular payment methods for eCommerce.
If a customer wishes to be refunded, they must contact the merchant first in PayPal’s Resolution Centre. If the merchant refuses to process the refund, the customer can raise a claim in which case PayPal is asked to investigate the situation and decide the solution.
PayPal doesn’t charge for refunds and it makes payouts in the same currency that the initial transaction was made with. Additionally, when a merchant issues a refund to a customer, PayPal doesn’t refund to the merchant the transaction fees taken on the original payment.
How long do PayPal refunds take?
A customer can request a refund up to 180 days after the day of purchase. The customer also has the chance to receive a refund immediately, providing the “cancel” button is visible next to the payment information.
Credit and debit card refunds
Card refunds are slow and expensive. The reason why they are so costly and time-consuming is due to the high number of intermediaries in both debit and credit processes.
When a customer requests a credit card refund they won’t receive cash. Instead, they will receive credit in their account. The reason for this is because when the purchase was made, the merchant received the funds from the credit issuer and not the customer.
For debit card refunds, the customer receives the funds because they made a full purchase with their own money. However, depending on the merchant’s policy, the customer may receive a voucher instead of funds.
How long do card refunds take?
Card refunds can take up to 10 working days. For a card payment to be processed, the acquiring and issuing banks need to approve it with the payment supplier working as the intermediary.
The same rules apply to eWallets, like Apple Pay and Google Pay, where debit and credit cards are stored and used for online and offline transactions.
Buy Now, Pay Later refunds
Buy Now, Pay Later (BNPL) refunds depend on the provider, but they all advise the customer to contact the merchant first. Looking at the most popular BNPL providers in the UK (like Klarna and Clearpay),
- the customer should always contact the merchant first;
- the refunds depend on whether the customer paid for the product fully or partially; and
- the refunds are always subject to the merchant’s refund policy.
All BNPL providers warn that until the merchant has accepted the refund request, the customer will continue paying their weekly/monthly payment plan.
How long do BNPL refunds take?
BNPL refunds can take up to 2 weeks to be completed. It can also take extra 5–7 business days for the funds to be processed by the bank and be visible on the customer’s account.
Citizen’s PayBlox software is a purpose-built payments solution that can be integrated into your existing systems to allow you to offer secure, instant account-to-account payments with a great customer experience. Merchants can send refunds to verified accounts of customers that settle instantly.
PayBlox is quick to set up (and we have plug-ins for most shopping carts), and we provide you with fully tested end-to-end UX optimisation to ensure you have a payment experience worthy of your brand. Watch the demo to see how our PayBlox dashboard can work for you.
You can add Citizen as a payment option at checkout alongside your existing providers. We work with many brands, large and small, across the UK and Europe, and would love you to try it in your business. You can learn more about how we help eCommerce merchants here.