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Refunds Over Chargebacks


What are Refunds and Chargebacks?

People often get confused and assume both the terms as interchangeable but that’s not true. Refund and chargeback are two different terms.

  • Refund: Depending upon the company’s return policy, it is basically returning the full or partial amount that was spent by the customer to purchase the product or service from the merchant. The product purchased by the customer is returned back to the merchant.
  • Chargebacks: Instead of going to the merchant, if the customer chooses to go to the issuing bank directly and files a complaint about the fraud or unsatisfactory purchase, it is called a chargeback. Along with the cost of the product, the merchant is also charged with a chargeback fee, and the merchant also loses the product.

Benefits of Refunds over Chargebacks
Whether a refund or a chargeback, in both the cases the merchant loses money. Although refunds are unwanted and disagreeable (sometimes), a good return policy can help the merchant in many ways, such as:

  • Attracting more customers and increasing the customer’s loyalty.
  • Increasing the brand trust
  • Returning the product to the merchant, physically
  • Reducing time of the refund process
  • Maintaining low chargeback ratio

Drawbacks of Chargebacks
Chargeback is a type of refund where you lose more than what you might have earned.

  • Along with the refund amount that goes to the customer, the merchant is also charged a chargeback fee. So the merchant loses more in chargeback as compared to a refund.
  • The physical product is not returned to the merchant./li>
  • Chargeback rating will increase, which will hamper company’s image/li>
  • In some cases, payment processor will close merchant account and freeze funds./li>
  • Disputing a chargeback is a time-consuming process/li>

Can Refunds Prevent Chargebacks?
Yes, to some extent, refunds can prevent chargebacks. It is advisable to provide good refund policy to save time, as chargeback might take months to materialize and you might lose a lot of time and resources in fighting the chargeback. To fight chargeback, the merchant also needs to provide enough evidence within a certain time limit. A lot of documents, analytical reports and strategies are required. To avoid such mess, it is better to refund the amount than dealing with chargebacks.

How to Avoid Chargebacks?
1. Keep a track of transactions for any suspicious activity

  • Large orders
  • Odd contact information
  • Multiple orders placed on the same credit card

2. Contact and confirm orders
3. If the customer asks for a refund due to a valid reason, it is better to issue the amount to protect brand image as well as the prospective customer.
4. Explain customer about security protocol involved, while refunding the charge.
5. Stay within the reach of the customer to avoid chargebacks.

If you are looking for a solution to keep track of all the business transactions, Chargeback expertz can provide you assistance with real time alerts and analytical tools that can help you monitor any fraudulent activity, and reduce chargebacks. Give us call on +1(855) 465-4723 for a free trial, today.

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