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What is the Difference between a Chargeback and a Refund?

The difference between a chargeback and a refund might be blurred, but it is important for merchants to understand. Practically all merchants want to avoid both chargebacks and refunds, since they both translate into the same thing: loss of money. However, knowing more about their differences will show that granting a refund is far more preferable to a chargeback, and that both can often be avoided.

Chargebacks versus Refunds

One difference between a chargeback and a refund is that the merchant deals with a refund while the credit card issuing bank deals with a chargeback. In the case of a refund, the customer contacts the merchant and the merchant agrees to return an amount of funds back to the customer’s credit card. The reason for this could be that the customer didn’t receive what they ordered, or that the customer was simply unsatisfied with the merchant’s product or service. With a chargeback, however, the credit card holder contacts their card issuing bank or their credit card company directly. This option is usually chosen to dispute a charge on their credit card statement, perhaps because the transaction was made without their authority (fraud), or the cardholder already tried to contact the merchant for a refund but failed. But some cardholders will use a chargeback as their first resort when trying to get a refund before even contacting the merchant.  And, of course, some cardholders may also try to initiate a chargeback request for unlawful reasons, such as buyer’s remorse or outright fraud.

A refund may include the full transaction amount or a partial amount, agreed upon by the merchant and the cardholder.  For example, a refund may include the deduction of a “restocking fee” if that is clearly stated at the time of sales. A chargeback, if successful, can also be for a full or partial amount, but, since the request is made by the cardholder without having to compromise with the merchant, it typically requests the return of the full transaction amount.  It is up to the card issuer to determine whether the chargeback request is reasonable.

The negative effects of chargebacks

A merchant has the option of disputing a chargeback request, and the merchant must supply evidence if they elect to do so. Whether the merchant disputes it or not, and whether they are successful or not, the merchant will normally incur a chargeback fee from their acquiring bank for any chargeback a customer initiates. This is not only a costly expense for the merchant, but too many chargebacks may also result in the merchant’s acquiring bank auditing or even terminating their merchant account and the merchant losing their credit card processing abilities.

How to avoid chargebacks

Customers who request a chargeback often do so because they are unable to request a refund. Merchants can make it easier for customers to contact them and/or to request a refund instead of having to resort to a chargeback by providing customer support and clear contact details. By also providing clear shipping and return policies, merchants are offering customers realistic expectations and guidelines if they want a refund, and can help in disputing a chargeback initiation if the customer did not follow the policies first.

The most important place to put your contact information

By far, the most important place to make sure that your contact information will appear is on your customer’s credit card statement, right next to the record of the charge itself.  Some services that allow merchants to accept credit cards put their name and number on your customers’ credit card statement.  That means that the first call they make may wind up initiating a chargeback before they’ve even had a chance to ask you any questions about a charge they may simply have forgotten, and certainly before they’ve had the chance to request a refund from you.  That is why it is extremely important to make sure that your name, and not your merchant account provider’s name will appear on your customer’s credit card statement.  No matter how good a deal might seem, it’s not a good deal if it winds up costing you massive chargeback fees, getting your merchant account terminated, and possibly even getting your business blacklisted because of excessive chargebacks!

Merchants can also make use of security measures to detect and cancel fraudulent orders before they are processed, thereby avoiding the need for a chargeback. And of course, one of the best ways to avoid both chargebacks and refunds is for merchants to ensure that they are providing quality goods and services that satisfy their customers.

For more information on the difference between a chargeback and a refund (and how to avoid both) or to sign up for a merchant account, please call (888) 924-2743 or go to

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