What is the difference between a refund, a reversal and a chargeback?
A reversal cancels a card authorization before capture, so the hold is released and no money moves. A refund is a credit the merchant sends after the sale has settled. A chargeback is a forced return started by the cardholder’s issuer through the card scheme, which debits the merchant and adds a fee. More in our episode on chargebacks.
In detail
Refunds, reversals and chargebacks all return money to a cardholder, but at different stages and with different costs.
Reversal
An authorization reversal tells the issuer that an approved payment will not be captured. The hold on the cardholder’s funds is released. No money moves and costs are minimal. It is only possible before capture or settlement.
Refund
A refund is a new credit transaction sent by the merchant after the sale has settled. It is authorized, cleared and settled like a sale, in the opposite direction. The merchant decides the amount, and the original processing fee is often not returned.
Chargeback
A chargeback is started by the issuer at the cardholder’s request. The card scheme debits the acquirer, which debits the merchant, often with a dispute fee. The merchant can only accept or answer with evidence, and the case counts in scheme monitoring ratios.
The rule of thumb: reverse if you can, refund if you must, and keep chargebacks for real disputes. Read Refund vs Reversal vs Chargeback and chargebacks.