Merchants and customers view chargebacks and refunds entirely differently than one another. To a customer, chargebacks and refunds are the same things. The customer gets their funds back from chargebacks and refunds, with the only difference being they go directly to their bank for a chargeback.
Chargebacks and refunds are different for merchants because one is worse than the other. Chargebacks are typically worse than refunds for merchants.
If you’re a merchant looking to learn the differences between chargebacks and refunds, you’ve come to the right place.
Chargebacks VS Refunds – The Difference
So, what’s the difference between chargebacks and refunds? Chargebacks are transaction reversals initiated by the bank that return funds from your business account to your cardholder. Refunds are voluntary repayments to the customer via the merchant.
Chargeback costs can vary significantly for merchants, depending on their payment processors fees. However, the overall cost of the chargeback will typically range between $20-$130, based on the risk the merchant possesses.
Merchants must keep their chargeback ratio under 1% as anything higher can result in a frozen or even terminated merchant account. If the merchant account isn’t terminated, it will result in fines or higher fees.
With this in mind, chargebacks and refunds are both terrible for business. Therefore, merchants should always solve the question of “what is causing these chargebacks or refunds.”
Why Merchants Should Always Issue Refunds Instead Of Chargebacks
Merchants should issue refunds to prevent chargebacks in most cases. If it is clear that the charge is friendly fraud, you can fight the dispute; however, this can sometimes become more costly than the item’s original price.
Merchants should remember that the ultimate goal is to create relationships with returning customers. Therefore, refusing to refund a customer will typically result in an unpleasant experience for the customer.
Let’s look at the main reasons merchants should refund their customers.
- Avoiding Chargeback Fees: While you’re refunding your customer, you are also saving money on the costs of the chargeback or the chargeback management service.
- High Chargeback Ratio: You ensure that your chargeback ratio doesn’t increase by issuing a refund. Even if you can reverse the chargeback, it still impacts your percentage. A high chargeback ratio will cause you to pay higher monthly fees as you will be labeled high-risk, even if you’re in a typically low-risk industry.
- Returning Customers: While merchants might not like the sound of refunding their customers, a poor experience often results in the end of your relationship with that customer. A simple refund via a responsive customer service rep can result in a returning customer, ultimately earning you more money.
The advantages of issuing a refund are why chargeback prevention alerts exist. At CB-ALERT, we created our product because we understand the frustration of dealing with chargebacks on both ends.
You can try a demo of our product below to save money immediately on chargebacks.
How To Avoid Chargebacks
There are several things merchants can implement to reduce their chances of a chargeback. Here is what we recommend at CB-ALERT for reducing chargebacks.
- Implement anti-chargeback tools such as CB-ALERT
- Sell high-quality products and services.
- Implement 24/7 customer service.
- Make sure your payment processor provides a descriptor that reflects your brand.
- Invest in quality shipping services to ensure your products are delivered promptly.
What Is A Double Refund Chargeback?
A double refund is when a merchant is refunded via the merchant and then also attempts to get refunded via the bank. The customer, in this case, is usually trying to dupe the system by getting paid twice for the refund.
To avoid a double refund, it’s always recommended that customer services ask the customer if they have contacted their bank yet. Should the customer have contacted the bank, merchants should reach out to the bank to see if the dispute has advanced to the chargeback stage.
Implementing chargeback tools such as CB-ALERT can significantly decrease the chance of a double refund occurring.
Furthermore, most major card networks have made it a point to reduce the chances of double refunds occurring significantly. The most significant change is the return authorization mandate, which changes how return payments to customers are dealt with.
Chargeback Prevention Alerts
At CB-ALERT we understand the importance of chargeback mitigation. With our product, you can respond to chargeback requests in real-time, prevent card scheme monitoring programs, and keep merchant accounts in good standing.
Sign up for a free demo today at the link below.
Why Do Some Refunds Become Chargebacks?
Refunds can become chargebacks for several reasons. Sometimes the customer knowingly will accept the refund from the merchant after they have been refunded via the bank. In other cases, the customer genuinely feels ripped off or duped and thinks that reaching out to the bank for a chargeback is better than going directly through the merchant.
Can Merchants Rely On Banks To Investigate A Dispute?
The short answer is no. Due to customer service issues, banks will typically side with the customer’s fraud claim. Therefore, merchants should do everything to solve the customers’ complaints before the customer reaches out directly to the bank.
Easiest Way For Merchants To Refund Customers
Merchants can refund customers in various ways. RDR is an effective way for merchants to refund customers in which you will also avoid a chargeback.
Merchants should also clearly state their refund policies on their website. Doing this alone will help you not only fight chargebacks but will also potentially save you on refunds.
The next best way to refund customers is to have your customer service approach top-notch. For example, if your customer service team has a feeling that the customer might be able to contact the bank and file a chargeback, the customer should likely be refunded.
As we mentioned above, you are not just getting slapped with chargeback fees; you will also be losing a potential lifelong customer over a simple dispute.
Wrapping Up
While refunds and chargebacks yield the same results for customers, they are very different for merchants. Therefore, we heavily recommend implementing chargeback alerts/tools that potentially refund your customers to prevent chargebacks.