Payment Reversals – The 3 Types To Know

If you’re suffering from chargebacks and looking to end the bleeding associated with them, you’ve come to the right place.

Key Takeaways:

    • A payment reversal occurs when funds are returned to a cardholder’s bank.

    • You will come across three payment reversals: chargebacks, authorization retrievals, and refunds. These are all different reversals in their own right.

    • Chargebacks are the most costly reversal for merchants; they can often be fought.

What Does A Payment Reversal Mean?

Payment reversal is when funds from a specific transaction are returned to the cardholder’s bank. These reversals are also referred to as credit card reversals and sometimes reversal payments.

Payment reversals are initiated by card brands, cardholders, acquiring banks, and issuing banks.

So, what’s the reason for most payment reversals? In short, payment reversals are sometimes avoidable, and there are several reasons for them:

    • The product description was dishonest – This typically results in a chargeback scenario.

    • Item was damaged or lost – Damaged and/or lost goods are one of the main reasons for a payment reversal. 

    • The product/service didn’t meet the customer’s expectations – Instead of fighting the customer in this scenario, sometimes it’s best to issue the refund and try to regain the customer’s trust.

    • The merchant chaged an incorrect amount for a product – This is common and should be addressed to avoid a chargeback.

    • Item didn’t arrive on time – Having reliable packaging/shipping is key to maintaining a healthy customer/company relationship.

    • The cardholder’s family member made the purchase – When a family member purchases another cardholder’s card, it can result in a chargeback if not addressed.

    • The buyer wanted to cancel a subscription – When buyers forget to cancel subscriptions, they will reach out and ask for a full refund. If you abide, you can avoid a chargeback.

Types Of Payment Reversals Reviewed

You need to be familiar with three main types of payment reversals.

Authorization Reversal

    • It happens before funds are withdrawn from a customer’s bank account

    • Authorization reversals are the quickest option and the easiest for merchants and customers

    • Merchants don’t have to pay interchange fees as they do with refunds

Throughout the payment flow, authorization is a vital factor. Authorization lets you verify that a customer’s active bank account has the funds to complete a purchase.

When transactions aren’t final, an authorization reversal is an answer.

An authorization reversal is a message initiated 

by a merchant for the cardholder’s issuing bank. The purpose of the message is to notify the issuer that a transaction has been canceled and that the authorization hold should be voided.

If the customer notices the error quickly enough, they can do an authorization reversal.


    • Better than a chargeback for merchants

    • Occurs after the transaction has been processed

A refund is the reversal of funds after a transaction has been processed but before the customer files a payment dispute. 

Refunds typically occur when customers are dissatisfied with a product or service they have received. The process of refund is as follows:

    • The customer contacts the business via phone, email, or chat

    • The acquiring bank reimburses the cardholder

    • The merchant pays interchange fees on the purchase

A refund is a better scenario than a chargeback but worse than an authorization reversal, as the merchant not only loses the sale, they pay interchange fees as well, along with possibly paying shipping fees.

Refunds are processed as new and separate transactions that remove funds from a merchant’s account to send to the customer’s bank account.


Chargebacks are the most unfriendly payment reversal for merchants to deal with. They can single-handedly ruin a business.

How To Mitigate The Damage From Payment Reversals

Payment reversal mitigation is essential when trying to grow a business. Here are our expert tips:

    • Be sure all descriptors are legitimate

    • Promote good products

    • Send confirmation emails to the customer that contain the purchase info

    • Make it easy for a customer to cancel a trial or request a refund

    • Hire a chargeback prevention company to help you stamp out fraud

It is important to note that you can win a chargeback dispute with a good chargeback prevention company.

Payment Reversals Vs. Refunds

Payment reversal is the broad term that describes funds from a transaction being returned to the cardholder’s bank. 

A refund is a type of payment reversal. A payment reversal can occur before the transaction is completed, whereas a refund occurs after the transaction is complete.

Can You Reverse A Wire Transfer?

Wire transfers cannot be reversed if the sending bank has already processed them. However, if you catch the transaction before it is confirmed, you might be able to reverse it. 

In circumstances where you might need to reverse the transaction, ACH is the safe play.

Can ACH Be Reversed?

ACH payments can be reversed. Merchants can reverse an ACH payment should they find any issues. However, they must follow specific NACHA guidelines to do so.

Chargeback Prevention

If your company suffers from chargebacks, there are many things you can do to decrease them. 

Our main tips for preventing chargebacks are below:

    • 24/7 customer service

    • Use fraud prevention tools such as CB-Alert

    • Clearly communicate transaction deals multiple times throughout the checkout process

    • Use a merchant descriptor

How Can We Help With Payment Reversals?

At CB-Alert, we are confident that we can help you decrease chargebacks by offering real-time data that allows you to fight chargebacks instantly.

We offer Ethoca and Verifi alerts, giving merchants up to 72 hours to respond to a chargeback before it becomes a chargeback.

In most cases, cardholders will merely only ATTEMPT to initiate a chargeback. Our platform allows for close to a 100% win rate for claims filed with participating issuing banks. When it comes to eCommerce chargebacks, we also have a highly successful win rate.

Now that you understand all payment reversals, fill out the form below to find out what CB-ALERT can do for your business because chargebacks don’t have to hurt.

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