
Credit Card Chargeback vs Refund
Posted on Wednesday, December 18th, 2024 | By IndusInd Bank
If you use a credit card, you may often encounter situations where you need to reverse a purchase. This may be because you are dissatisfied with the product/service or there has been an error with that particular transaction. In such a situation, what you should do is file for a chargeback or a refund.
While both terms seem similar, as they both serve to recover funds, there is a major difference between a chargeback and a refund. Let’s learn about it in detail.
What is a Credit Card Chargeback?
First, let’s get to know chargebacks.
- A credit card chargeback occurs when a cardholder disputes a transaction with their bank instead of directly with the merchant.
- This process helps protect against fraud or unauthorised transactions on your credit card. It can also prove useful when the product or service is not delivered as expected.
- When a chargeback is initiated, the bank temporarily reverses the transaction amount to the cardholder. It will also investigate the dispute. If it finds that the cardholder’s chargeback is valid, it will reverse the payment on a permanent basis. The merchant will lose the funds in this scenario.
- Customers can file chargebacks for many reasons. This can include billing errors, defective products, or undelivered goods.
- For instance, let’s assume you paid for an online order with your UPI credit card but never received the item. Here, you could request a chargeback from your bank to reclaim the amount.
What is a Credit Card Refund?
To better understand a chargeback vs refund, let us look at the latter now.
- A credit card refund is a process where the cardholder contacts the merchant directly to return a product or reverse a transaction.
- Usually, the merchant will agree to refund the money after confirming the return or resolving the issue.
- Refunds are common when there is a problem with the product, and the customer wants to return it. In most cases, the merchant accepts the return without dispute.
- A major difference between a chargeback and a refund is that the latter does not involve the cardholder’s bank. This is the case unless there is an issue with crediting the funds.
- Refunds tend to be faster and can prevent complications for both parties.
- For example, if you purchase a clothing article that is not your size, you can reach out to the merchant for a refund without involving your bank.
Major Differences Between Credit Card Chargeback and Refund
Now, let’s look at the major points of difference between a chargeback vs a refund:
Parameters | Chargebacks | Refunds |
Initiation | The cardholder initiates a chargeback through the bank. | The cardholder initiates the process directly with the merchant. |
Process | The bank reviews the dispute and reverses the amount temporarily. The bank makes this reversal permanent if the chargeback is valid. However, merchants can challenge the chargeback with evidence. The final decision is taken after consideration of both parties’ evidence. | The merchant returns the funds to the cardholder’s account after verifying the return. |
Impact on the Merchant | Negative consequences for the merchant, as it includes potential fees and a higher chargeback rate. A credit card chargeback can also affect the merchant’s reputation. | More favourable for merchants, as it allows for better customer satisfaction. Refunds do not include additional fees either. |
Time and Complexity | The process can take longer, as it involves multiple steps. It also includes bank investigation and evidence review. The resolution may take weeks or even months. | Tend to be faster and simpler, as it involves only the merchant and the cardholder. The merchant returns the funds within a few business days. |
Consumer Impact | Protects consumers in cases of fraud or unauthorised transactions and allow them to reclaim funds. | Refunds are quicker for the cardholder and prevent the need for dispute escalation. |
Also Read: Credit Card Transaction Failed- Money Debited? Here’s What to Do
Conclusion
Understanding chargeback vs refund can help you choose the right action when a purchase needs to be reversed.
While chargebacks protect consumers against fraud, refunds are quicker, easier, and mutually beneficial when both parties cooperate. Knowing the difference between both can not only help customers but also assist merchants maintain a healthy customer relationship.
If you are looking for a reliable credit card that meets all your needs, check out IndusInd Bank’s offerings. From high reward points to Credit Cards with lounge access, IndusInd Bank’s wide range provides versatile options for every lifestyle. What’s more, we have a strong customer support team to help you deal with any transaction-related issues right away. Start managing your credit transactions more efficiently today!
Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.