If you or your employees notice something incorrect after submitting the authorization request, you can call your bank to stop the transaction from occurring. In other words, a transaction can be initiated even if the address or other information is incorrect. The ACH (automated clearing house) network is slow and limited, so it’s normal for transactions to be pre-authorized.
There are three common branches that payment reversals fall into: Payment reversal type 1: Authorization reversalĪuthorization reversals reverse a payment before it officially goes through and is the "quick fix" of payment reversals. The product wasn’t what the customer expected due to bad descriptions or shady selling.The customer changed their mind after ordering.The customer is trying to commit fraud.This can be initiated by the cardholder, merchant, issuing bank, acquiring bank, or card association.Ĭommon reasons why payment reversals occur include: Payment reversal (also "credit card reversal or "reversal payment") is when the funds a cardholder used in a transaction are returned to the cardholder’s bank. Fortunately, there are ways to combat payment reversals, and understanding the different types and how they occur is your first step to doing so. The more systems and processes you have in place, the better you’ll be at proving when a reversal is wrong.Įxperiencing consistent payment reversals can be super frustrating.
The major credit card networks (Mastercard, Visa, etc.) have more incentive to favor their customers, and it’s up to you to fight back when appropriate. Others can be exploitations of fraudulent customers, but the burden of payment reversals is often placed on businesses. Some payment reversals are just normal business. Or if your product is expensive and highly bespoke (think high-end mattresses or musical instruments), returns may be more common. If your online store doesn’t do a good job with its descriptions, you may deal with more payment reversals.
The frequency of payment reversals is tied to an interesting intersection of technology, law, and product/market type. Certain payment reversals are so prevalent that business owners have to budget them into their expenses every month. If you’ve been in business longer than a month, you’ve probably experienced a payment reversal of some kind.
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