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Chargebacks, Refunds, and Authorization Reversals: Payment Reversal Types - YouTube
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- [Announcer] Presented
by chargebackgurus.com.
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The three types of payment reversals:
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Every merchant knows how
their transaction process
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is supposed to work:
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The customer gives you money
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and you give them your
goods or services in return.
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It's never ideal when merchants
have to give money back
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to the customer, but of
course it happens frequently,
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and is sometimes unavoidable.
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When you're dealing with payment cards,
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there are three different ways
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that payment reversals can occur.
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Each happens for different reasons,
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with their own special
implications for the merchant.
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What are the three types
of payment reversals
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and how can merchants minimize the impact
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reversals have on their revenue?
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Payment reversals are
not all created alike.
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Some have minimal impact on
the merchant's bottom line
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and others can be quite costly.
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A payment reversal isn't
always a bad thing.
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When done early enough,
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a payment reversal can be
minimally costly to the merchant,
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make the customer happy,
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and more likely to come
back for repeat business,
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and eliminate the chance of
receiving a more expensive
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and damaging form of reversal later on.
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These are the three types
of payment reversals:
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Authorization reversals,
refunds, chargebacks.
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Good policies, processes, and
customer service can help you
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avoid all three types, but of course,
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the ones you really want
to avoid are chargebacks.
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They're the most costly by far
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and they can harm your
business in other ways as well.
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By applying authorization
reversals or refunds
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at the right time, you
can avoid chargebacks
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and minimize the problems to
your revenue and reputation
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that payment disputes can cause.
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But first, it's important to understand
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how these reversals differ.
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What are authorized reversals?
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An authorized reversal
is a payment reversal
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that can be performed
immediately after a transaction,
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before settlement occurs
and money has been withdrawn
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from the customer's account.
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Essentially, it's an
electronic communication
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to the issuing bank sent
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through your payment processing system,
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which instructs them to
back out of a transaction
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that was just authorized.
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If a customer makes a purchase
and changes their mind
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a short while later because
they want to return the item
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or use a different payment method,
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you may be able to process
an authorization reversal
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instead of a refund.
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This is preferable because
you won't have to pay
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interchange fees the way you
would if you processed a credit
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to refund a fully settled transaction.
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If you have the option to provide
an authorization reversal,
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it's always the cheapest,
fastest, and best option
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for giving the customer their money back.
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What are refunds?
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It's often the case that
authorization is not an option
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because the customer
decided to make a return
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or raise an issue after the
transaction has been settled.
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In situations like these,
you can provide a refund,
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which is processed as a new
and separate transaction
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that takes funds from the
merchant account and credits it
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back to the customer's payment card.
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Refunds have to go through
the same settlement
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and clearing process
as other transactions,
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which means the customer
doesn't always get
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their money back instantly.
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The merchant is also obligated
to pay interchange fees
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on every credit transaction,
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the same as they would
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if they were processing a regular charge.
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However, when a customer is unhappy,
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a refund is often the best
way, and sometimes only way,
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to resolve the situation
to their satisfaction.
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For this reason, it's always a good idea
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to have a generous
return and refund policy
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and to offer attentive and
compassionate customer service
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when a customer comes
to you with a problem.
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If you provide a refund and
give them your money back,
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you can usually salvage the
relationship with that customer.
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The alternative, if you rebuff them,
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is that they might contact their bank,
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claim that you refuse to
resolved a legitimate complaint
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and convince the bank to
grant them a chargeback.
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What are chargebacks?
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A chargeback is a forced payment reversal,
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initiated by the customer's issuing bank,
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which takes money from the merchant
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and gives it back to the customer.
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Under the Fair Credit Billing Act of 1974,
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all payment card issuers must
offer a chargeback process
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to remedy fraud and abuse.
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If a customer brings a valid
dispute claim to their bank,
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a chargeback will result.
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Chargebacks are more costly than refunds.
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They carry additional fees
that the merchant must pay.
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That's not the worst
thing about them, though.
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The real danger with chargebacks
is that they can cause you
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to lose your merchant account.
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The major card networks
task their acquiring banks
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with monitoring chargeback rates
and establishing thresholds
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for "excessive" chargeback activity.
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This is done to prevent
fraudulent and reckless merchants
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from abusing the system
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and causing consumers to
lose confidence in the safety
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of payment card transactions.
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When merchants exceed acceptable
chargeback thresholds,
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their acquirers and payment processors
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may terminate their accounts.
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There are "high risk"
processors that will deal
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with merchants caught in that situation,
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but they can be very expensive
and sometimes unreliable.
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Merchants can avoid chargebacks
by taking the opportunity
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to provide authorization reversals
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and refunds whenever required.
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But this only works
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when the customer
notifies you of a problem.
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Other chargebacks may occur
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because the customer
doesn't recognize a charge
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on their bank statement.
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Clear merchant descriptors,
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with your phone number
and website URL included,
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can help avoid this.
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Some chargebacks are the result of fraud
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and can be prevented with
AVS and CVV matching,
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and anti-fraud tools, like 3-D Secure.
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When customers make false
claims and obtain chargebacks
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that do not have a legitimate basis,
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this is called friendly fraud.
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With the right evidence
that disproves these claims,
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merchants can fight these chargebacks
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and win back their revenue.
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Conclusion: There are situations
in which each of these
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different payment reversal
types will be required,
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but merchants should do
everything in their power
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to avoid chargebacks.
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Authorization reversals
and refunds may cost you
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some revenue, but they can't
threaten your very ability
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to process payment card transactions
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the way chargebacks can.
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Every merchant needs a strategy
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for preventing and fighting chargebacks
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and the fraud that can lead to them.
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A big part of that
strategy is knowing when
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to offer voluntary payment
reversals to keep customers happy
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and avoid disputes down the line.
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To learn more, visit chargebackgurus.com.
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