Payment reversal
Payment reversal is when funds from a completed transaction are returned to the cardholder's account. Reversals can be initiated by the cardholder, merchant, issuing bank, acquiring bank, or card networks.
There are multiple reasons why a payment reversal may occur. Common reasons for payment reversals are:
- Merchant-initiated
- Item out of stock or unavailable
- Duplicate transaction processed
- Wrong amount charged
- Customer cancellation request
- Customer-initiated
- Product doesn't meet expectations
- Changed mind after purchase
- Fraudulent transaction
- Service not delivered as promised
Types of reversals
- Refunds - merchant voluntarily returns funds, often for customer satisfaction
- Voids - transaction canceled before settlement
- Chargebacks - forced reversal initiated by the cardholder's bank (most costly for merchants)
A high reversal rate can signal operational issues, fraud vulnerabilities, or product quality problems. Beyond direct financial losses, frequent reversals may damage customer trust, trigger stricter fraud monitoring from payment processors, and result in higher processing fees or account restrictions.
Handle refunds directly with customers when possible to avoid chargebacks, which carry additional fees and penalties beyond the refunded amount.