How to Handle Transaction Reversals: A Guide for Merchants

This year's Cyber 5, the shopping period spanning Thanksgiving weekend to Cyber Monday, proved exceptional for online merchants. Adobe Analytics reports that eCommerce sales surpassed $41 billion, a remarkable uptick from $38 billion in 2023.

What fueled this surge? The proliferation of credit card transactions. Credit cards have become the preferred payment method for many, with 32.6% of consumers now using them for monthly payments.

But while card payments are the go-to option for online shoppers, they're also highly susceptible to payment reversals.

Chances are that many Cyber 5 transactions will be reversed in the coming days. With the holiday season fast approaching, the risk of payment reversals becomes even more pronounced. Keep reading for exceptional tips on handling payment reversals like an absolute genius!

Steps to Handle Transaction Reversals

If you've read the earlier installments of this insightful series on card payment reversals, you're already familiar with the fundamental concepts behind them:

1. Transaction reversal happens when an ongoing or completed transaction is canceled, and the funds are credited to the shopper's original payment method.
2. Merchants and customers can initiate transaction reversals. However, the cardholder’s bank initiates most reversals on credit cards.
3. A payment reversal can be an authorization reversal, refund, chargeback, void transaction, or reversal adjustment.
4. The implications of transaction reversals for merchants are financial liability, brand reputation damage, and even business closure.
5. Reasons for transaction reversal are merchant errors, cardholder cancellations, fraud, or the merchant's decision to halt the transaction.
6. Transaction reversals can happen instantaneously, within  5 to 10 days, and take up to 60 business days, depending on the type of reversal.

Please review our previous guides on card reversals, here and here, for deeper insights on these, including merchant responsibilities and what payment reversal means for sellers.

With all that said, let’s examine the step-by-step process for handling transaction reversals.

Handling Transaction Reversals

Step 1: Identifying a Reversal Request and Understanding the Reason.

You must know when a shopper requests a transaction reversal before you can address the situation. Hence, the first step to handling transaction reversals is to know when one occurs. This is essential because an unattended refund request can quickly escalate into a chargeback, which might cost you more money.

Here's how to stay on top of your payment reversal requests:

• Monitor notifications from payment providers and customer communication channels for reversal requests. As stated earlier, customers can reverse transactions by reversing authorization, requesting a refund, or filing a chargeback.
• Know what you’re dealing with. Handling a refund is different from handling a chargeback. Understand what the customer wants and the reason for their grievance.
• Do your due diligence to know if they have a legitimate case. Difficult economic conditions lead to increased fraudulent behavior. Bad actors often exploit tools like transaction reversal–intended for legitimate issues such as accidental charges or undelivered goods–to score freebies. For instance, our data shows that up to 80% of chargebacks filed in 2023 were meritless. To protect your business, always investigate payment reversals like chargebacks to determine if they are legitimate or fraudulent.

Step 2: Reviewing Transaction History and Documentation.

Reversing a transaction through a refund or an authorization reversal is typically straightforward. But if you're dealing with a chargeback, that's significantly more complex. Chargebacks require additional steps, expertise, and documentation.

The standard procedures for managing that process include:

• Communicating with the customer to resolve disputes directly. If that proactive measure proves unproductive, and you’re certain they don’t have a valid case, then you must plan for representment.
• Gathering your compelling evidence according to the chargeback reason code received from the bank. The specific documentation you provide depends on the case you’re dealing with.
• Review the shopper’s transaction history and include, as part of your chargeback representment documentation, two or more previously uncontested or non-fraudulent transactions within 120 days of the disputed transaction. This is required to win Visa chargebacks in line with Visa Compelling Evidence 3.0.
• Crafting your chargeback response letter. This cover letter outlines the transaction details, references the reason code provided by the card issuer, provides your reason for challenging the case, and highlights your evidence.

Don't forget to send your representment on time to avoid losing by default. While each card network has distinct chargeback dispute rules and timelines, they generally give merchants 20 to 45 days from the notification date to respond.

Step 4: Collaborating with Banks or Payment Processors to Manage the Reversal Process.

Your acquirer will send all documentation they receive from you to the payment network, which will then transfer it to the card issuer. After the issuer decides the outcome of the case, you or the cardholder has the option to request pre-arbitration.

Chargeback pre-arbitration allows cardholders or issuers to dispute the dispute outcome of the case, and challenge the bank's decision, given they have substantial evidence.

Proactive Measures for Preventing Excessive Transaction Reversal

Picking up from our previous guide on payment reversal timeframes and merchant refund responsibilities, below are additional strategies for reducing the occurrence of payment reversals.

1. Fine-tune your eCommerce store policies to ensure customers can talk to you instead of bypassing your team to their bank.
2. Improve customer support systems by streamlining communication channels, enhancing staff training, and leveraging automation tools for prompt, efficient service.
3. Monitor payment systems for fraud signals to prevent unauthorized reversals.
4. Automate your chargeback to win false disputes on autopilot.

The truth is that regardless of how cautious you are in preventing transaction reversals, scammers will still try to force their way. That’s why you need tools like Chargeflow. It gives you a deeper understanding of each transaction and minimizes payment risks on autopilot.

Final Thoughts on Mastering Transaction Reversals

The growing frequency of transaction reversal – especially through chargebacks, where buyers reverse completed transactions through their bank – is a concerning trend. As eCommerce transactions increase, so does the rate of false chargebacks, posing a notable business continuity threat for online merchants.

To handle transaction reversals effectively, merchants must first understand the reasons behind these requests. Reviewing transaction history and documentation allows you to gather evidence and, if necessary, challenge chargebacks through representment. But ultimately, investing in tools like Chargeflow offers a deeper understanding of each transaction. You quickly grasp the story behind each transaction, helping you minimize payment risks.

In conclusion, while transaction reversals are becoming common, you, a prudent merchant, must not be found wanting. Master the reversal process and implement proactive measures like automated chargeback management for optimum payment security in peak seasons.