So far, we've discovered how merchants authorize transactions and get paid.
We've also found out that the data containing the authorization and
clearing messages is what the issuing bank uses to make sure a
transaction will appear on a cardholder's statement.
But what happens when things go wrong, when a transaction ends up on the
wrong cardholder's account, when the cardholder takes something back to the
merchant because they change their mind, or they were not happy? There needs
to be a way to undo payment card transactions., and there are actually two
ways a transaction can be undone.
Firstly, the merchant can refund the transaction.
To do this, the merchant sends a message similar to an
authorization request to the cardholder's bank.
Unlike an authorization request,
this refund message doesn't usually contain the sensitive
authentication data the issuer required for authorization.
It just contains the PAN, the cardholder name,
maybe the expiration date, along with the amount
being refunded to the cardholder.
And as you'd expect, the issuer will send back a refund response.
But if the merchant is using a payment service provider,
this can often make refunds even easier because the merchant just
needs to send the PSP transaction reference and the amount to the
PSP, and then the PSP will generate the necessary messages to send to
the issuing bank for the refund.
Remember, a refund is initiated by the merchant. Transactions can
also be undone by the cardholder contacting their bank and stating
that either the transaction on their account wasn't them, it was a
fraudulent transaction, or that the merchant didn't fulfill its
contract with the cardholder.
This type of transaction is called a chargeback.
The cardholder will first contact their issuing bank to say something is wrong.
They'll usually have to complete a form. And then the issuing bank
sends a message via the card scheme to the merchant's acquirer,
requesting that the money is returned.
This message will specify the reason and might also contain a
copy of the form the cardholder completed.
The acquirer will then contact the merchant and ask them
to prove the transaction was valid.
And I've seen this happen in lots of different ways, by fax, by email, by post.
And quite commonly today,
the acquirer makes a website available for their merchants, and then
the merchant can log in and see all the chargebacks.
If the merchant agrees to the chargeback,
the transaction is undone, and the card holder gets their money back.
If the merchant disagrees,
a dispute resolution process starts, which is eventually
decided by the card scheme if neither the issuing bank or
the acquiring bank can agree.
From a data perspective, this dispute happens between the banks.
The merchant doesn't really get involved in this.
So a merchant, you'll typically find chargeback letters,
faxes, and emails from the acquirer, and these tend to have
been sent over separate channels from the system that's used to
authorize and clear transactions.