Refund vs Chargeback: what’s the difference

When a customer wants their money back, it can happen in two ways — a refund or a chargeback. While the outcome may seem similar, the impact on your business is very different.

Refund

A refund is when the merchant voluntarily returns funds to the customer. It’s a sign of proactive support and solid internal processes.

No bank involvement

No chargeback fees

Doesn’t affect your chargeback ratio

Builds trust with acquirers, payment providers, and customers

By issuing timely and transparent refunds, you resolve issues before they escalate into disputes.

Chargeback

A chargeback occurs when a customer bypasses you and disputes the transaction with their bank. The funds are forcibly reversed, and you’re left with:

Financial loss (transaction + chargeback fee)

Negative impact on your MID (Merchant ID)

Risk of rolling reserves, stricter terms, or even account termination

High chargeback ratios raise red flags with acquirers and may limit your ability to grow.

Refunds help prevent chargebacks

Encouraging customers to come to you first is the smarter path. Refunds are quicker, more cost-effective, and less damaging to your reputation.

Best practices:

Clear and visible refund policies

Easy-to-access customer support

Fast and empathetic response processes

Refunds and Chargebacks Monitoring

Refunds are a smart business strategy. They cost less than chargebacks and protect your long-term payment relationships.

Want to discover what terms payment providers can offer your business, Click here to access our application form - and we’ll get in touch with you.