3 Common Challenges Businesses Face With Refunds


Today’s world is operating on everything instant, from instant food, instant connection, instant payments to what not. So, why not instant refunds? Why are online refunds time-consuming and challenging? Normally, when a customer asks for a refund, it takes about 8 to 10 days to process. Most of the time, this waiting time ends up frustrating the customers and they lose all interest in making purchases from that merchant or any online business. The lengthy refund cycle not only harms the customer experience but also imposes many challenges to businesses. This article lists some of the biggest challenges faced by businesses while fulfilling the requests of instant refunds along with the best solution to overcome those issues. Let’s dive right in!

How Does Online Payment Refund Process Work?

Digital payments mostly involve 3 parties- the consumer who makes the payment, the merchant who collects the payment, and an intermediary who makes this transaction faster and smoother. Most of these times, the intermediaries are online payment gateways.

The chances of both merchant’s and customer’s banks being the same are very rare. Online merchants mostly use a payment gateway that coordinates the payment processing between both parties. It acts as a link between the bank that starts the payment and the bank that collects the same.

When a refund request is initiated, due to a failed payment, a cancelled transaction, or return request made by the customer, the request must be processed across the payment system we have just discussed.

First, the online payment gateway receives the refund request. It then passes this request to the respective payment partners through APIs. The banking partner then communicates with the bank through which the customer has made the payment. Once this communication is done and accepted by the involved parties, the refund is initiated. And finally, when this process ends, the refund amount reflects in the account.

So, this is how the refund process actually works. While the trusted payment gateways like cashfree allow the merchants to make instant refunds, some faulty payment infrastructures make the refund process very complicated which harms the businesses.

Below are the main challenges faced by the businesses when it comes to refunds :

1. Customer Drop-Off

Customer drop-off is one of the biggest challenges faced by businesses while dealing with refunds. When a customer initiates a refund request after returning an item or due to a failed transaction, they expect an instant refund which they duly deserve. In these cases, if the businesses fail to process the refund request or take a lot of time to do so, customers get frustrated and avoid purchasing from those businesses in the future.

2. Higher Operational Cost

Processing the refunds in the absence of a reliable payment infrastructure can lead to an increase in the operational cost. In such scenarios, businesses have to deal with additional taxes, GST and payment processing fees as well.

3. Cumbersome Cash-on-delivery Refunds

Processing cash on delivery refunds is a whole different horror story. It involves several additional steps like collecting the banking information, verifying the transaction, picking up the product and then imitating the refund process. All of this leads to the waste of time, efforts and operational cost. In fact, most businesses get scammed by their COD refunds as they receive an altered product even after making instant refunds in advance.

So, these are the three biggest challenges businesses face with refunds. The best way to overcome all of these issues is by signing up with a reliable payment gateway that allows you to make instant refunds without adding any extra charges to your bills. This will not only save your time and money but will also keep your customer base and reputation intact.