This article describes the situations where you should perform a Reversal (RV) rather than a Refund (RF), and vice versa.

It is imperative that the correct flow is actioned, as there is a potential for schemes to issue penalties for the incorrect use of a Refund or a Reversal.

The following explanation from the card schemes via the Payments Association of South Africa (PASA) provides guidelines on when to use each flow:

When to perform Reversals (RV):

A reversal is to be used for funds that have not yet been settled, an example would be on a Pre-Authorisation of a transaction which places the funds in a suspense status, on that type of transaction an RV is then going to be possible.

Quote from PASA:

"A reversal transaction takes place when the cardholder requests the merchant from whom he purchased the goods or services to reverse or cancel the original credit card purchase transaction. This would generally occur immediately after the original purchase, or preferably on the same day – at least before the transactions on the terminal or store server have been “banked” with the acquiring bank. In such a case the purchase transaction is effectively canceled or aborted before its completion."

The transaction flow for this would be a Pre-Authorization (PA) and then a Reversal (RV) on that given PA.

If an RV is done on a Debit (DB), there is a potential for schemes to issue penalties, as mentioned above.

When to perform Refunds (RF):

For a debit transaction, an RF needs to be used as the funds are either on their way to the merchant or have already been settled.

Quote from PASA:

"A refund transaction occurs when the cardholder approaches the merchant from whom the goods or services were purchased and, for whatever reason (return of goods, non-delivery of goods, incorrect goods or services, etc.), wishes the merchant to refund or rebate the full original amount. If the merchant agrees, the result is a “credit” transaction from the acquiring bank to the issuing bank, which then reimburses the cardholder the full amount.

In the event that a cardholder and merchant are unable to agree on a reversal or refund transaction, the cardholder has the right to declare a dispute and request his issuing bank to perform a charge-back transaction on his behalf.

The transaction flow for this would be on a DB, a RF would then be done."

The transaction flow for this would be a Debit (DB) and then a Refund (RF) on that given DB.

So, to Summarise:

  • Reversals (RV) are to ONLY be actioned on Pre-Authorizations (PA)
  • Refunds (RF) are to ONLY be actioned on Debits (DB) OR Captures (CP)