Online Refunds: Making Repayments Faster

How many times have you waited for a purchase refund to be credited? And then waited for it to be credited to your bank account over a week, or 2 at a time?

Slow online refunds can be extremely frustrating for customers. Especially in a market like India, a lot of shoppers are still sceptical of online commerce. Failed transactions or returning products due to quality issues can be pertinent issues. That adds to the scepticism of purchase blocks for customers.

Moreover, customers aren’t educated about refund policies and procedures!

Neither online businesses nor government bodies and financial institutions overseeing these procedures make people aware of it.

So, here we are to make this simpler for customers as well as businesses dealing with refund repentance. We’d like to take you behind the scenes of – Why online refunds take time and how they can be made faster?

The Story in Numbers: Customer Returns and Refunds

In a customer journey, the payment experience is critical.

If the refund cycles are long and tedious, the customer is more apprehensive about your products and offerings. On the other hand, if you issue swift and seamless refunds, this ensures a great customer experience and builds trust.

The time period between a merchant initiating a refund to that being credited to the customer’s account is called the Average Refund Window.

The Average Refund Window came out to be approximately 7 days, with as many as 23% of the refunds taking more than 10 days. This data does not include the time taken by a merchant to initiate a refund after getting a request from the customer.

Slow reimbursements also happen to be the largest source of support queries with most e-commerce customer support teams devoting at least 50% of their time to refund-related queries.

The industries that see the most cases of returns and refunds are –

Industries	Refund Cases
Travel & Hospitality	About 22% of the orders and purchases end up in a refund request
e-Commerce Retailers	Customers return about 16% of orders due to incorrect descriptions, sizes, poor quality and more
Fashion Retailers	About 21% of orders end up being returned and refunds are issued due to incorrect size, poor fabric quality, real-life longevity of the product and more

These numbers drastically contribute to poor customer experience, when clubbed with the average refund timeline. In a survey by Digital Commerce, 72% of customers lose trust in an online retailer if the repayments take more than 5 days. Only the largest online retailers like Amazon and Flipkart have a clear refund policy. While others are still vague giving the customers a hard time in dealing with online shopping.

So, why are online refunds still causing loss of business in an era where digital transactions are skyrocketing? To add to it, banking norms are becoming digital-friendly and new technologies like UPI are becoming a norm. But even then the problem persists.

To answer the questions let’s take a look at how online refunds work!

How Are Online Refunds Processed?

To understand how online refunds work, it is imperative to first understand how online payments work? Let’s understand how a business or individuals collect payments.

There are generally 3 parties involved – the customer making the transaction, the payment gateway and the merchant.

The customer makes a transaction through their preferred mode of payment. It can be via net banking, wallet, UPI, debit or credit card.

Once the customer requests the reimbursement and the merchant accepts it, the latter initiates a request. S/he initiates the request at the payment gateway which passes the request to its payment processing partner.

The payment processor can be a partner bank (acquiring bank) in the case of a card or UPI transaction. Then, the acquiring bank deducts the amount from the next settlement to the gateway. Thus, effectively, the refunded money is with the acquiring bank now.

The acquiring bank identifies the payment mode and forwards it to a network (Visa/Master/Rupay).

By this time we have an Acquirer Reference Number to track the refund. The network identifies the issued bank card or ID and validates the details with the customer’s bank (issuing bank). This is to ensure that the reimbursement goes back only to the source of payment. It is usually the most time-consuming step.

Once confirmed, the refund is adjusted in the settlements of the acquiring bank by the card network and settled to the issuing bank. The issuing bank, in turn, credits the money to the end customer.

All of these exchanges of date happen via daily batch file exchanges defined by the protocols of Visanet (by Visa) and Banknet (by Mastercard). For UPI and Rupay transactions, NPCI defines the protocols.

Not only does each batch process add a day to the refund timeline, but often banks delay in confirming a transaction due to reconciliation processes at their end. This explains why certain older public sector banks tend to have slower refunds than the newer private banks.

Merchants usually encounter 2 scenarios that require a refund in online payments.

Scenario #1 – Amount is Debited BUT the Transaction Fails on the Merchant’s End

Premise – A customer tries to complete a purchase by making an online payment. But, the payment gateway or the merchant alerts the customer that the payment has failed. However, the customer receives a transaction alert from their respective bank, that the amount has been debited.

So, what went wrong?

The information for transaction processing is transferred between the issuing bank and the acquiring bank via the card network. Each party, that is, the payment gateway, the acquiring bank, and the card network keeps checking (polling) with the other party for the status of a given transaction.

Why Failed Transaction?

It may so happen that while the issuing bank (and the card network) confirms the transaction leading to an account debit, the acquiring bank (and the payment gateway) may not acknowledge the same. The payment gateway polls the acquiring bank and detects the occurrence as a failed transaction, even though the issuing bank debits the money.

In most cases, the acquiring bank acknowledges the confirmation after a delay of up to 1 working day. The same is relayed to the payment gateway. In this case, the payment gateway can choose to accept this as a successful transaction. Likewise, it may notify the merchant (and customer) OR choose to refund the transaction back to the customer.

At Cashfree Payments, the merchant can choose whether they want to accept such delayed confirmations or issue a reimbursement automatically.

It is a rare case where the acquiring bank does not acknowledge the transaction. In such a case, the customer needs to speak to their issuing bank. Or, the customer has to speak with the merchant. It is so because the merchant can resolve the issue by initiating a similar conversation via the payment gateway. This should usually happen if the customer doesn’t get reimbursement for more than 1 week after making the transaction.

Like customer payments, refunds also follow a similar chain of commands to fulfil. It is only then the merchants return or rather reimburse the money to the customer. There are various actions that require human intervention.

As much as we would like to believe, it is not easy to completely automate these processes. Therefore, this might considerably reduce the refund window. 

Plus, the sheer amount of similar cases per day adds to the timeline of the reimbursement issued especially in a region like India.

Scenario #2 – Merchant Issues a Full or Partial Refund at the Customer’s Request

Premise –  The customer places an order and successfully transacts for the product or the service. Due to some reason, he or she, later on, decides to cancel the order. Henceforth, the customer requests a refund from the merchant.

Merchants can mark reimbursement in multiple ways:

• Call payment gateway’s refund API
• Mark refund in the payments gateway’s dashboard
• File upload with multiple refunds in one go in the payment gateway’s dashboard

In this scenario, the business uses its payment gateway to raise a request to its bank for a refund. The payment gateway acts as an authentication and communication platform between both the issuing and payee bank, to complete the refund process.

Why Refunds Become Time-Taking?

As there are multiple stakeholders in the transaction, transaction completion requires a series of manual oversight and authentication. The entire process at least has 3-4 authentication barriers as well as human interaction. All of this makes the refund process last almost a week and at times more than 10 days.

On top of that, most online businesses do not initiate refunds before the collection of the returned product, which adds to the delay. 

Cash-On-Delivery returns are a different refund process altogether and take relatively longer. When customers have to deal with returning products bought via COD, most businesses have to request their bank account details. In order to process refunds, and due to the priority given to product collection prior to refund management, the repayments take a much longer time.

The money takes more than a week to reach back to the customer, whereas a purchase takes just a minute to go through.

On top of this, there haven’t been clear regulatory guidelines around processing refunds and protecting the interest of both parties, viz-a-viz, the customer and the business. Due to the lack of guidelines and regulatory bodies overseeing the procedure, different organizations, banks, and payment gateways have a varying sets of rules on how to handle failed transactions and refunds and therefore it ends in a poor customer experience, which creates hesitation for the customers to trust a brand again.

Making Repayments Faster for Customers and Merchants

Refund processing is complex as we have seen and a significant part of online payment processing. One of the recent developments in refunds is regulatory. 

14-Day Refunds – Centre Proposes New Guideline for e-commerce Online Businesses

To protect customer rights and misuse of private data by online retailers and businesses, the central government wing, the Ministry of Consumer Affairs, has proposed a set of new eCommerce guidelines. One of the 2-key highlights of the guideline is to ensure that refunds reach back to the customers in not more than 14 days.

The new proposed regulation is due to be finalized and is currently been shared with national eCommerce firms, bodies, and unions for further discussion and development. This new regulation is slated to be discussed again on September 16 between the ministry and eCommerce bodies on how it would be implemented.

If the proposed regulations go into effect, customers would benefit a lot from –

• Guaranteed refunds in no less than 14 days after raising a request
• Additional data handling and protection laws – Encrypting personally identifiable data of customers
• Maintaining a level playing field between the eCommerce platform and the seller – Elimination of favouritism, underhanded tactics to promote one seller over the others and so forth.

Solving Refunds at Cashfree

At Cashfree, we have been constantly working to bring industry-first payment solutions to improve customer experiences for all kinds of businesses that accept digital or paperless transactions. We’ve always identified refunds as a big problem that needed solving.

Looking at our data of processing more than 100 million transactions, we learned that 17% of customers who have made an online purchase, request refunds.

Interestingly, when given a choice, people preferred three modes of refunds over other options –

• With 35% of the surveyed customers, preferring IMPS transactions,
• 7% prefer Amazon Pay reverts,
• And, the last 43% prefer UPI-based refunds

Hence, we introduced Cashgram!

What’s Cashgram?

It’s a way for businesses to pay customers without having to collect account details. We have built Cashgram to make issuing refunds a breeze.

Additionally, Cashgram allows a business to improve the customer experience provided by giving their customers a choice on how they want to receive the refund. It takes less than 5 minutes for any customer to receive funds via Cashgram once the merchant approved of refund request.

Many eCommerce companies were facing high rates of CoD order returns. Thus, they adopted Cashgram quickly. As the product grew, a lot of brands showcased the potential of the solution and it grew out to create its very own use cases, that honestly, we didn’t think of.

Cashgram at its core, even today, remains a solution to issue a fast monetary settlement for both the business and the customer. But it has expanded to –

• COD Refunds/Returns at E-commerce stores
• Rewards disbursal on Fantasy Sports/Online Gaming apps
• Payouts to marketing affiliates
• Gifting (alternative to gift cards)
• Disbursals on Peer to Peer lending platform
• Settlements on insurance claims
• Expense reimbursements

Introducing Cashfree Instant Refunds

Today, online refunds are a crucial roadblock that online businesses need to deal with if they want to truly thrive in the next phase of eCommerce growth. eCommerce growth may reach a market capitalization of approximately $350 billion by 2030.

We started working on Instant Refunds, and we are happy to announce that Cashfree’s ‘Instant Refunds’ is available to all our customers. 

As the name suggests, Cashfree Payments’s latest offering Instant Refund helps brands reduce the long refund process from one week to a few moments. 

Cashfree’s Instant Refunds can enable merchants to issue customer refunds instantly without any need for manual intervention, making it possible for you to add an automated and instant refund solution to your business. The new offering works with all payment methods available on the payment gateway: 

• Netbanking
• Credit and Debit Cards
• Digital Wallets – Paytm, Amazon Pay and PhonePe
• UPI

Other instrumental features of Cashfree’s Instant Refund include –

• Effortless integrations with various platforms, 3rd party payment gateways and more.
• ERP and API integration as well as custom solutions for internal products
• Capability to completely automate the process, reducing manual intervention to bar-minimum.
• Real-time analytics and reporting on refund status and progress, with Cashfree’s analytics dashboard.

We are proud to bring you Instant Refunds, a product developed to enable online businesses to improve customer experience and smoothen out the last step crucial to acquiring customers, giving customers complete confidence while making a purchase by providing the facility of instant refunds.

Do check out the product here, or you can directly reach your account manager or sales team to learn more.