How do service providers and payment processors process payment reversals?

Question

I had a dedicated server account at Hostgator (Hostgator US) which I never used. After leaving it for one year, it was automatically renewed and a huge amount was charged to my credit card (it is a direct payment).

I've immediately contacted the web host's support staff and they refunded it but unfortunately a large amount was not recovered and they doubt it is due to conversion charges (I am from India).

As per my knowledge, when you reverse customer's payment your payment gateway/processor process the full refund (the merchant told the same) including conversion charges. PayPal does that.

I requested the web host's support team to ask their payment gateway for clarification or let me know the payment gateway details. They refused to provide details and denied any further conversation.

My bank staff said there are chances for conversion charges for both payment and reversal but admitted that the charge levied on my card is too high. They accepted my request and investigating into the issue.

Could anybody tell me that if it is true that you will be charged both for making a payment and getting a refund? Isn't it payment processor responsibility to refund the full amount when the payment is reversed? How do I proceed now?

Notes

It is unfortunate that I left my card info in their billing system. In fact, my initial payment was made from PayPal but added this credit card to the billing system when I purchased a domain some time ago. It was never intended for auto payment.

Had the auto-renewal made from PayPal I would get a full refund but as this is related to my credit card it costed too much.

Answer 1

Could anybody tell me that if it is true that you will be charged both for making a payment and getting a refund?

Generally in Fx transactions, there is a spread between buy and sell of around 3-4% for USD-INR pair. Plus there is a mark up of 1%. So essentially if you swipe for $100 and get a credit of $100, you would typically loose around $5.

Isn't it payment processor responsibility to refund the full amount when the payment is reversed?

This depends on the timelines and how the refund was processed. Generally if within few days [at times even with the same billing cycle]; if the merchant "reverses" the original transaction; then you get the full funds back. If the Merchant "credits" the original transaction; or due to time limit, the Bank treats this as credits, it will be converted at prevailing Fx rates.

The merchant does not make any money in this transaction, he got $100 and refunded $100. The Bank does not make any [a small Fx spread] money ... however its is the end user who has taken the risk and is paying for it.

How do I proceed now?

Like you are doing, talk to you bank and see what best they can do. If this is more than 5% ... it is likely that something else has happened. See your statement, what does it show? Generally it should show the USD equivalent of both sides ... ie when the charge was made and when it was refunded.