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I cannot understand this: if I make an online purchase with a credit card, the purchase is done instantly, and I receive a SMS notification within 5 seconds. However, if money is returned to the credit card (e.g. cancelled ticket / deposit refund), it takes 2 to 4 weeks.

A refund is simply a transaction in the reverse direction. Given that everything is processed electronically nowadays, why does it take so long before the refund is shown on my account?

  • 8
    The cynical answer is that the bank has a vested interest is getting your money quickly, and has no vested interest in giving it back quickly. – D Stanley Jul 6 '17 at 14:46
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    It may be the specific merchants you're buying from that are dragging their feet. It's certainly not a technology issue - when I return goods in store and they have me swipe my card in the POS for a refund I usually see it show up in my "pending transactions" online in the same time frame that a purchase would have taken to show up in the same place. For reservations cancelled online, the merchant might be choosing to have an employee collate and process all refund requests just once or twice per month perhaps. – CactusCake Jul 6 '17 at 14:54
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    You do know that the merchant doesn't get your money in 5 seconds right? – quid Jul 6 '17 at 15:44
  • If it is any consolation, the merchant can often be waiting to get paid from online transactions as well. Returns hurt their cash flow, although neither delay is necessarily anything they have any control over. – mckenzm Jan 29 '18 at 18:51
  • @DStanley The banks don't get your money. The issuing bank pays the money, and the acquiring bank receives the money, but it goes into the merchant's account. – Acccumulation Sep 28 '18 at 19:39
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It's not usually apparent to the average consumer, but there's actually two stages to collecting a payment, and two ways to undo it. The particular combination that occurs may lead to long refund times, on top of any human delays (like Ben Miller's answer addresses).

When you pay with a credit card, it is typically only authorized - the issuing bank says "I'm setting this money aside for this transaction", but no money actually changes hands. You'll typically see this on your statement as a "pending" charge. Only later, in a process called "settlement", does your bank actually send money to the merchant's bank. Typically, this process starts the same day that the authorization happens (at close of business), but it may take a few days to complete. In the case of an ecommerce transaction, the merchant may not be allowed to start it until they ship whatever you ordered.

On the flip side, a given transaction can be voided off or money can be sent back to your card. In the first case, the transaction will just disappear altogether; in the second, it may disappear or you may see both the payment and the refund on your statement. Voids can be as fast as an authorization, but once a transaction has started settlement, it can't be voided any more. Sending money back (a "refund") goes through the same settlement process as above, and can take just as long.

So, to specifically apply that to your question: You get the SMS when the transaction is authorized, even though no money has yet moved. The refund money won't show up until several days after someone indicates that it should happen, and there's no "reverse authorize" operation to let you or your bank know that it's coming.

  • Side note: I've seen what happens when a transaction is voided off and money is sent back to the card. It isn't pretty. – Bobson Jul 6 '17 at 21:28
  • Another update: Visa is going to be introducing exactly the "reverse authorize" that I mentioned here over the next several months. As it rolls out to the whole ecosystem, expect to start getting notifications when a refund is processed. I believe it's just the authorization of the refund, so the settlement will follow the same slow process, but I don't have the details. – Bobson Apr 23 '18 at 23:25
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The holdup is from the merchant.

To protect themselves, a merchant requires payment before giving you your purchased item/service. That is why you are charged immediately.

When getting a refund, the same reason applies. The merchant needs to ensure that you are returning the correct item, or that it is still good, or that you are not trying to defraud the merchant in some way. Once the merchant processes that refund, it is all over for them, and they have no recourse later if they find out they were cheated. That is why they wait a while: the delay gives them time to discover any problems.

  • That does not apply to many real-life situations where they accidentally charge wrong and correct it seconds later - you never had anything they need to watch for. – Aganju Jul 6 '17 at 15:42
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    @Aganju Yes, if the merchant accidentally charges your account, you would hope that they fix the problem immediately. However, if you accidentally make a purchase and then request a refund right away, that is a flag for potential shenanigans; the merchant would understandably want to wait for a bit before handing out money. – Ben Miller Jul 6 '17 at 15:47
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When you swipe or use your cc online, the instant deduction you see is not the hard charge but rather a pre-authorization. When the merchant settles their batch out, usually at 11:59pm, the hard charge will hit in a day. With a refund, there is no pre-auth so it's not instant. It will take a few days, just as the hard deduction did. Refunds should only take 1-3 biz days no way 2-4 weeks.

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Simple Answer: Even when merchant immediately processes a refund on your credit card, the bank has up to a certain number of days (usually 5-7) to process that refund and put it on your credit card account. The bank delays in posting the refund to your account because they are making interest off that money while it sits in their bank account. They will delay for the maximum amount of time allowed by law so they can make the maximum amount of interest on the money before giving it to you. They don't refund until they absolutely have to. They of course do the exact opposite when you are initially charged. They hit your account right away, because that starts the clock ticking on interest they can charge you. It's all about them taking advantage of the float (interest charged or earned) in both refunds and charges.

As a customer, you can call and ask the merchant to provide you with the 'authorization' number and then call your credit card company and provide them with this to push it through faster. If a charge on your card is voided, it also may not drop off for 2-3 days, but you can also get this 'authorization' number from your merchant, then call your credit card company and give it to them to get the voided charge to fall off immediately. Some credit card companies will only do this if the merchant calls with the authorization number though, so sometimes you need to do a conference call with the merchant and your credit card customer service.

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I have been told by the travel agent making our refund that there are checks to ensure that there isn't any money laundering. The credit card company is telling me it may take up to 28 days to refund the money to a current account before I can access it.

After fourteen working days, I got a nice guy who is trying to get the money refunded next week. Sadly, he didn't get it confirmed before leaving for the weekend and the team dealing with these refunds does not work on weekends.

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It's just a game that bankers who collect interest play by running you back to the merchant who already gave you a receipt for your return. Credits and debits are processed in the same file and there is no reason for them to post differently unless: 1. File transmission failure / delay (SENDING) Or 2. Being held on the receiving end and posted whenever (RECEIVING)

You have (1) transaction day, (2) transmission day (settlement) and (3) posting day with potential weekend impact / delay on non banking days where Sat. and Sun. both post on Mon.

I notice that debit card returns are relatively timely. However, revolving credit card accounts that accumulate interest daily seem to take longer.

protected by Chris W. Rea Nov 3 '18 at 12:52

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