When the first debit cards were introduced to the American public, they weren’t exactly easy to get—and they were nowhere near as convenient as they are now. The expansion of ATM and debit networks in the 1990s led to widespread adoption of debit as an alternative way to pay, replacing checks and even cash for many consumers.
The introduction of chip-and-pin cards has led to the rise of pin debit, thanks in part to its increased security. Debit getting better is good for all of us, but for merchants, it means dealing with multiple different cards for payments—credit cards, traditional debit and pin debits.
Pin debits, the newest player on the scene in the US, have their own unique rules, particularly when it comes to pin debit refunds.
If you’re a merchant in Canada… Good news: Interac makes the refund process simple. You should have no problem refunding debit transactions of any kind, even the next day after the transaction was processed, provided the cardholder returns to you with the card in person. The information found in this guide is primarily relevant to retailers in the US. You may be more interested in our guide to the top 7 questions to ask when choosing your payment processor.
In this blog, we’ll go over:
- The difference between pin debit, debit and credit card refunds
- How to process a pin debit refund
- Alternatives to pin debit refunds
Pin debit vs debit vs. credit card refunds
When you process a credit card refund, whether the transaction was made with a pin entry or not, the request is processed on the card issuer’s network. Within a few business days, the cardholder will get their money back, and you’ll be debited the refunded amount.
Similarly, processing a debit card refund from transactions made without a pin on cards like Mastercard or Visa Debit works much the same way. You make the refund request on the issuer’s network, and the cardholder receives their funds. Because they’re using the same major network as credit cards, these kinds of debit transactions can be processed without a hitch for merchants.
However, pin debits managed by networks outside of the major credit card providers are much different. Banks use network partners like NYCE or Accel to allow clients to use their debit cards in pin transactions. When someone makes a pin debit transaction, it’s processed on the interbank network. Banks in the United States may be signed with any one of a number of networks, while banks in Canada generally partner with Interac.
In summary: transactions made with credit cards (with OR without a pin) and debit cards (without a pin) are processed on a different network than pin debit transactions. Because of this, pin debit refunds have their own set of limitations.
Processing pin debit refunds
This key difference in how a transaction (or refund) is processed means that pin debits are much harder to refund than any other type of card. This is because of how pin debit transaction data is stored and processed on their networks.
When a merchant makes a sale with a pin debit, the processor stores that information. Every day at 4 pm EST, the stored transactions from that day are pushed to the relevant networks, and the processor then starts a new file. All transactions from 4 pm EST to 4 pm EST are grouped together and sent where they need to be sent for your business to receive funds; after that 4 pm deadline, a new group of transactions is created. A sale made at 3:30 pm EST and a sale made at 5:30 pm EST will be sent in two different groups because of that deadline.
Because of this system, pin debit refunds are technically impossible to process past the 4 pm EST deadline; the file containing the group of transactions has already been sent to the networks that need to process the data, and you can’t really get it back. You can only issue a pin debit refund if done before the daily cutoff on the current processing cycle—like 4 pm to 4 pm.
The only way to refund a pin debit transaction is to process the refund during the same processing cycle that the transaction was made—say, a customer buying something at 10 am EST and returning it at 2 pm EST. In this case, the refunded transaction will be pulled from your daily payment processor file instead of being sent out to a network; essentially, you are removing all data about the transaction from the file that is grouping your pin debit transactions together before it can be pushed for processing, so it’s as though the transaction never took place. The funds will never be debited from the pin debit customer’s account. The hold placed on the funds for processing is canceled.
If you need to perform a pin debit refund before the daily cut off, you can do so through your payments terminal, just as you would a credit card refund.
However, the nature of returns is such that the pin debit customer will likely not be back on the same day before the daily cutoff—people rarely return items the same day they bought them. You will need to refund these customers in an alternative way.
Pin debit refund alternatives
Because you cannot process pin debit refunds after they’ve been processed, you will need to refund them in alternate ways: store credit, cash or product exchanges, for example.
When you’re deciding on your refund policy, keep in mind that an overarching policy for all refund types will be much simpler to deal with than a refund policy that treats each payment type differently. Whatever refund method you decide is appropriate for pin debit refunds should blanketly apply to credit card and non-pin debit refunds as well. Everyone who requests a refund could be given store credit, for example.
You may be tempted to not offer any refunds to eliminate the need to maintain a refund policy at all. Be warned that while debit card chargebacks of any kind are exceedingly rare, upset credit card using customers can successfully request chargebacks much easier than debit customers can. You can be punished for too many credit card chargebacks being filed against you, so you should always offer some form of refund.
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