What does Provisional Credit Reversal Mean?
A provisional credit reversal is a temporary credit placed on a cardholder’s account during a transaction investigation. When the customer is disputing a transaction, the bank will often issue a provisional credit while they do their investigation. This is generally a customer service technique to satisfy the cardholder while the bank investigates the transaction.
What Causes a Provisional Credit?
Transaction disputes are the main reason for which provisional credits are issued. When a cardholder sees a charge on their statement that they don’t agree with, they can call their bank and dispute the transaction. Disputes can happen for several reasons, including the following:
- The transaction amount is incorrect
- The customer changed their mind about the purchase after paying for it
- The product was not as described
- The product was defective
- The cardholder was charged twice for the same transaction
- The charge was unauthorized
There are many other reasons for which a cardholder might dispute a transaction, but these are the most common. When a provisional credit is issued, it is because the bank is investigating a charge for one of these reasons.
How Does a Provisional Credit Reversal Work?
If your bank issues provisional credits during transaction disputes, the process will be similar to this:
- The cardholder contacts their bank to dispute a transaction
- The bank issues a provisional (temporary) credit to the cardholder for the full amount of the transaction
- The bank investigates the charge through a variety of means, which includes contacting the merchant’s bank
- If the dispute is found to be legitimate, the provisional credit will be permanent
- If the dispute is determined to be inaccurate or illegitimate, the bank will reverse the provisional credit and take the money back.
It’s important to understand that provisional credit reversals are not an admission that a transaction is fraudulent. They are simply a gesture made by the bank to their own customer to keep them happy during the investigation process.
How Long Does a Provisional Credit Reversal Take?
Depending on your bank, a provisional credit may be issued immediately during the transaction dispute or could take longer. Your bank will contact the merchant’s bank during the investigation, which can take several days. Some banks will issue the provisional credit before beginning their investigation; others may wait a day or two.
Legally, the card issuing bank is required to send you a written notice that they have received your dispute within 30 days of when you file it. The bank then has 2 complete billing cycles after that to do their investigation and make a decision. The process in total, could take up to 90 days to complete.
Most banks move faster than this to keep their customers happy. However, some disputes can get ugly, which can take much longer.
Are Provisional Credit Reversal Funds Accessible?
You can spend a provisional credit just like any other money on your credit card. Once the credit is issued, it can be used immediately. However, consider the amount of the credit in relation to your credit card balance and max limit.
If you spend the provisional credit during the investigation period and the bank then withdraws the credit from your account, it could cause trouble for you. If your balance is close to its limit, the reversal of the provisional credit could max out your card. Pay attention to your provisional credit amount, total balance on the card, and max credit limit before spending the credit.
How Do Provisional Credit Reversals Impact My Business?
Provisional credit reversals don’t have much of an impact on your business. Transaction disputes and subsequent payment reversals are the things you need to be concerned about because they can impact your bottom line in a big way. A provisional credit between the cardholder and their bank doesn’t involve your business.
As a merchant, you should be more concerned with the various transaction reversals that can happen. When a customer disputes a charge, you could lose the sale and the merchandise and the cost of reversal and chargeback fees.
There are three key types of transaction reversals that you need to be aware of:
Authorization Reversal: When a merchant can contact their bank and stop a transaction from going through before it happens. This is common when the merchant or customer mistakenly enters incorrect information. This is the easiest and least expensive type of payment reversal to process.
Refund: Refunds typically happen when a customer changes their mind about a product or is unhappy. This can happen because of bad product descriptions online, faulty merchandise, and a variety of other issues.
Chargeback: This happens when your customer goes directly to their bank to ask for their money back rather than coming to you and asking for a refund. This is arguably the worst and most expensive kind of transaction reversal. Check out our article on Payment Reversals to learn more about steps you can take to minimize chargebacks.
Merchants can monitor their payment reversals regularly to learn more about why they are happening. The more you learn about why your customers are requesting payment reversals, the more processes you can implement to decrease them. You’ll never get rid of them 100%, but you can make a huge impact on them by offering exceptional customer service and putting simple steps in place.