What is a Provisional Credit? How Can You Secure a Provisional Credit Reversal?
Ever waited longer than usual for a transaction to be verified, or had to get a transaction reversed? If so, you might have seen provisional credit show up on your statement.
Provisional credits are a common occurrence. However, they can do a lot of damage to businesses if they’re issued inaccurately.
In this post, we’ll examine what is a provisional credit and why banks issue them. We’ll also see how they impact both cardholders and merchants, and give some advice as to what merchants can do if they believe a provisional credit was issued incorrectly.
What is a Provisional Credit?
- Provisional Credit
A provisional credit is a temporary credit issued by a bank to an account holder. This statement item can later be reversed, or made permanent, depending on the reason for the credit issuance.
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Banks may issue a credit to an account holder at their discretion. The credit will then appear on the cardholder’s statement as its own distinct line item. The entry on the cardholder’s statement will note that it’s a credit, but it may not always explain the reason in detail.
If cardholders are confused about the source of a provisional credit, they can usually contact the bank to get more information. Their issuing bank will be able to divulge the details of the credit, including where it came from, why it was issued, and how long it will take before the provisional credit becomes permanent.
Why Do Banks Issue Provisional Credits?
There are a few reasons why a bank might offer a provisional credit to a cardholder.
In some cases, it could be because a transaction has not yet been verified. If that’s the case, then the credit would work like a placeholder until the transaction is settled. Most often, though, banks issue provisional credits as part of the transaction dispute—or chargeback—process.
Chargebacks are forced payment reversals conducted at the banking level. To illustrate, let’s say a cardholder contacts their issuing bank, claiming that one of the charges on their bank statement was unauthorized. The bank would then investigate the claim. If it appears that the cardholder is telling the truth, then the bank would issue a credit to the cardholder and file a chargeback on the cardholder’s behalf. The issuer claws the funds back from the merchant’s acquiring bank, who then debits the cost from the merchant’s account.
So, what are some legitimate claims that would entitle someone to a debit or credit card provisional credit? Here are a few examples:
- The transaction in question was unauthorized (i.e. fraud).
- The transaction total was more than what the cardholder agreed to at the point of purchase.
- The merchant committed an error in the transaction process.
- The merchant used deceptive tactics to “trick” the cardholder.
- The merchant submitted a rebill for a subscription after the cardholder canceled service.
This is not an exhaustive list. There are literally dozens of different reason codes for each card network. Every reason code has its own rules and stipulations meant to explain why the bank filed the chargeback.
How Do Provisional Credits Hurt Merchants?
Simply put: every provisional credit issued to a cardholder will ultimately come out of a merchant’s pocket.
When a cardholder’s bank (known as the issuer) provides a credit, those funds come out of the bank’s own reserves. It’s up to the issuer to recover their money from the merchant’s bank (known as the acquirer). The acquirer turns around and pulls their money from the merchant’s bank account.
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The merchant is responsible for more than just the transaction amount, though. They also get hit with a chargeback fee, which covers the acquirer’s administration costs resulting from the chargeback. The merchant also loses out on the cost of any merchandise shipped, plus overhead fees like shipping and logistics.
There can be longer-term issues, too. Each chargeback filed against a merchant affects the business’s chargeback rate. This can cause serious problems over time and, potentially, can even destroy their business.
Can Merchants Reverse Provisional Credits?
Of course. These statement credits are not final…after all, that’s what makes them “provisional.”
After a cardholder files a dispute, the merchant has two options. They can ignore it, and let the chargeback proceed. In this case, they’d lose the dispute automatically, and the provisional credit would become a permanent reversal of funds.
The second option is to fight the chargebacks, and attempt to secure a provisional credit reversal if they merchant believes the cardholder’s claim is invalid. This can be accomplished through a process called representment.
With representment, the merchant literally “re-presents” the charge to the issuing bank. Of course, it would be pointless to represent the charge without any additional information; it would simply be rejected again. For representment, the merchant must also include compelling evidence which demonstrates that the original transaction was valid and should be upheld.
Does Representment Guarantee a Provisional Credit Reversal?
The short answer is “no.”
Representment provides a great opportunity for merchants to reclaim money if they believe a chargeback was issued for the wrong reason. There’s no way to guarantee that their case will succeed, though.
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According to the 2021 Chargeback Field Report, the average merchant will attempt to re-present 43% of chargebacks issued against them. However, the average net recovery rate, or the rate at which merchants successfully re-present transactions as a share of total chargebacks, stands at just 12%.
In other words: merchants will only reverse provisional credits in one out of every eight cases.
The odds are stacked against merchants. Issuers have an incentive to keep their cardholders happy. So, there’s a high standard of proof required to reverse provisional credits. Plus, even if they successfully reverse the chargeback, the chargeback fee assessed by the acquirer is non-refundable.
How Can Merchants Get Their Money Back?
Merchants can improve their odds of reversing a credit by engaging in tactical representment.
Merchants need clear and convincing evidence for their case. This can include anything from order forms and tracking information to communication records and social evidence which contradicts the cardholder’s claim. They also need to submit that evidence in the proper format; different banks may require different response channels, including email, certified mail, or even fax.
The merchant must write a rebuttal letter, as well, explaining the evidence in context. This will be a brief document, giving just what information is necessary.
Remember, though: merchants are operating on a tight schedule. The timeframe for a chargeback response is usually just a few days once we account for transit time between different parties.
Seek Help When Needed
Have additional questions about these statement credits, or provisional credit reversals? Want to learn how merchants can give themselves an edge in fighting back against invalid chargebacks and recover their hard-earned cash?
What is a provisional credit?
A provisional credit is a temporary credit issued by a bank to an account holder. This credit can later be reversed, or made permanent, depending on the reason for the credit issuance.
Why do banks give provisional credit?
In some cases, a bank might offer a provisional credit because a transaction has not yet been verified. Most often, though, banks issue a provisional credit meaning them as part of the payment card dispute process (commonly known as a chargeback).
What is provisional credit in a credit card dispute?
The provisional credit is a predetermined amount that is issued to the cardholder by their bank. The bank recovers their money by submitting a chargeback to a merchant’s acquiring bank, who then debits the funds from the merchant’s account.
Can merchants reverse provisional credits and get their money back?
Yes, in some cases. If the merchant believes that a cardholder dispute was invalid, they can submit evidence and try to overturn the chargeback through a process called representment.