The Refund Challenge: Four Common Issues E-Commerce Sites Face with Refunds


Running a successful e-commerce business is hard work. From inventory management to packing, delivering, and collecting payments, the entire process can be overwhelming. Added to this mix is the issue of returns. 66% of all customers check an e-commerce business’s returns policy before making a purchase. 80% of shoppers will reconsider purchase if returns are inconvenient. 

For most customers, a convenient returns policy means the option to get an instant refund in addition to free pickups and product replacements. While returns in themselves are a tricky process, handling refunds only increases the stress because they involve a variety of challenges. In this blog, we outline the common refund challenges that e-commerce businesses face and what you can do to tackle them.

  • Slow and complicated refund process 

Different companies have different refund policies. For e-commerce businesses that offer instant refunds, the process can take anywhere between 3 to 10 days for the money to reflect in the customer’s bank account. Usually, most businesses process refunds only after the product has been returned. This slow and long process can be frustrating for customers, especially in cases of big-budget transactions. The reason why online refunds take time is that they are not sanctioned by a payment gateway. Instead, online refunds have to be processed across a network of at least three transacting parties, which often leads to this delay. 

E-commerce businesses need to work on reducing their timeline of issuing refunds. A Digital Commerce study shows that 77% of respondents were less likely to recommend a retailer if their refund process was long. In order to stay relevant, this is a major challenge they need to overcome. 

Solution: Merchants once had this problem with receiving payments. Today, payment gateways and automated technology have enabled them to receive instant settlements for customer payments into their bank accounts. Similarly, instant refunds are a viable option to consider to reduce refund timelines. Paytm has introduced instant refunds that process refunds within minutes. 

  • Opaque refund process

As already outlined above, the online refund process is complicated. Often, customers and merchants are not aware of the steps that go into processing a refund. Customers rely on the returns timeline provided by merchants, who in turn rely on payment gateways. However, the actual returns have to be processed by the bank that initiated the transaction, i.e. the customer’s bank. While this chain is executed behind the scenes, customers and merchants are left in the dark about what is happening. The lack of transparency in the refund process can take a toll on customer service. When customers who are anxious about a refund status reach out to the business, customer service executives who are unaware of the timeline will not be able to clarify the status. This can diminish customer trust in the brand.

Solution: Choosing a payment gateway partner who provides complete transparency on the refund process can give your business more insight into what is happening so that the same can be shared with the customer. Providing a refund tracking status will allow customers to monitor their refunds. Paytm gives detailed information about refunds to merchants via the Refund Status API. Paytm’s Instant refunds can eliminate this need for tracking altogether by crediting money immediately into customer accounts. 

  • Declined refunds 

Sometimes, a customer or merchant-approved refund may be declined by the issuing bank on authorization, which is the last leg that ensures debit from the customer’s bank account. Even if the merchant’s bank and the payment gateway process the refunds, the customer’s account may not be capable of accepting the refund. A refund decline can occur for a number of reasons such as:

  • an error in handling transactions by the bank
  • account closure
  • the account was frozen due to fraud
  • the account does not support refunds

In such cases, the timeline for refunds gets extended further. An e-commerce business that does not have a plan in place for declined transactions can find itself in a difficult situation with customers. 

Solution: Having multiple options on your returns policy can solve this issue. For instance, offering store credits can help customers receive refunds even if their original account declines a refund. For customers who insist on instant refunds, payment gateways like Paytm provide alternatives such as refund on another verified customer bank account via dashboard and API.


Refunds are an essential part of an e-commerce business’s functioning. Having an efficient refund policy can improve customer experience, promote brand trust, and encourage customers to transact with ease. Partnering with a reliable payment gateway like Paytm can minimize the various refund-related issues that you may face. 

Paytm’s refund process is quick, transparent, and easy to navigate. We support a range of refund options, from debit cards and net banking to UPI and Paytm wallet or prepaid cards. Additionally, our new Instant Refunds product allows you to process refunds into customer accounts almost immediately, thereby cutting wait time and reducing customer escalations. Our strong account validation process also ensures fewer fraudulent transactions. 

Get Paytm’s Business Account now for a range of services across all fronts.


You May Also Like
Read More

Know more about Payment Gateway

Gone are the days of brick and mortar shops. It’s the time where everyone prefers sitting at the…
Read More

How to Choose the Right Payment Gateway for Your Business

A safe, efficient and fast payment gateway increases customer trust and keeps the money flowing to your end, making it crucial to choose right payment gateway for your e-commerce business.