Refunds and reversals both result in funds becoming available to the cardholder again, but they happen at different stages of a card transaction.

The easiest way to understand the difference is:

• Reversal: Cancels a transaction before it is completed or settled.
• Refund: Returns money after the transaction has been completed and settled.

Card Payment Process Stages

A card payment typically goes through several stages:

Authorization or Pre-authorization → Capture → Settlement

The stage the transaction has reached determines whether it can be reversed or whether a refund must be processed.

1. Authorization / Pre-Authorization

When a card transaction is authorized, the issuer checks whether the card can be used and whether sufficient funds or credit are available.
The amount may appear as pending on the cardholder’s account. At this stage, the transaction has not yet been fully settled.
If the transaction needs to be cancelled at this stage, a reversal may be used.

Typical flow:
Authorization / Pre-Authorization → Reversal

2. Capture and Settlement

Once the transaction is captured and processed for settlement, the payment moves toward completion and the funds are transferred through the payment network.
After the transaction has been completed and settled, it can no longer simply be cancelled as a pending authorization.
If the money needs to be returned after this point, a refund is required.

Typical flow:
Authorization → Capture → Settlement → Refund

What Is a Reversal?

A reversal cancels an authorized transaction before it has been fully completed or settled.
Instead of sending a new payment back to the cardholder, the original transaction is cancelled or released.
For example, a reversal may happen when:

• A transaction is cancelled shortly after authorization.
• An order is cancelled before the payment is completed.
• The same transaction is accidentally submitted twice.
• A technical issue prevents the transaction from completing.
• An authorized amount no longer needs to be captured.

Example

• A cardholder makes a SAR 500 purchase and the transaction is authorized. Before the payment is captured and settled, the purchase is cancelled. The authorization can be reversed, releasing the SAR 500 rather than processing a separate refund.

What Is a Refund?

A refund happens after the original transaction has already been completed.
Because the original payment has already been processed, it cannot simply be cancelled. A separate transaction is therefore created to return all or part of the money to the cardholder.
Refunds are commonly used when:

• A customer returns a product.
• A service is cancelled after payment.
• The customer was charged the wrong amount.
• A merchant agrees to return funds after a completed purchase.
• A full or partial amount needs to be returned.

Example

• A cardholder makes a SAR 500 purchase. The transaction is captured and completed. Two days later, the customer returns the product. Because the original payment has already been completed, the merchant issues a refund for SAR 500.
• The cardholder may therefore see both transactions:
• • Original purchase: -SAR 500
  • Refund: +SAR 500

Refund vs. Reversal at a Glance

The Simple Rule

• Think about where the payment is in its lifecycle:
• Authorization / Pre-Authorization → Reversal
• Authorization → Capture → Settlement → Refund
• If the payment has not been completed, it may be reversed.
• If the payment has already been completed, the funds need to be refunded.

Updated on: 24/08/2026