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A business issues a refund, the gateway marks it processed, and the customer keeps calling because the money has not reached their account.
Processed means the refund has left the gateway; the customer's bank must still credit it, so trace it with the ARN for cards or the UPI reference for UPI, and confirm the deduction in the next settlement.
Refund register with order ID, refund ID, payment mode, date initiated, date processed, ARN or reference, and the settlement ID it was deducted in.
Customers given the right reference and a realistic wait, and every refund tied to a credit note and a settlement deduction.
A refund marked processed has only left the payment gateway. The customer’s bank or card issuer still has to credit it, which typically takes several working days for cards and is usually quicker for UPI. The ARN (for cards) or the refund’s reference number (for UPI and net banking) lets the customer, you or the gateway see exactly where it stands.
Where does the refund go, and how long does it take?
The refund goes back the same way the payment came in. Gateways publish their own expected times; the table shows the general pattern.
| Payment mode | Where the refund returns | Typical wait the gateway states | Reference to quote |
|---|---|---|---|
| Credit or debit card | The same card | Several working days, often about a week | ARN |
| UPI | The customer’s bank account linked to UPI | Usually quicker, often within a few days | UPI reference of the refund |
| Net banking | The customer’s bank account | A few working days | Bank reference |
| Wallet | The wallet balance | Often the quickest | Wallet transaction ID |
Card refunds take longest because they pass through the gateway, the merchant’s bank, the card network and then the customer’s bank, which may only show it on the next card statement.
What do I tell the customer and what do I check first?
- Find the refund in the gateway dashboard using the order ID or payment ID.
- Check its status. “Initiated” means it has not left yet. “Processed” means it has.
- Note the reference. For card refunds, the ARN may appear a few days after processing.
- Give the customer the date processed and the reference, and the gateway’s stated wait for that payment mode.
- If the wait has passed, raise a ticket with the gateway quoting the refund ID and ARN. The customer can also complain to their bank, then to the RBI Ombudsman if needed.
Do not issue a second refund by bank transfer while the first is in progress. The customer may end up refunded twice.
Does the refund come out of my settlement or my bank account?
Usually out of your settlement. The gateway deducts the refund from the next payout, so that payout will be lower than its sales. If a cycle’s refunds exceed its sales, the settlement can go to zero or negative and the gateway carries the balance forward.
Whether the original gateway fee is returned on a refund depends on your gateway’s terms. Check the refund lines in the settlement report.
Worked example: a ₹1,499 card refund
- Monday 5 October: you start a ₹1,499 refund for a returned order. Status: initiated.
- Tuesday 6 October: status changes to processed. Three days later an ARN appears.
- Monday 12 October: the customer sees ₹1,499 credited on their card.
Your next settlement after the refund, on 7 October, shows gross sales of ₹42,000 and a refund line of ₹1,499. With an illustrative fee of ₹840 and GST on the fee of ₹151.20, the net credit is ₹39,509.80.
Check: ₹42,000 minus ₹1,499 is ₹40,501. Minus ₹840 is ₹39,661. Minus ₹151.20 is ₹39,509.80.
In your books, match the ₹1,499 deduction to the credit note you raised for the return.
Matching refunds every month
Keep a short refund register: order ID, refund ID, payment mode, date processed, ARN and the settlement it was deducted in. It answers customer calls quickly and makes the month-end match of refunds to credit notes easy.
What to read next
- Next in this series: What is an ARN number and how do you use it to trace a refund?
- Refund reconciliation for payment gateways
- Refunds after settlement: the negative-net cycle
- Payment gateway reconciliation
Payment-gateway settlement reconciliation is on the TransactIG roadmap.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →