Void transaction - it is a banking transaction consisting in stopping payments in a kind of “void". This means that the funds debited from the consumer's bank account are neither on the credit nor on the debit side of the consumer's bank account. This may occur, for example, if he makes certain purchases by mistake, uses his account for fraudulent purposes or uses money for financial crime (money laundering or terrorist financing). The essence of such a transaction is to leave sufficient time for the bank to verify it. For example, in the case of fraudulent transactions, he is able to prevent the customer from losing money forever.
Void transactions in business
In everyday use, void transactions can be recognised in retail trading. When we purchase a specific product for which payment is made by debit or credit card, there are two options. Introducing it into a specially prepared tab or using a microchip in the middle of the card and then bringing it closer to the terminal. During this process we may be asked to enter the appropriate:
- other security password.
In the meantime, the transaction will remain “void"; so that the funds in the consumer's account are blocked and debited from his debit side, but the bank will not transfer the payment to the merchant's credit side before authorising it .
In view of the above, it can be observed that void transactions play an important role in the modern economy as they help to counteract the abuse of banking digitisation. They are most common in mobile or e-banking, as these means of transferring monetary value are the most vulnerable to third party interference.
Specifications of void transactions
As mentioned above, the void transactions mechanism is mainly used in the era of digital payments. By implementing appropriate logical gateways, it is possible to avoid ill-considered transfers. As indicated in the literature, the relevant software codes can be used to cancel a transaction that has been successfully completed (put into the void) by the seller himself and then give the consumer a refund. This is possible thanks to a request sent by the device processor to the machine API .
Moreover, it often happens that on the panels supporting a given payment, the seller has a choice of several options. One of them is, among others, “VOID". This means that during a pending or selected transaction he is able to stop the transaction. At this stage, it may return a part of it to the buyer, and transfer a part of it to the buyer for implementation. This makes it possible to bring the transaction to the desired state without unnecessary need to extend the payment process (e. g. dividing such a transaction into credit - debit, debit -credit).
Therefore, it is recommended that retailers in retail stores (as well as in other stores) use only terminals that allow transactions to be stopped in a “VOID" state. This is mainly due to the concern for the safety of transactions of both parties (consumer and seller), but also for good practices in trade. Hence, the proposals to introduce a law requiring the possession of terminals with the “void' option seem justified.
Examples of Void Transaction
- Refunds: A refund is a void transaction that occurs when a customer returns a product purchased with a credit card. If a customer returns a product and receives a refund, the original transaction is reversed and the funds are returned to the customer.
- Cancellations: A cancellation is another type of void transaction that occurs when a customer cancels a purchase made with a credit card. In this case, the original purchase is reversed and the customer is not charged for the purchase.
- Chargebacks: A chargeback is a void transaction that occurs when a customer disputes a purchase made with a credit card. In this case, the bank will investigate the dispute and may decide to reverse the transaction and return the funds to the customer.
- Fraudulent Transactions: A fraudulent transaction is a void transaction that occurs when a customer uses a credit card in a fraudulent manner. In this case, the original purchase is reversed and the customer is not charged for the purchase.
- Unauthorized Transactions: An unauthorized transaction is a void transaction that occurs when a customer's credit card is used without their knowledge or consent. In this case, the original purchase is reversed and the customer is not charged for the purchase.
Advantages of Void Transaction
Void transactions can offer a variety of benefits, particularly when it comes to protecting customers’ accounts from fraudulent activity. These include:
- Rapid response times: Void transactions can be processed quickly, reducing the time it takes for a bank to investigate and respond to suspicious activities. This helps to protect customers’ funds from being lost.
- Increased security: Void transactions can help to reduce the risk of fraud and money laundering by ensuring that funds are not transferred to third parties before they can be investigated.
- Improved customer protection: By allowing customers the opportunity to reverse a transaction, void transactions can help customers to protect their funds if they have been a victim of fraud or other criminal activity.
- Improved customer service: Void transactions can help to improve customer service by providing customers with a fast and convenient way to reverse and dispute transactions.
Limitations of Void Transaction
Void transactions have certain limitations which should be taken into consideration. These include:
- Insufficient funds: Void transactions can only be performed if the customer has sufficient funds in their account. If there are insufficient funds, the transaction will not be processed.
- Time limit: Void transactions are subject to a time limit. Depending on the bank, transactions must be voided within a certain period of time. If the transaction is not voided within this time frame, it will be processed and the customer will be liable for the funds.
- Cancellation fee: Many banks charge a cancellation fee for void transactions. This fee is generally non-refundable and will be deducted from the customer's account regardless of whether the transaction is voided or not.
- Processing time: Void transactions usually take several days to process. During this time, the customer will not have access to their funds and may incur additional charges or fees.
- The concept of a Void Transaction is not limited to stopping payments, as there are other approaches related to it. These include:
- Reversal of payments - This involves returning the funds from the consumer’s account back to the merchant or other party involved in the transaction. This is done when a mistake has been made during the transaction or if the consumer has changed their mind.
- Cancellation of payment - This is similar to reversal of payments but is used when the consumer wishes to cancel a payment they have authorized or when they are no longer able to pay the amount due. This can be done by the consumer contacting their bank or the merchant and requesting a cancellation of the payment.
- Chargeback - This is a process whereby a merchant is required to return the funds to the consumer if they have been billed incorrectly or if they have not received the goods or services they have paid for. This can be done by contacting the merchant and/or the bank to initiate a chargeback.
- Dispute resolution - This involves resolving disputes between the consumer and the merchant or other party involved in the transaction. This can involve mediation or arbitration and is used to resolve disputes that cannot be resolved through other means.
In summary, Void Transaction is not limited to stopping payments, but can involve other approaches such as reversal of payments, cancellation of payment, chargeback, and dispute resolution. These are all ways in which consumers can protect themselves and ensure that they are not taken advantage of when dealing with merchants or other parties.
- Close P. 2012, p. 17-20
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Author: Dominika Pałkowska