Eli5 why does a purchase refund take up to 10 days to return to your account?

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Sellers can automatically remove money from your account, but when it comes to refunding funds or even transferring funds from a service such as PayPal take 5 or more days?

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It’s a lot easier to block money than to make money available, and the American banking system is especially slow.

When you’re paying, your account is charged immediately, but the seller isn’t credited immediately, it takes a bit for the money to make it through. The same process goes backwards when refunding, where the seller is charged immediately but it takes a bit showing up on your account.

Just because the money is removed from your account right away when you make a purchase doesn’t mean it’s in the business’ account right away. Like you, they have to wait a few days for that money to work its way through the banking system.

When a transaction happens (in either direction), the source bank will immediately move the money from the source account to a holding account. They’ll do a large batch transaction at some point later with other banks, transferring money between them and indicating the destination accounts. That money lands in the destination bank’s holding account, where it will wait for another process to put it into the proper accounts.

The refund process is incredibly manual and not really automated. First the merchant has to verify that the refund request is valid and that the refund destination is correct, then they notify the bank manually. The actual money transfer takes a few business days as well, because transfers happen in large batches to save costs, and these batches have to be manually reviewed for typos and potential fraud. If you run into a weekend or holiday, then you can easily take 10 total days for the entire process to complete.

Faster alternatives are available but they are either more expensive or more prone to fraud. For example, the merchant could just Zelle you the money back but that’s very prone to fraud. You could transfer the money in a smaller batch that can get sent out sooner, but that’s more expensive because you’re splitting the cost of manual review between a smaller number of transfers, so the per-transfer cost is higher than with a bigger batch.