A tale of three refunds - Andrew Acomb

Andrew Acomb

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A tale of three refunds

Andrew Acomb<br>Aug 12, 2026

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Most Americans assume that the rest of the world’s payment systems are like our own, to the extent they think about them at all. But in fact, the US system is unusual, both in the sheer dominance of card networks and in its rules that shift fraud risk away from consumers and towards merchants and banks.<br>These differences are easiest to see when payments go wrong. To illustrate, let’s (hypothetically) buy and then refund one thing, three times: a pair of fake Air Jordan 1s, $185 on a Visa card in San Francisco, ¥1,399 by QR code in Hangzhou, and R$1,299 by Pix in São Paulo.

Payment 1: United States, via Visa

The street vendor rings the Jordans up on their Square terminal, turns it around, and has us tap our card. They get the little green checkmark about two seconds later and start bagging the shoes.<br>In those two seconds the terminal asked Square; Square asked Visa; Visa asked Chase; and Chase looked at our credit limit, ran a fraud check, and put a $185 hold on our account. Then Chase told Visa it was good for it, Visa told Square, and Square told the merchant. No money has moved yet.<br>That night, Square submits its processed transactions into the card network for clearing. Visa validates the transactions, calculates what each party owes, groups the transactions by bank, and adds up the results. Instead of millions of individual payments moving between banks, each participating bank ends up with a single net amount it owes or is owed.<br>On the next business day, Chase, along with every other bank that owes money that day, wires its net position to Visa’s settlement bank. Visa instructs its settlement bank to disburse to the net creditors, one of which is Square’s sponsor bank. Both transfers occur over Fedwire, the Real Time Gross Settlement (RTGS) system that moves actual money between banks’ accounts at the Federal Reserve.<br>The vendor sees $180.04 of the $185 land a day or two later. The missing $4.96 (2.6% + $0.15) is split three ways: roughly $3.99 to Chase as interchange, about $0.25 to Visa, and $0.72 ($0.57 + $0.15) to Square.

Payment 2: China, via Alipay

We buy the same shoes from a stall in Hangzhou. Instead of using a terminal, we scan an Alipay QR code, enter ¥1,399, and confirm with Face ID. A speaker behind the counter announces the payment out loud, and the vendor starts bagging the shoes.<br>Unlike with the Visa transaction, no authorization request is sent through a card network to our bank. Alipay merely reduces our balance in their system by ¥1,399, increases the vendor’s by ¥1,390.60, and keeps ¥8.40 (0.6%) as the fee. The vendor can spend that Alipay balance immediately.<br>If the payment is funded from our bank account, Alipay still needs to collect the underlying ¥1,399. Before 2018, it would have done so by talking to our bank directly. Alipay and WeChat Pay each maintained a web of bilateral connections to dozens of banks that regulators had limited visibility into.<br>As one might expect, the Communist Party decided that this arrangement was 不好 (no good) and required third-party payment companies to route these transactions through a new state-controlled central clearing network called NetsUnion. Instead of Alipay talking directly to our bank, the payment instruction now goes from Alipay to NetsUnion to the bank, giving the central bank visibility into the flow.

Payment 3: Brazil, via Pix

We buy one more pair from a street vendor in São Paulo, once again by scanning a QR code, albeit this time from inside our regular bank app. We see the vendor’s registered name, type in R$1,299, and receive a confirmation a few seconds later.<br>Our bank sends the payment into SPI, the Banco Central do Brasil’s RTGS system (like Fedwire in the US). The central bank debits our bank’s account and credits the vendor’s bank’s account immediately. SPI settles each payment individually, rather than collecting transactions and netting them later.<br>By the time the vendor starts bagging the shoes, the Brazilian vendor’s bank has already received the money in its account at the central bank.<br>This speed is a relatively recent phenomenon in Brazil. Before the Banco Central launched Pix in 2020, merchants accepting credit cards typically had to wait around thirty days to receive their money. This was because Brazil’s card system was structured around the consumer’s monthly credit-card bill, meaning that merchants, rather than credit card issuers, were providing the float to the consumer.<br>Pix is generally free for individuals, and while businesses can be charged by their banks, these rates (0.22% on average) are far lower than card acceptance fees (see the 2.6% from the US purchase). Large financial institutions are required to participate in the system by the Banco Central, even though they make considerably more money when their customers pay by credit card.

Refunds

A week later, and...