Prepared by: UKNF, Banking Supervision Division

We recently came across a quite extensive discussion on a popular business social media website, triggered by a post published by one of users. The user claimed that his payment initiated with BLIK is irreversible, meaning that it is not subject to the chargeback procedure (available for payments initiated with certain payment cards). Since the discussion involved several misunderstandings or inaccuracies, which are also present in other areas of the commentariat, we decided to clarify and elaborate a bit more on this topic.

What is a payment instrument and what does the ‘payment initiated with a payment instrument’ involve?

Let us start from a short explanation of what a payment instrument is and what it means that we have paid for something with such an instrument, e.g. a card or a BLIK. According to legal definitions:

• paymentinstrument is an individualised device or an individualised set of procedures agreed by a user and a provider, aimed at initiating a payment order;
• payment order is a statement by a payer or a payee, addressed to a payment service provider (e.g. a bank) and involving an order to execute a payment transaction;
• payment transaction is a payment, transfer or withdrawal of funds initiated by a payer or a payee.

In the light of those definitions and from the practical perspective, a payment instrument is, therefore, a solution (a device or a set of procedures) that enables us to provide our payment service provider, usually a bank that maintains an account for us, with an order to execute a specific payment transaction, e.g. a transfer of funds to pay for goods in an on-site or online shop, cash withdrawal at an ATM or cash deposit at a CDM. Using a payment instrument enables quick, simple (from the user’s perspective) and almost simultaneous:

• authentication, namely identification of a user as the person authorised to manage the funds kept by the instrument provider (the bank);
• indication of the nature of the transaction (deposit, withdrawal, transfer, credit transfer, direct debit);
• specification of the title of the transaction - e.g. ‘purchase’, ‘cash withdrawal at ATM’, ‘transfer to a mobile phone’;
• indication of the payee, their payment service provider and the amount that is to be transferred to that payee;
• and – importantly – the authorisation of the transaction, e.g. approval of its execution by our provider (e.g. by entering a PIN code, confirming the transaction in a bank app).

For all of this to be possible, the process must take place within a payment system, namely a sophisticated technical infrastructure, with its operators (payment system operators, acquirers, issuers of instruments, card organisations, technical providers) and a formalised set of procedures that define its rules of operations, including in particular the flow of information and the process of executing and settling payment transactions initiated with a payment instrument. 

In this context, common phrases such as ‘I paid by BLIK’, ‘I paid by card’ are very simplified descriptions of reality, in which when using a payment instrument (by tapping a card against a terminal or entering a BLIK code at an ATM or in an online payment gateway), in fact we are launching an entire process of operations and exchanges of information, involving many entities, at the end of which the amount of payment transaction will be deducted from our payment account and credited to the account of our counterparty (or paid in cash to them).

From the perspective of a payer, a payment initiated with a payment instrument, whether in an on-site shop or online, takes from a few to a few tens of seconds, depending on which instrument is used, what data need to be provided and what needs to be done in order to authorise the transaction. Meanwhile, an entire communication process is taking place among:

• the merchant, e.g. an on-site or online shop that offers an option of payment initiated with an instrument;
• the acquirer, who provides services to the merchant and makes it possible to accept a payment instrument, in particular through operating a payment terminal or a payment gateway and managing communication as part of the transaction;
• in the case of payment cards – the card organisation (e.g. Visa or Mastercard), which identifies the card issuer and acts as an intermediary in the flow of information between the acquirer and the card issuer;
• the instrument issuer, who confirms the valid use of the instrument (e.g. the correct BLIK code, the correct PIN, the card number matching the holder’s name or the CVC/CVV code), and availability of funds.

As a result of this process of communication, the merchant (the shop) and the payer receive a confirmation that their payment transaction has been executed correctly, which means that they can proceed with mutual performance, namely handing over and accepting the goods or service purchased. The settlement, i.e. the clearing and transfer of payable funds between accounts, takes place sometime later among the participants in the payment system, without active participation of the merchant and the payer.

Final nature of settlement and irrevocability of payment orders

For the system described above to work, it is necessary to guarantee that communications exchanged in relation to executing a transaction initiated with a payment instrument reflects reality and that, as a result of this exchange of information, a payment transaction will actually take place, meaning that the payer’s account will be debited, value will be brought at the side of the merchant, and settlement will take place between their respective service providers (banks and the acquirer). Apart from the system’s technical functionality, this goal is being achieved through legal solutions that guarantee the irrevocability of payment orders and the final nature of settlement. 

In accordance with those solutions, stemming in particular from EU regulations transposed into the Polish law, the Act on payment services and the Act on settlement finality in payment and securities settlement systems:

• the user of a payment service (e.g. paying with a BLIK code) cannot revoke their payment order after it is received by the payer’s service provider, i.e. in general from the moment the transaction is authorised (e.g. through its confirmation in a bank app);
• the service provider keeping an account, as a rule, cannot refuse to execute an authorised payment order initiated by the payer;
• starting from the moment specified in the rules of the functioning of the payment system, the settlement order cannot be revoked within that system.

Thanks to those guarantees, the payer can be sure that the transaction they have authorised will not be cancelled, the acquirer can be sure that the payer’s service provider will execute the transaction and it can notify the merchant of this fact, and the merchant (the seller) can be sure that they will receive funds on account of the sale, which allows them to hand over (send) the goods purchased or start providing the service. 

The irrevocability of payment orders has also its disadvantages, including impossibility of blocking or reversing the payment ordered (and authorised) hastily, as a result of a mistake or, even worse, a fraud. Those drawbacks, however, are inevitable costs of the swiftness, efficiency and certainty of payment systems, and as a result – the swiftness, efficiency and reliability of economic transactions. 

Chargeback procedure and other safeguards

In order to limit, at least partially, adverse effects of the irrevocability of payment orders, some payment systems offer solutions which, in certain situations, enable the reversal of negative financial consequences for the payer resulting from a transaction that has been initiated with a payment instrument, authorised correctly and executed correctly. It should be emphasised that these are, as a rule, solutions that are voluntary (not required by law), contractual and commercial in a sense that they constitute a cost of making a particular payment method more attractive for users.

One of those solution offered by the largest card organisations in cooperation with payment card issuers is so-called chargeback. This is a sort of complaint procedure administered by a payment card issuer (a bank), which allows a client to reclaim funds from an executed payment transaction that was initiated with a payment card.

The chargeback procedure will not apply when the transaction has not been authorised, e.g. the payer did not agree to its execution. If this is the case, general rules of refunding amounts of unauthorised transactions arising directly from the Act on payment services are in force. 

The use of the chargeback procedure is restricted by several conditions and even if it is triggered, the refund may be refused. The chargeback applies usually to commercial transactions in which a client using a payment card did not receive the goods or service purchased, did not receive their funds after returning the goods, received goods or a service that were not compliant with the contract, the received goods were damaged or the client was deceived by the seller. A request for chargeback may be refused if it is submitted solely as a result of the client’s changing its purchase decision and the seller does not accept returns (with the exception of rules of withdrawal from online purchases). A refund may also be refused when our payment order (including the authorisation of the payment transaction) was caused by a fraud to which we contributed by acting intentionally or with gross negligence, in particular by infringing the rules of using a payment instrument specified in the agreement concluded with the issuer of that instrument.

The card issuer that processes such a complaint usually expects relevant evidence confirming the legitimacy of the requested refund, in particular a proof of purchase, a proof of failure to perform the contract, description of circumstances, correspondence with the seller. The time-limit for submitting the complaint is limited, usually to approximately 120 days from the transaction date. If the complaint is found valid, the card issuer will return the funds to the client.  The cost of the refund will be enforced, depending on the situation, from the seller, their acquirer or the card organisation, respectively, using the mechanisms provided for within the payment system. The chargeback procedure does not, therefore, involve the blocking or reversing the transaction (i.e. automatic mandatory refund from the payee’s account) but is based on a sort of reasoned compensation paid to the affected payer.

Yet another form of protection against the irrevocability of payment orders is escrow, used mainly in the context of remote selling. This is a special payment account in which funds paid by the buyer in order to pay the price are booked and blocked. The funds are released (unblocked or transferred to the seller’s account) after it is confirmed that the seller satisfied the conditions of the sale agreement, i.e. delivered the goods and services in accordance with the agreement and without defects. The escrow account is also a private-law solution, which requires an agreement between the seller and the account provider (the bank).

A method of securing transactions which is similar to escrow and regulated by law (under Article 59 of the Banking Law) is a trust account. It ensures additional protection of funds accumulated in it, which are not subject to enforcement and are excluded from the bankruptcy estate of the account holder. A special form of trust account are (open or closed) housing trust accounts regulated by the Act on the protection of rights of acquirer of a housing unit or single-family home and the Real Property Development Guarantee Fund.

The market also offers insurance products providing compensation for damage suffered in relation to online shopping or even payment fraud. Insurance of this kind is usually offered for a fee by payment service providers or selling platforms and it may cover not only card transactions but also transactions initiated with other payment instruments (incl. BLIK) or traditional credit transfers.

What to be careful about when paying online?

The use of payment instruments and electronic communication channels enables quick and easy remote payments. This, however, involves threats and inconveniences that we should be aware of and that could be limited by consistently taking a few basic precautions. 

Firstly, always verify unknown sellers – check reviews and contact details, read terms and conditions. Stay vigilant against extraordinary ‘special offers’, such as several dozen percent reductions in the price of goods or a service in relation to market prices.

Secondly, never initiate a payment or enter the website of an online shop, a bank or a payment intermediary by clicking on a link received in a text message, messenger service or e-mail. This is how fraudsters often steal our payment instrument details and authorisations of fraudulent transactions.

Thirdly, remember that the mere fact of offering the possibility of paying online or using the logotype of a payment organisation that administers a specific method of payment does not guarantee the honesty of the seller or the method provider’s liability for potential damage arising from a transaction. Before any purchase, verify whether the shop’s website does not look suspicious – see if the URL address starts with https://, whether the website has an SSL certificate, whether the browser does not display warnings (with a relevant icon next to the website’s address) about lack of safeguards or about a threat from the website, and whether the name of the domain is correct, in particular whether it has no typos or whether letters in the name are not replaced by similar characters (e.g. diacritical marks) or digits.

Fourthly, proceed with the authorisation of any transaction carefully and with awareness. First and foremost, when confirming a transaction, read all authorisation communications sent by your provider (bank) (e.g. in a bank app or in SMS messages with codes to confirm the transaction). Make sure that the amount of the transaction, its title and details of the payee (seller) are correct.

Fifthly, it is good to check whether the seller operates within the payment system and uses the services of an acquirer, namely a payment service provider who deals with providing a payment gateway as well as processing and settling payments initiated with a payment instrument, or whether the seller accepts those payments independently and directly (through a credit transfer at the bank app level, a BLIK transfer to a mobile phone or e-money, e.g. PaysafeCard codes). In the latter scenario, if the transaction is authorised correctly but the seller proves unreliable or dishonest, then the related risk rests solely with us, and the path to lodge a complaint with the payment service provider (including the chargeback procedure) will not be available.

When the seller uses acquiring services, it is good to check if the acquirer is authorised to provide such services, namely whether it is a licensed payment service provider, in particular a bank or a payment institution. This can be checked at knf.gov.pl, in the ‘ENTITIES’ tab.