The payment card industry has its work cut out for it, trying to update their rules and policies to keep pace with the ever-changing ways we’re shopping and paying for things these days. Visa has a new mandate for subscription merchants who use free trial or introductory offers to snag new customers, and it is imperative that merchants who do business in this space understand what it means for them.
Feeling some déjà vu? You might be remembering Mastercard’s similar mandate, which covered subscription offers from health and beauty merchants. The two card networks’ mandates are similar, but have some key differences. Merchants must establish procedures that will keep them in compliance with both mandates. We will take a closer look at the differences between the two, but first, let’s focus on the Visa mandate and what it entails.
So far, Visa has not yet released an official publication outlining the specific policy changes and requirements of the mandate. The following is based on preliminary information that might change once Visa’s publication is released. Rest assured that if there are any last-minute changes that impact merchants, we will post an update.
Visa's new Free Trial mandate will go into effect on April 18, 2020.
It will apply to all merchants who use free trial or introductory offers that are intended to become recurring billing subscriptions, whether they’re selling products (physical or digital) or services. The mandate also addresses upselling and negative option billing practices.
Why the Mandate?
To put these changes into context, it’s important to understand why Visa felt it was necessary to make them in the first place.
The recurring billings that result from free trials, special introductory offers, and other marketing techniques that try to finesse customers into ongoing commitments frequently cause confusion and frustration in consumers who didn’t intend to sign up for ongoing charges. They often dispute these charges with their banks, and then the issue becomes a costly and time-wasting chargeback.
The objective of the mandate is to mitigate these bad outcomes by improving transparency in how trial offers are marketed and sold, make it easier and faster to cancel subscriptions, update dispute reason codes so that they more accurately reflect the nature of these types of disputes, and improve the dispute response options for merchants.
New Rules for Merchants
In more detail, here are the new and updated rules that are expected to be included in the mandate:
- Merchants must provide a digital, self-service option for subscription cancellation.
- Merchants must obtain explicit consent from the consumer to upgrade a free trial to a paid subscription, as well as for any upsold features.
- While obtaining consumer consent for a subscription, merchants must disclose the following:
- Merchant name
- Description of goods or services
- Length of free trial or introductory period
- Full disclosure of charges that will follow if subscription continues
- Transaction date or date trial offer begins
- Initial transaction amount, if any
- Date and amount of any subsequent transactions
- Cancellation policy and instructions on how to cancel
- Tokenized card number (last 4 digits)
- Name of any upselling merchants involved
- For recurring billings charged to stored payment credentials, these additional disclosures must be made and consented to:
- Merchant location
- How the consumer will be notified of changes to the subscription
- How the consumer’s stored information will be used
- Expiration date of the subscription
- Type of currency used in the transaction
Once consent has been obtained, the merchant must send the consumer an electronic transaction receipt, even if their card has not been charged yet. The receipt must include this information:
- Merchant name
- Description of goods or services
- Length of free trial or introductory period
- Confirmation of what the consumer has consented to sign up for
- Full disclosure of charges that will follow if subscription continues
- Transaction date or date trial offer begins
- Initial transaction amount, if any
- Date and amount of any subsequent transactions
- Cancellation policy and instructions on how to cancel
- Tokenized card number (last 4 digits)
- Name of any upselling merchants involved
Merchants must also send a notification before the trial period has ended, to remind the consumer that they will be charged soon. They also have to notify consumers of any changes to the pricing or terms of the subscription.
Lastly, the billing descriptor for the initial transaction should include “free trial” or “introductory offer” language.
Disputes
When a consumer disputes a subscription charge that they did not agree to, Visa is instructing their issuing bank to use reason code 13.5 – Misrepresentation.
Compelling evidence that merchants can submit to contest a chargeback carrying that reason code would include documented proof that the consumer consented to future transactions, or proof that the merchant sent a reminder that their card would be charged at least seven days before the transaction.
What’s Different About Visa and Mastercard’s Mandates?
The two card networks’ mandates both touch on the same issues, but in somewhat divergent ways. Currently, Mastercard’s mandate is much narrower in focus. It is limited to merchants in the health and beauty sector, and covers only subscriptions for physical goods.
Visa’s mandate covers all merchants who offer trials or introductory offers that turn into subscriptions, all up-sellers, and any merchants who use negative option billing.
Mastercard also imposes more specific rules about when trials can begin, what data third-party service providers can access without disclosure, and more explicit compliance enforcement protocols. Just remember that Visa hasn’t issued its final, comprehensive publication on the details of the mandate, so it may be premature to draw too many direct comparisons of the finer points of the two mandates.
Conclusion
With Mastercard’s subscription mandate already in effect and Visa’s looming close on the horizon, merchants should be well underway in examining and updating their policies and operational procedures to keep them compliant with the new rules.
Even though the specifics of Visa’s mandate aren’t set in stone yet, there is more than enough information for merchants to go forward making the necessary changes. Merchants who are being proactive and ready to operate in full compliance will get a leg up on merchants who drag their heels and keep operating with outdated subscription policies that are a magnet for disputes and chargebacks.
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