Visa Subscription Updates

Table of Contents

1. What Are These Rules Supposed to Achieve?
2. What Are Visa's Subscription Rules?
3. What do Visa's Subscription Rules Mean for Merchants?
4. What Is a Recurring Transaction?

On April 18, 2020, Visa’s new rules for trial and promotional subscription billing went into effect. These rules are intended to streamline and improve what has proved to be a somewhat contentious and dispute-prone area of the online payments ecosystem. When consumers forget about trial subscriptions, don’t recognize the charges on their statements, or can’t figure out how to cancel a subscription, chargebacks are the result. It falls to merchants to implement many of the changes Visa has specified, but of course merchants will greatly benefit if chargebacks are reduced. What do merchants need to know about these changes to Visa rules?

Subscription services are a huge part of eCommerce. Consumers have long accepted the idea of paying for digital services and media on a monthly basis, and some merchants have tapped into a lucrative market for monthly subscription boxes full of curated goods. Pets, skin care, cocktails, fashion—all sorts of interests are covered. Unfortunately, the same thing that makes subscriptions attractive to merchants makes them dangerous.

Automatic monthly recurring charges can be a great revenue stream, but they can also confuse and frustrate consumers.

Too often, they end up contacting their banks and incorrectly claiming that they didn’t authorize the charges. This leaves merchants in the position of fighting these “friendly fraud” chargebacks, further aggravating the customer.

What Are These Rules Supposed to Achieve?

By consulting with the issuing banks who receive these disputes, Visa was able to outline a set of rules designed to improve the customer experience, allow cardholders and issuing banks to identify subscription transactions more easily, and establish clearer and more specific dispute guidelines for claims related to subscription transactions.

Through the implementation of these rules, cardholders should benefit from more opportunities to be reminded of their subscription agreements, easier cancellation processes, and better notification of future transactions.

The rules took effect across the globe on April 18, 2020, and apply to “merchants selling both physical and digital goods and services who offer free trials or discounted introductory offers as part of a subscription (‘recurring’) service.”

Following this deadline, Visa will be monitoring merchants for compliance, and may impose fines or penalties on merchants who disregard the updated rules.

What Are Visa's Subscription Rules?

Merchants can always chat with a guru about the best way to implement significant new rule changes, but Visa has provided some quick reference guidelines to help you get started. Here’s the rundown:

• Express Consent: When customers enroll in a subscription for the first time, merchants must obtain their express consent to entering into ongoing recurring payments for the subscription service.
  
  
• Enhanced Notification: Upon enrollment, the merchant must provide the customer with a copy of the terms and conditions of the subscription.
  • This is required even if no payment is due on enrollment.
  • This information can be provided via email, text, or some other method agreed to by the customer.
  • The terms and conditions must include the following:
    • Confirmation that the cardholder has agreed to a subscription, unless they cancel it.
    • The date the subscription starts.
    • Details about the goods or services included in the subscription.
    • The recurring transaction amount.
    • The billing frequency, or due dates.
    • A hyperlink or some other simple way for the cardholder to easily cancel the subscription and any recurring transactions.
  • If a trial, introductory, or promotional period is about to end, or if the terms of the subscription agreement are changing, merchants must send a reminder notification with a link to their subscription cancellation page. This must be done at least seven days before initiating a recurring transaction.

• Explicit Transaction Receipts: Certain information will now be required on all merchant receipts for subscription transactions:
  • The length of any trial, introductory, or promotional offer, along with a clear statement that the cardholder will be charged after the offer ends unless they take action to cancel their subscription.
  • The amount and date of the initial transaction, even if no payment is due yet, and for any recurring transactions to follow.
  • A link or some other simple method through which the cardholder can cancel their subscription and any future transactions.

• Statement Descriptor: Merchants must add a descriptor that indicates a transaction related to a trial offer to the first transaction processed after the trial offer ends. This descriptor should be added to the Merchant Name field of the Clearing Record and should include language like “trial,” “trial period,” “free trial,” and the like. This will then appear on bank statements, banking apps, and text alerts that the cardholder sees.
  
  
• Easier Cancellation: Regardless of how the customer enrolled (online, in person, over the phone, at a kiosk), the merchant must provide an easy way to cancel the subscription online.
  
  
• Expanded Dispute Rights: The dispute condition “Misrepresentation” can now include transactions where the goods were purchased either through a trial offer or as a singular purchase and the cardholder was not clearly advised that further billings would occur after the initial purchase date.
  • Merchants who believe they have received an unfair or erroneous “Misrepresentation” chargeback for a recurring billing should represent the charge with both of the following pieces of evidence:
    • Documented proof that the cardholder expressly agreed to future transactions at the time of the initial transaction.
    • Records showing that the merchant sent a notification to the cardholder, according to the notification method the cardholder specified, at least seven days before processing the first transaction after the end of the trial period.

What do Visa's Subscription Rules Mean for Merchants?

Card network mandates often mean more work for merchants, but even aside from the not-so-veiled threat of non-compliance penalties, it helps to see these rule updates as beneficial upgrades to a process that functions better for all parties when the regulations and guidelines are clear and consistent.

Visa's rules for recurring billing mostly involve requiring merchants to make it easy to cancel subscriptions, especially when a free trial period is ending. Many of these guidelines are things merchants should be doing any way in order to prevent chargebacks, since the first billing at the end of a free trial period is one of the most common sources of chargeback claims. Customers who aren't interested in paying for the subscription frequently forget to cancel until the charge shows up in their account, and then want to get their money back by filing a chargeback.

In addition to following Visa's rules, merchants who use recurring billing can reduce chargebacks by letting customers know that if they forget to cancel and a charge goes through, they can contact you for a refund. While customers are accustomed to seeking refunds for direct purchases of physical goods, many of them don't even consider attempting to get a refund through the merchant for a subscription service. Instead, they go straight to their bank to file a chargeback. Offering this option to customers and informing them of it may lead to more customers getting their money back, but it also allows you to avoid chargeback fees and the consequences of a high chargeback ratio.

Many of these rules are best practices that all merchants should already be following, like providing the clearest and most informative merchant descriptors you can. As for the new requirements, carefully following them and documenting your process should greatly reduce your subscription-related chargebacks and put you in a good position to fight back when friendly fraud strikes.

By providing evidence showing that a recurring billing customer was clearly informed of the terms and conditions and was notified before a payment was processed, merchants can more effectively fight chargebacks from customers who don't have a legitimate complaint, and are instead simply trying to take advantage of the system.

FAQ