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?
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.
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.
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:
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.
Thanks for following the Chargeback Gurus blog. Feel free to submit topic suggestions, questions or requests for advice to: win@chargebackgurus.com