Visa Trial and Subscription Mandate

Table of Contents

1. What Is the Visa Subscription Mandate?
2. Why Do Promotional Subscription Offers Lead to Chargebacks?
3. How Does Visa’s Subscription Mandate Fix These Problems?
4. Mandate Consequences for Merchants
5. What Is a Recurring Transaction?

Everybody loves the “free” part of a free trial offer. The “trial” part, on the other hand, often gets contentious. Subscription-based merchants who entice new customers with trial offers at discounted rates often get enthusiastic signups from curious customers who might balk at committing to a full-price subscription, but when automatic renewals kick in at the regular price many of those same customers forget what they signed up for and proceed directly to their bank to dispute the charge. To avoid this all-too-common scenario, Visa introduced a new mandate in 2020 regulating free subscriptions and promotional offers. What do subscription-based merchants need to know to comply with Visa's requirements?

Visa’s objective is to reduce cardholder frustration and prevent needless disputes by enacting rules that will make it easier for purchasers to understand exactly what they’re signing up for and how they will be billed, and to have an easy, hassle-free path to cancellation if they decide not to continue with the subscription. At the same time, Visa is trying to avoid introducing new complications and requirements into the payment ecosystem that would cause friction for customers or place a heavy burden on merchants and payment processors.

It’s not easy keeping up with every card network mandate, but remember that being proactive about understanding these mandates and making the necessary adjustments to your business operations won’t just help you avoid getting a slap on the wrist from Visa, it will also help you avoid chargebacks and serve your customers better.

Why Do Promotional Subscription Offers Lead to Chargebacks?

Once a free trial offer expires, it is extremely common to see the first regular recurring charge turn into a dispute or chargeback. For the most part, these are not cardholders out to game the system by engaging in “friendly fraud.” They’re quite happy to stop receiving whatever goods or services they signed up for as long as the charges go away.

There are two main reasons why these charges often turn into disputes. The first is that cardholders may see the charge in their account activity and simply not realize what it's for.

Since free trial offers may last for a month or longer, it’s often the case that the cardholder simply forgets that they signed up for a trial offer in the first place.

The second scenario you'll see most frequently is that a customer intended to cancel the subscription before being charged, but failed to do so. There are several possible reasons why this might happen. In some cases, the cancellation process might be too confusing or inaccessible. Oftentimes this is the merchant's fault for not designing their process appropriately, but it can also be the result of user who aren't particularly computer-literate, especially the elderly, who get confused when attempting to navigate the website. This is one of the areas Visa's mandates are trying to address.

However, the most common reason a customer who intended to cancel their subscription might fail to do so is simple forgetfulness. Most people assume when signing up for a trial that they'll remember to cancel before the final date comes up, and neglect to write it down on a calendar or set a reminder. Then when the charge hits their account, they remember and file a chargeback to try to get their money back. This is the primary scenario Visa's new mandates are  tackling, by requiring a reminder to be sent before a customer is charged.

Chargebacks from these customers can also be avoided by having a process to refund customers who forgot to cancel before time was up. While refunds are never fun, they're a far better option than chargebacks, which can often cost twice as much as the initial transaction amount when all is said and done. Not to mention the dire consequences for merchants who let their chargeback ratio creep over the threshold.

Subscriptions for recurring deliveries of physical goods (meal preparation kits, makeup, supplements, and the like) tend to be more susceptible to these chargebacks than subscriptions for digital services. The reason for this might be that digital subscriptions are more likely to be used immediately and frequently, whereas “subscription boxes” are more likely to show up once a month, with plenty of time for them to be forgotten in between deliveries.

On the banking side, the lack of a means of consistently identifying and tracking subscription charges can lead to issuing banks failing to recognize these charges for what they are when a customer calls to dispute them. When banks can identify them more easily, they can dissuade customers from entering into improper disputes.

Prior to Visa's updated mandate, the lack of consistent identifiers meant that subscription chargebacks could end up getting assigned inaccurate reason codes like “Fraud” or “Goods/Services Not Received,” making it all the more difficult to resolve them correctly.

How Does Visa’s Subscription Mandate Fix These Problems?

Visa’s intention was to address these issues in a way that causes minimal friction for shoppers and does not impose too much additional labor requirements on merchants, banks, and payment processors. Based on feedback from issuing banks and other stakeholders, they determined that the most important elements in a solution would be as follows:

• Cardholder recognition. Customers need to be able to easily recognize what a charge is and where it came from.
• Easy cancellation. Recognizing a charge does customers little good if they have no easy way to cancel it on their own. Without easy, accessible cancellation methods, they will always resort to bank disputes.
• Notification. Merchants will be expected to remind cardholders before they are charged, reducing the number of chargebacks from forgetful customers.
• Clear and specific dispute rights. Issuers have asked for better guidelines around disputes related to subscription charges in order to avoid confusing and contentious situations involving incorrect reason codes.

With these key points in mind, these are the changes that went into effect on April 18, 2020:

• A digital receipt, even if no payment is due yet, that discloses terms and conditions, the amount and frequency of future payment obligations, and a link to a cancellation page.
• An email or text message containing a link to a cancellation page, to be sent at least 7 days before processing the first actual transaction that occurs after the end of the trial period.
• Language in the merchant descriptor that appears on the cardholder’s bank statement identifying the transactions related to the trial subscription. 

• For cardholders, dispute rights are expanded in cases where they were not clearly advised about future billings.
• For merchants, proof of adequate disclosure, cardholder acceptance, and subsequent notifications will be accepted as compelling evidence in representments.

Ongoing monitoring
Visa will be monitoring merchants for compliance with the new mandate.

Mandate Consequences for Merchants

Don’t let “monitoring for compliance” scare you—Visa has designed these changes to be minimally disruptive to merchant activities, and they’re not sending the credit card police to take your POS terminals away if you overlook something.

Consequences for violation of these mandates are usually more of a nudge to encourage merchants to get in compliance than a harsh punishment.

Card network mandates are always a little intimidating, especially if you’re a small and perpetually overworked merchant, but they changes they bring usually benefit merchants considerably, helping to improve customer experiences and eliminate possible sources of disputes.

FAQ

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