Will Mastercard's Subscription Mandate Hurt Merchants?



Subscription services are booming across many industries, and for good reason. Subscriptions provide reliable long-term revenue streams and relieve some of the pressure to constantly focus on new customer acquisition. However, automatic subscription renewals can be a frequent instigator of chargebacks.

Frequent Source of Chargebacks

Customers sometimes forget they signed up, see an unexpected charge on their credit card statement, and assume fraud has occurred. They then request a chargeback from their bank, disputing a legitimate charge that they did, in fact, authorize at an earlier date.

Addressing the Issue

As part of Mastercard’s new mandate for 2019, merchants belonging to MCC code 5968 (Health & Beauty merchants selling products on a trial basis) who carry out card-not-present recurring billing transactions must now obtain consent from the cardholder before initiating a subscription renewal charge.

The purpose of the mandate is to address the high volume of complaints received by Mastercard from their cardholders - specifically about deceptive marketing and sales practices involving trial subscriptions. By asking for permission to rebill every month, the merchant reminds the cardholder that they are still subscribed and gives them a chance to decide whether they wish to continue the subscription. 

Unintended Consequences

This would seem to be a direct and logical way to address the problem, but for merchants, the potential complication lies in its unintended consequences. Many subscribers remain so due to passivity—they might know they’re not getting the most out of their subscription, but as long as canceling it requires intentionality and deliberate effort, they’re happy to keep it going through inaction.

The key question for merchants, then, is: if forced to make a choice one way or the other each month, would those subscribers still choose to stay?

To find out, we conducted a study of health and beauty, streaming video and online magazine subscription services. And while numbers varied varied by vertical, the decline in renewal rates was significantly more pronounced than the reduction in chargeback ratios.

Key Questions

Given that, a few key questions remain, such as:

  • which industries saw the biggest decline in rebill rates?
  • which industries saw the biggest decline in chargebacks?
  • what reasons did consumers give for not approving the renewal charge?
  • how did consumers feel about the requirement?

Get the answers to those questions and more in our detailed white paper: "Impact of Requiring Cardholder Consent on Subscription Based Businesses"

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