We have entered a new era where subscription models are becoming the norm. Once reserved for newspapers, phone contracts and digital TV packages, nowadays everything from razor blades to organic vegetables can be bought with a monthly subscription, appealing to on-the-move millennials who prefer the peace of mind and convenience of regular direct debit monthly subscriptions.
However, while subscription models are convenient for retailers and consumers alike, with millennial users signing up to so many services for all aspects of their lives, it can be hard to keep track of who needs paid when. This can lead to users claiming chargebacks from their credit card company when they don’t recognize --or can’t remember-- a charge on their monthly bill.
Chargebacks --when customers contact their credit card issuers to dispute charges and have their money returned -- are becoming a headache for retailers, and have risen by more than 20% over the last year accounting for more than $5.8 billion in returned revenue and charges. These chargebacks are time consuming and expensive for retailers, who are forced to return not only the payment amount, but also pay a charge to the credit carrier ranging between $30 and $100.
So how can retailers reduce the risk? Here are some simple dos and don’ts for subscription billing merchants:
Subscription models are beneficial on both sides of the table. Customers get the convenience of regular products or services without having to remember to make monthly payments, and receive a flat rate that is easy to budget. Businesses are able to predict revenue through recurring sales, which adds value to their business and makes them attractive to investors.
However, while the subscription model is extremely common now, it is still important to make sure the client knows exactly what they are signing up for, to reduce the risk of customer service nightmares and chargeback annoyances when bills start arriving.
To make sure the client is 100% onboard before they sign on the dotted line, have your customers check a terms and conditions box stating they agree to recurring billing terms. If you want to be extra careful you could even request a digital signature. Treat this as an official contract, and send email confirmation with the agreed recurring terms to the client via email. This document will be your main line of defense should you need to contest future chargebacks.
It is essential to make it easy for your customers to cancel their recurring billing. If clients feel they have the flexibility to come and go as they please, they will have less ‘commitment anxiety.’ Overall churn will be reduced, and clients are more likely to return in the future.
Online businesses should aim to offer 24/7 customer service - or at least during set working hours - over a range of channels such as online, via email, live chat or a telephone customer service line. If a customer has a problem or concern they cannot deal with immediately, they are much more likely to cancel, or request a chargeback directly from their credit card carrier.
Companies should be proactive in reminding customers to update their card information when cards are close to expiring. A number of payment processors such as Braintree, Mastercard and Cybersource offer billing information updater services, which automatically update card information. However, it is essential to clearly include the use of this service in your terms and conditions, and notify clients via email before the card information is updated.
As a gentle reminder to avoid nasty surprises at the ATM, it is essential to inform clients every time they are billed automatically by sending them an invoice with the exact amount billed via email.
If your service provides physical goods, it is useful to include an invoice with terms, billing information, product information every time you send something. This document also needs to include customer service contact information, should the client have any problems or concerns about their delivery, or should want to pause or cancel their account.
You are dealing with the digital generation, who don’t want to have to pick up the phone to deal with issues, so it is a good idea to provide an online login portal on your website which allows users to check their subscription terms, and modify/upgrade/cancel their account with ease.
One of the most common reasons for approved chargebacks are the use of unclear billing descriptors -- the company information which shows up on a consumer’s credit card statement.
If customers who purchased products online can’t quickly and easily identify the billing descriptor as belonging to your company, their knee-jerk reaction is to call their bank and put a stop on the payment.
Ensure your billing descriptors clearly include a company or product name which the client will recognize, are searchable in Google and has a phone number displayed in the credit card billing statement for clients to reach you.
It is essential that users fully understand what they are getting into. So do not offer auto-opt in your terms and conditions box on the signup page, and keep your subscription terms as simple as possible, preferably less than 50 words, and without any confusing language, unclear abbreviations or jargon which could confuse customers. Also, avoid ‘small print’. We recommend using font sizes ten and above on all terms and conditions. If you want customers to keep on using your service, don’t try and trick them into anything.
Once a customer has signed up, it is important to keep them up to date with any changes to the service conditions. A company should never change billing date or terms without getting prior permission from clients, regardless of how insignificant the change may seem.
Do not try processing the customer's credit card more than three times if the card gets declined. ‘False positive’ payment declines are common as credit card carriers attempt to tackle fraud. It is best to contact the client directly after the first decline, or contact your processor if the problem persists. If a card has been declined more than once, the chances are the account has been blocked by their issuer, repeatedly charging the account will only lead to further declines. This will increase the likelihood of your company being viewed as high risk, and in turn increase the chances of further declines and chargebacks.
According to a recent report, e-commerce fraud rates have risen by 11 percent since 2015. To avoid falling victim to online fraud, retailers should never process a payment without AVS and CVV security features enabled.
While ‘false positive’ declines are annoying, we don’t recommend using different merchants accounts to increase transaction approval rate. Using various accounts could confuse users due to a lack of consistency in their billing, or be flagged by issuing banks as potential fraudulent activity. Businesses should also avoid processing transactions based on individual items to increase transaction count.
It is also of paramount importance to follow card network protocols (PCI compliance) for subscription billing as required by the major card issuers. These include establishing and maintaining a secure network, undertaking regular system checks to test for bugs and attacks, and following protocols for protecting cardholder data.
When managed efficiently, subscription billing offers great benefits to consumers and merchants alike, giving peace and mind and convenience to users, and allowing companies to better extend the monetization of each customer. However, to keep customers sweet and payments rolling in, companies need to offer transparency and trust, and keep everything above board, or risk chargebacks, and lost customers when confusions arise.
Suresh Dakshina, CEO, Chargeback Gurus
Suresh Dakshina is President of Chargeback Gurus, a leading chargeback and fraud prevention company with over 13 years of experience. He is a Certified Payments Professional and a Certified Chargeback & Fraud Management Professional. Suresh has a Master’s from the University of Southern California and you can connect with him on LinkedIn.
Chargeback Gurus helps merchants fight and prevent chargebacks and fraud. With over 13 years of experience, Chargeback Gurus is an industry leader with a win rate in chargeback cases that's over two times the industry average. They recovered $15 Million last year for e-commerce businesses. Connect on Twitter and LinkedIn. Please visit the website here: http://www.chargebackgurus.com/