It’s imperative for subscription digital good merchants to be aware of and implement best practices.
Digital good merchants face more challenges than merchants selling physical goods when it comes to fraud. Especially when you add the recurring billing model on top of digital good sales. So it’s imperative for subscription digital good merchants to be aware of and implement best practices.
To make sure merchants are giving their customer the best transaction experience and preventing disputes, we will go through some of those key guidelines for recurring merchants.
Best Practices for Setting up Recurring Transactions
There are a couple of things that merchants need to do when setting up a recurring transaction to stay in compliance with the card network’s rules.
The first is when a merchant needs to set up a recurring charge they must get consent from the cardholder. This consent for Visa transactions includes:
- Frequency of the recurring charges
- Duration of time that cardholder permission is granted
- Retain a copy of the cardholder’s consent for the duration of the recurring services
Once consent is obtained merchants should keep a copy of the cardholder’s consent for the duration of the recurring billing.
The next to obtain all relevant card payment details, which include:
- Cardholder name and billing address
- Card type/account number
- Card expiration date
- Card Verification Value 2 (CVV2)
Then a merchant must obtain an authorization and a valid approval:
- Include the expiration date in the authorization request
Finally, the merchant must make sure that all applicable state or federal laws are followed. These laws usually require merchants to explicitly state when the cardholder is being billed, how much the billing will be for, if a free trial is offered that the customer is aware they will be charged, etc. These practices should be put in place no matter where you are doing business. But we recommend you sit down with your lawyer to go over state requirements.
For example, online dating site eHarmony was hit with a consumer-protection lawsuit filed in four California counties. The claim was that eHarmony did not clearly and conspicuously explain their subscription fee, did not provide the consumer with their dating contract, or explain their right to cancel. eHarmony settled the suit for $1.28 million and agreed to pay an additional $1 million in restitution to affected customers. This situation just goes to show that making consumers aware of your subscription process is more than just a good customer experience.
Best Practices for Recurring Transactions
After setting up recurring transactions properly, it is important to continue to satisfy customers and protect profits through best practices. Here are three recurring digital merchant best practices:
#1: Make Cancelling or Pausing the Subscription Easy
Visa suggests provide your customers with a toll-free phone number, email address, and/or easy to find (and use) online procedures for cancelling recurring transactions. If a customer reaches out with questions about cancelling or about the subscription in general make sure your sales and customer service staff are trained on the proper procedures for processing and handling recurring transactions. These transactions are particularly customer service sensitive.
#2: Always Give a Reminder
No one likes a surprise charge on their statement. Especially if the cardholder does not recognize the merchant descriptor or was meaning to cancel the subscription before the next charge. Even though the merchant is just charging the cardholder on the agreed upon date, it may seem out of the blue to the cardholder. These situations can result in a friendly fraud or chargeback fraud dispute. The way to avoid this is to send a reminder email a couple days before the transaction to tell the cardholder when to expect the charge and for what amount.
#3: Clearly Disclose the Terms and Conditions
When a customer signs up for your subscription make sure you clearly tell them everything they need to know about when you will bill them, how often, the amount each month, etc. Make this information delivered as clear as possible and that it is easy to find if they have any questions at a later date.
Following best practices for recurring transactions on digital goods can help merchants avoid many unnecessary customer disputes. But no matter how closely best practices are followed, disputes will still happen. Check out all of our free dispute response templates here to take some of the hassle out of generating your response.