The Free Trial Crack Down

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MasterCard's Free Trial Crack Down
Mastercard recently announced new rules regarding free trials that could prove to reduce disputes.

Mastercard announced new rules for merchants that offer free trials; requiring merchants to gain the cardholder’s approval to continue charging them for the service. The goal is to prevent any unwanted charges on the cardholder’s account.

Creating a Safe Payments Environment

Mastercard explained in their press release the reason for the change:

“At Mastercard, we want every commerce engagement to be simple, safe and secure and we are introducing rules for merchants that offer free-trials to make this a hassle-free experience for their consumers. The rule change will require merchants to gain cardholder approval at the conclusion of the trial before they start billing. To help cardholders with that decision, merchants will be required to send the cardholder – either by email or text – the transaction amount, payment date, merchant name along with explicit instructions on how to cancel a trial.”

For each payment after, merchants will have to send a receipt to the cardholder for each transaction. This must include clear instructions on how to cancel the service. Mastercard will also require that charges that appear on the cardholder’s statement must now include the merchants URL or phone number of where the cardholder made the purchase.

Prevent Disputes with Effective Communication

The announcement may seem like it is just protecting the cardholders, but it is actually helping merchants as well. The subscription business model is a fantastic. There is a reason companies built their whole business around it or have adopted it. It allows merchants to continuously make transactions while putting the customers through a zero friction check out. While this business model may seem like a dream come true, there is a downside to this frictionless checkout. It puts merchant at risk for disputes.

If the subscription is only sent once a month, or quarterly, it can give the customer just enough time to forget about the subscription they signed up for. That will put the merchant at risk for friendly fraud. For instance, the customer may find a ‘random’ charge on their card, because they received no warning of the charge they will dispute it not knowing it was for the subscription. This can happen more frequently when your merchant descriptor does not accurately represent your company or the product that was purchased.

The other dispute outcome is chargeback fraud. In this situation the customer has been meaning to cancel the subscription and now they have been charged for something they didn’t want. These customers may file a chargeback instead of accepting that they made a mistake and forgot to cancel in time.

Both of these situations could be avoided if an email confirmation was sent to the cardholder before the purchase was made. It is better for a customer to cancel the transaction or skip a month, than to file a dispute which will result in the loss of revenue, shipped merchandise, and an added fee.

Mastercard is looking out for merchants and helping them prevent disputes by requiring effective communication and clear merchant descriptors.

Protecting Cardholders and Merchants

Mastercard press release concluded with, “free trial offers can be a legitimate and useful way to increase sales and improve consumer satisfaction. The new rules will help in increase transparency and ensure an outstanding experience for cardholders. In addition to these changes, Mastercard cardholders are also covered by our Zero Liability policy which protects them against unauthorized purchases or charges.”

These ending remarks show that Mastercard wants the payments environment to be a safe and mutually beneficial experience for both everyone involved. They are also sending out a warning to merchants that if these rules are not followed that cardholders have the right to dispute the purchase through the Zero Liability policy.

Mastercard recently announced new rules regarding free trials that could prove to reduce disputes.

Mastercard announced new rules for merchants that offer free trials; requiring merchants to gain the cardholder’s approval to continue charging them for the service. The goal is to prevent any unwanted charges on the cardholder’s account.

Creating a Safe Payments Environment

Mastercard explained in their press release the reason for the change:

“At Mastercard, we want every commerce engagement to be simple, safe and secure and we are introducing rules for merchants that offer free-trials to make this a hassle-free experience for their consumers. The rule change will require merchants to gain cardholder approval at the conclusion of the trial before they start billing. To help cardholders with that decision, merchants will be required to send the cardholder – either by email or text – the transaction amount, payment date, merchant name along with explicit instructions on how to cancel a trial.”

For each payment after, merchants will have to send a receipt to the cardholder for each transaction. This must include clear instructions on how to cancel the service. Mastercard will also require that charges that appear on the cardholder’s statement must now include the merchants URL or phone number of where the cardholder made the purchase.

Prevent Disputes with Effective Communication

The announcement may seem like it is just protecting the cardholders, but it is actually helping merchants as well. The subscription business model is a fantastic. There is a reason companies built their whole business around it or have adopted it. It allows merchants to continuously make transactions while putting the customers through a zero friction check out. While this business model may seem like a dream come true, there is a downside to this frictionless checkout. It puts merchant at risk for disputes.

If the subscription is only sent once a month, or quarterly, it can give the customer just enough time to forget about the subscription they signed up for. That will put the merchant at risk for friendly fraud. For instance, the customer may find a ‘random’ charge on their card, because they received no warning of the charge they will dispute it not knowing it was for the subscription. This can happen more frequently when your merchant descriptor does not accurately represent your company or the product that was purchased.

The other dispute outcome is chargeback fraud. In this situation the customer has been meaning to cancel the subscription and now they have been charged for something they didn’t want. These customers may file a chargeback instead of accepting that they made a mistake and forgot to cancel in time.

Both of these situations could be avoided if an email confirmation was sent to the cardholder before the purchase was made. It is better for a customer to cancel the transaction or skip a month, than to file a dispute which will result in the loss of revenue, shipped merchandise, and an added fee.

Mastercard is looking out for merchants and helping them prevent disputes by requiring effective communication and clear merchant descriptors.

Protecting Cardholders and Merchants

Mastercard press release concluded with, “free trial offers can be a legitimate and useful way to increase sales and improve consumer satisfaction. The new rules will help in increase transparency and ensure an outstanding experience for cardholders. In addition to these changes, Mastercard cardholders are also covered by our Zero Liability policy which protects them against unauthorized purchases or charges.”

These ending remarks show that Mastercard wants the payments environment to be a safe and mutually beneficial experience for both everyone involved. They are also sending out a warning to merchants that if these rules are not followed that cardholders have the right to dispute the purchase through the Zero Liability policy.

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