Visa announced that starting April 2020, there will be updates to the rules and requirements surrounding free trials.
Visa announced upcoming changes for subscription merchants. If you are currently offering a free trial or introductory offers that roll straight into the ongoing subscription service, these changes will affect you. We will go over what Visa has released about these changes and their logic behind the change.
Visa’s Free Trial Requirements
Visa announced that starting April 18, 2020, there will be updates to the rules and requirements surrounding free trials or introductory offers that roll into an ongoing subscription service. We saw a similar announcement earlier this year by MasterCard. Although Visa has not disclosed the exact changes being made to the policy, they did announce to merchants the goal and reasoning behind the changes.
Visa found that free trials and introductory offers that go straight into a subscription service cause problems for all parties involved. When the full subscription charge hits the cardholder's account, it causes "problems for cardholders and [Visa] clients, including multimillion-dollar operational cost increases due to high call center volumes, customer complaints, write-offs, and card closures / re-issuances."
Visa also announced they have identified potential solutions to the following pain points:
- Trial Terms and Cancellation Confusion. Cardholders have expressed ongoing confusion regarding free trials and introductory offers. This confusion is typically caused by a lack of understanding of the terms of future transactions after the free trial has ended and difficultly with canceling the subscription itself.
- Cardholder Account Statement Befuddlement. Right now, there is no way for cardholders to see transactions on their statements or account activity that involve free trial offers from other recurring transactions. Visa believes that helping cardholders identify these transactions will reduce confusion and frustration between all parties.
- Lack of Dispute Right Clarity for Issuers. Dispute rights that address recurring transactions after the end of free trials or promotional offers are unclear for issuers. This leads to come issuers categorizing these disputes inconsistently as Fraud, Cancelled Recurring Billing, and even Goods or Services Not Received.
Subscription Merchant Updates
The changes coming in April 2020 are designed to help cardholders, issuers, and merchants. By assisting issuers in identifying the free trial rollover transactions and in bringing more clarity to dispute requirements. These changes will include:
- Opportunities for the cardholder to acknowledge the subscription agreement
- Immediate confirmation of the agreement
- Proactive notification of future transactions
- Easier cancellation
Visa also explains that the changes made will equally affect merchant selling physical or digital good.
Subscription Goods and Disputes
Recurring transactions are naturally susceptible to disputes. The frictionless checkout process makes things convenient for the customer, but it can also create a situation where disputes can happen. When a customer receives an unexpected charge like a one coming after a free trial has ended can result in two dispute situations. The first is when the customer does not remember or recognize the subscription charge. The customer thinks there is a fraudulent charge on their card. This could lead to the customer bypassing the merchant and reaching out directly to their issuing bank to dispute a charge.
This type of dispute is called friendly fraud. The cardholder is not disputing because of malicious intent. They are challenging the charge because of miscommunication or confusion about the transaction. Good communication with the customer through emails, merchant descriptors, and easy to reach customer service will help prevent customer bypassing.
The second dispute situation is when a customer was meaning to cancel a subscription, forgot and now is using the dispute process to get out of their mistake. These cardholders are taking advantage of the dispute process. They are claiming that they canceled the subscription, that they didn't sign up for the subscription, or other situations to get their money back. When a cardholder maliciously disputes a charge while still retaining to goods or services, it is called chargeback fraud.
While both friendly fraud and chargeback fraud are winnable disputes, it is still vital for merchants to try and prevent these disputes from happening. Even when a merchant wins a dispute and has the transaction amount returned to them, there is still the chargeback fee that takes a hit on the bottom line. As well as an increased dispute ratio that needs to stay under 1% or the merchant may be placed in programs much as MATCH or Visa Chargeback Monitoring Program.