Businesses that use subscription payments or a continuity model, also called a recurring or rebilling sales model, can pose an extra layer of risk for their merchant processor and acquiring bank. Several factors play a role in the challenge of approving a rebilling business model. A continuity model usually consists of a business selling a product or service via a monthly subscription. The customer signs up to be charged a specific fee on a certain day each month, until canceling. While this can be a very profitable way to do business for the merchant, it also comes with issues the merchant will have to mitigate.
The main issues we see with these types of business models are as follows:
- Customers do not recall ordering a recurring product or service, so they dispute the charge or chargeback with their card issuing banks.
- Customers no longer like the product or service, so instead of calling support, they just charge back the charge.
- Customers attempting to contact customer service to cancel often find the process challenging, which sometimes leads to a very unhappy customer.
So, as you can see, most of the recurring payment processing issues stem from unhappy customers for one reason or another. Our experts suggest a merchant has a very robust customer support department to manage any issues that may arise. If refunds and chargebacks spike to an unacceptable level according to the card associations, the subscription merchant account could be put in jeopardy and eventually closed. Fines for refunds and chargebacks can really start to add up, hurting the business’s bottom line. In extreme cases, the merchant account provider may even submit the company to the card association’s match file. Once on this list, obtaining a merchant account in the future will become very hard.
Some advice to avoid the above issues:
- Merchants should send out welcome emails, invoices and monthly reminders about the charge that will occur on the customer’s card statement.
- Merchants should periodically check in with customers to ensure they are still happy with the product or service and, if not, determine what they can do to rectify any issues.
- Merchants should make canceling the monthly charge very simple for a customer by putting a cancellation link on their website as well as a 24/7 customer support line. If a customer wants to cancel, the support team should avoid a hard sell. Also, if a customer is not happy with the first delivery or product or service, the merchant should consider offering a very easy and instant refund to avoid reputational damage.
Subscription and continuity merchants that offer a free trial of the product or service tend to have an even higher level of risk for disputes and unhappy customers. Free trial terms must be set to the card association rules as well as to the specific processor’s terms. Some processors will not support free trials at all, while some may impose some very stringent requirements. All the above advice applies to merchants that want to conduct business using a free trial model. The fundamentals of running a successful business such as quality product/service and excellent customer support come into play even more with a free trial model.