There’s been a lot of chatter around the web since last Wednesday when MasterCard announced new rules and requirements for merchants running recurring billing subscriptions that kick in right after a so called “free trial” ends.

Offering a trial version of your product is a great way to introduce customers to your product and increase sales. But it is important to do it right if you care about the longevity of your business model. The problem is that much of the time Free trials result in automatic enrollment in a recurring billing contract consumers can’t get out of. In an effort to “increase transparency and ensure an outstanding experience for cardholders”.. MasterCard has adopted new rules for merchants practicing free trial type subscription services. This has resulted in an overwhelmingly positive response from consumers.

At the same time, many business are wondering how it will affect their bottom line, daily processes and how and what they need to do next.

While there undoubtedly are numerous unscrupulous scam subscription companies out there whose only goal is to trick customers into a recurring billing nightmare they can’t get out of, this article is NOT for them. This article is intended to help the legitimate merchants whose main goal is having a bevy of satisfied customers who continually ring praise for their amazing product and customer service navigate the new rules and operate their business taking the high road.

Will the new MasterCard “free trial rules” affect your business?

Who will it effect and who will not need to make any changes? After a little clarification M/C confirmed that these new rules would only apply to businesses who provide physical merchandise to its customers. That means that any business providing a subscription to a service, Apple music, Netflix, the gym, etc., will not have to make any changes….yet. While it is said to apply to all business who offer a subscription to physical merchandise it seems that all eyes fall on the nutraceutical industry due to the sheer number of complaints that are common in the industry.

Also, keep in mind that only MasterCard has implemented these new requirements for right now. But it is highly likely that Visa, Discover, and American Express will follow suit. As a business you are likely taking multiple payment types as well as all card types. Any Changes that you make may as well just be implemented across the board to all of your subscriptions regardless of the way the customer pays you.

How will the new MasterCard “free trial” rules affect the merchant?

The deadline for compliance for the new standard to take effect is April 12, 2019 so merchants have a little over two months to get any updates or changes up and running in order to comply with the new rules.

  • Under the rules, Mastercard specifies firstly that any trial period must begin on the date that the product was received by the customer and no sooner.
  • Before initiating the first authorization request for payment after the trial has ended the merchant must obtain the cardholder’s explicit consent for the transaction.
  • This will require the merchant to send pertinent information regarding the transaction to cardholder via either text or email. Specifically, the transaction amount, payment date, merchant name as well as instructions for cancellation must be included.
  • Any subsequent billing after the initial consent and authorization must follow the sending of a a receipt to the cardholder, again via email or text message, notifying them of the transaction amount, date of transaction, and again  include instructions on how to cancel the subscription or recurring billing plan.
  • Continued Reference to the Cancellation Policy. Merchants must also make their cancellation policy easily accessible with a direct link on the website where the cardholder shopped.
  • The merchant must send a written cancellation confirmation to the customer in the event they choose to cancel subscription.

What does it mean for the customer?

No more getting caught with a huge charge for a product they didn’t realize, or forgot they signed up for! This will ultimately protect consumers from sneaky tactics that hide information in the small print. Merchants will have to be much more up front about what their customers are getting themselves into. With this much notice and continued reminder being sent to customers it is going to be much more difficult to say that they did not know about the subscription and weren’t aware of being signed up for a subscription, therefore ultimately more difficult to file a chargeback with the credit card company. Consumers will be able to have a lot more control over keeping or cancelling a subscription as well as finding the information needed to cancel much easier to find.

It’s technically not just a choice, per Restore Online Shoppers’ Confidence Act, “companies must clearly lay out the terms of free trials or other subscriptions before consumers give their credit card information.” Companies are also required to have express consumer permission before charging consumers and they must have a simple mechanism for the consumer to stop the recurring charges. Now, its just being backed up by the card brand rules, which means that they can monitor your business practices and take action if they find you are violating MasterCard merchant regulations.

Most of these requirements are Best Practices and should be procedures that a business would want to employ already. It should always be very clear to the consumer what they are signing up for as well as any ongoing obligations. There are practices that every business that operates in the realm of recurring subscription services should be adhering to that will help to decrease cancellations, reduce chargebacks and increase customer satisfaction. These are tips that businesses should follow as part of their best practices and, if for no other reason, to protect themselves.

This ruling will mean that many subscription based merchants will have to change their practices to be a little more customer friendly. This may mean making changes to their websites pages, check out pages and terms and conditions, to include disclosures and verbiage that clearly spells out the obligation as well as clearly posted links to the cancellation information.

Companies who only give 14 days to receive, evaluate and return the product to avoid being charged are going to have to change there trial period to include the rule that the trial begins when the customer receives the product, not when they order it.

Companies may have to have their email campaigns altered to include the new notices and set up a text program and possibly hire more employees to handle the responses. If the business must “obtain explicit consent” from the customer before they can complete the transactions than they are going to have to set up a way for the consumer to give that consent. There may need to be text programs and software setup that allows the customer to reply to text with a ‘yes” if they want to keep the subscription, or if by email, would the customer reply to the email in which case the business must be able to handle reviewing all of the emails to acquire the permission and then go in and initiate the transaction. This could have a huge effect on many of the smaller businesses and come with certain costs.

Initiating a new self service customer account portal, if you do not already have one, may be the best answer. By allowing your customers control of their auto shipment may ease the costs involved with keeping enough customer service representatives on staff to handle all of the cancellation email requests and help to automate the process.

With only a couple months to make all the changes needed to comply to the new rules by April 12th, it is a good idea to get started right away. Bankcard Brokers’ ETA Certified Payment Professionals are always ready to provide clients with any information and/or solutions needed to support continued success. Call Bankcard Brokers today to experience the “Bankcard Brokers  Difference!”