Imagine this situation: there’s a service you’re eyeing as something enticing to be a part of, but you’re uncertain about the cost of the subscription. This may be a video content platform or an online delivery service. Maybe it’s a food service with a subscription or one of those fashionable box services which deliver a box of goodies to your doorstep every month for the novelty seeker in you. You’re told the first X weeks or 1 month is free, and then you’ll start to be billed as regular. You accept the terms, so you pull out your Visa credit card and input those oh-so-familiar digits into the entry fields and voila, you’re on your way to some new services!
Did You Forget About Your Sub? They Didn’t.
Some days go by…then a week…a month, and so on. Maybe you’ve been enjoying your new stuff or access to some of your favorite shows you were missing elsewhere. What is true is that when you look at your credit card statement, you realize you’ve overshot the trial period and have been billed for a fresh month. In most cases, you can get a refund on that. For Visa, that’s a chargeback case—and too many of these are no good for anyone.
Chargebacks are Harmful to Businesses on Both Ends
You see, it’s clear that—even though mistakes happen, the consumer is partly at fault for neglecting the terms of their trial. In many chargeback cases of this nature, a refund is administered so long as the date beyond the trial is not egregious. Still, this represents a real loss of value on the businesses’ end. For example, a common subscription would be a movie or video service. If a customer received a chargeback after having gone over the trial and then some, it means the video service has lost revenue from the money that is to be returned, but also from the trial period and overlapping time after that. In our video service example, this business loses money through bandwidth costs and server maintenance costs. You may think of the trial period as merely a subsidized form of value that costs something upfront but will pay dividends down the line for businesses through trial conversion rates. In other words, it is given to the customer for free in hopes that they are sold on the product and continue with the service.
A Grey Area
We at Pinpoint Payments understand this pain point quite well as a merchant processor who specializes in Visa as well as Mastercard chargebacks (heck, chargebacks of any kind!)
The real dilemma in these situations is being able to truly say who is at fault. Businesses must operate on terms and conditions that should be airtight. However, in the case of recurring fees that are predicated on the foundation of a trial model or some promotional period, the fault is unclear when charges are disputed. Is it the fault of the business for not sending out multiple warnings and notifications that the trial period is ending, or is it the responsibility of the customer to abide by the terms they agreed upon no matter how ill-explained they are?
Either way, it is a lose-lose. Customers must make the calls and contact the proper channels to dispute claims—and too many disputed claims do not help a customer’s credibility in the eyes of any credit agency. Businesses, on the other hand, must deal with revenue loss from borrowed goods (trial periods/promo periods and overage charges) and lastly, our personal battleground: merchant processors must handle chargeback requests as promised and parse out the hazy details of whether a case is customer negligence or worse, fraud.
Updated Policy for Subscription Merchants
These scenarios have led Visa to change their policies regarding subscriptions. The gist of these changes revolves around 3 particular pain points:
- Consumer confusion around notifications or acceptance of terms where billing is recurring in the future instead of now as well as difficulties in canceling subscription services.
- Difficulty distinguishing promotional offers from other subscriptions/recurring transactions (where does the promo begin and end, what are the prices before and after?)
- And perhaps the most important of all, nobody is clear on disputing rights in these cases. How much are customers at fault and how much are businesses at fault for not adequately notifying of ending trial periods?)
It’s all a bit heavy for consumers to worry about and businesses—if they wish to continue to accept credit cards, namely Visa cards, must worry about it by necessity. As for Pinpoint Payments, we’re not worried: we live and breathe this stuff every day and are excited at how these changes can bring better guidelines for b2c interactions in the subscription space! As you all may know, any business with a less than stellar chargeback ratio (that is, the percentage of chargebacks out of the total interactions) is in danger of being levied with extra fines or even outcast by acquiring banks and other credit institutions for being too much of a liability (expensive) to deal with.
It costs time and money for all parties involved to deal with processing chargebacks, and this is a space that has emerged in merely the past 8 or 9 years that has really begun to spiral out of control in terms of disputed claims. As e-commerce and CNP transactions continue to grow, these issues will only get worse without properly established guidelines.
Accept Credit Cards with Pinpoint Payments
Still confused? That’s okay if you are, the merchant processing space can be a confusing place to navigate with its industry-specific rules and varying red tape depending on which financial institution you’re dealing with. That’s why we’re around though, running a business is hard enough already without having to worry about money disappearing out of your pocket from disputed claims.
Our Founders have collective decades of experience in the finance and merchant processing space under their belts. Under his leadership, our very own CEO Benjamin Grossman has grown Pinpoint Payments by 664% and brought it up to the top 20% of the INC 5000 list. We’re on our way to the top, and we want to bring you with us! Hop aboard this ride here to start accepting credit cards for your business sooner than later.