Visa Recurring PaymentsSubscription Billing Guidelines, According to Visa

The Power of Recurring Payments

Free trial promotions are a surefire way to connect with customers and promote your products. You get a reliable source of continual income. In exchange, customers get access to goods or services they want without needing to remember monthly payments or renewals.

What about the fine print, though? How do card networks like Visa deal with negative option billing and free trial subscriptions?

Visa Subscription Rules At a Glance

All merchants who accept Visa cards and offer free trials, practice upselling, or engage in negative option billing, are subject to these rules. To better understand these rules and regulations, let’s examine what each term means:

The Visa recurring billing ruleset wasn’t established arbitrarily. They consulted with several issuers in global markets to drill down and identify problems that banks and merchants experience regularly. They aimed to learn what issuers believe is necessary and address existing policy shortcomings.

Overall, the issuers brought up consistent points. In their observations, the critical chargeback triggers concerning free trial and negative option billing transactions are:

• Whether the cardholder recognizes the transaction.
• The ease of canceling successive charges.

If customers can’t recognize sales or can’t recall charges based on billing descriptors alone, they are much more likely to file a dispute. The same goes for situations where buyers can’t easily cancel transactions through merchant customer service channels. Lastly, issuers point to a need for cardholders to be more empowered to self-manage transaction cancellations without resorting to chargebacks.

So, now that we understand the problems endemic to the space, let’s delve into the Visa subscription rules and negative option billing requirements that have been put in place.

Visa Recurring Payment Rules for Free Trial & Negative Option Billing

Visa first dropped its subscription rules regarding free trials and negative option billing back in 2011, but many crucial updates were added in 2020 to improve communication between consumers and merchants. Every merchant who uses or accepts Visa must comply with the new rules.

We can essentially break these rules down into five primary provisions: enhanced disclosures, easier cancellation, clearer notification, disputes, and ongoing monitoring. Let’s examine these step-by-step and see how they’ll impact your business.

Under older policies, Visa required you to provide fairly-limited disclosure regarding terms and conditions. This left the door open for cardholders to claim they were never informed about those terms. The new Visa free trial billing rules demand enhanced disclosures to guarantee informed consent. This should, in turn, significantly reduce chargebacks caused by cardholder confusion.

First, the new policies specifically require you to provide:

• Merchant credentials: Name, address, phone, website, and billing information
• Cardholder credentials: The card details used to start service
• Transaction currency: In what location and currency business will be conducted
• Accurate product descriptions: What you sell, what state it is in, how it should appear, and how it will be sold or delivered
• Trial period start date: When the trial period begins
• Trial period length: How long the trial period will last
• Free trial end notice: Written disclosure and signed confirmation that the subscriber will be charged when the free trial ends
• Initial transaction date: When the first payment will come due
• Initial transaction amount: The first amount to be charged after the free trial ends
• Subsequent payment dates: Dates that the subscriber’s account will be charged
• Subsequent payment amounts: Amounts that the subscriber’s account will be charged
• Cancellation policies: The merchant’s cancelation policy, in full
• Cancelation links: Links you must include in any email or SMS communications, which the subscriber can use to cancel the service at any time easily

Additionally, if a customer initiates the subscription with stored credentials, you must also provide disclosure and receive written consent for the following:

It should be noted that subscription disclosures must be communicated separately from a merchant’s TOS and provided to subscribers individually. If the subscriber adds or makes changes to an existing subscription, the merchant must provide clear details and obtain written consent from the subscriber.

It’s not enough to provide notice that customers can cancel. Visa requires you to make cancellation as straightforward as possible. This reassures cardholders and issuers that you’re a legitimate operation. In turn, it prevents chargebacks that stem from suspected merchant fraud.

The rule demands tools to cancel services that are easy-to-find and use. It helps to provide multiple options for cancellation, such as email or SMS. For guidance, Visa envisions the process as “akin to ‘unsubscribing’ from email distribution lists.”

Lastly, customers must be able to cancel services digitally, regardless of how they initiated that service. Even if the customer started a trial at a physical outlet or kiosk, they should receive notice and communications via email or SMS and be provided with cancellation links at every opportunity.

Once the subscription has been agreed to, and consent has been obtained, you must send transaction receipts or other written confirmation that the changes have been initiated. You have to do this, even if the subscriber’s card hasn’t been charged yet. Transaction receipts should be sent and electronically signed via email or SMS message.

Visa subscription transaction receipts should include all of the items included in the disclosures section above, as well as:

• The last four digits of the credit or debit card used to subscribe
• Any updated cancellation policy information
• Any updated cancellation links or criteria

Aside from transaction receipts, you must also remind the subscriber via email or SMS that their free trial is ending, and they will be charged on the agreed-upon subscription start date.

You must also notify the subscriber if any subscription terms have changed, such as pricing, service, or any other alteration of the subscription terms. And, don’t forget, each communication should include a cancellation link and instructions.

Like all card schemes, Visa has its own list of chargeback reason codes. The company condensed and revised its reason code list by implementing the Visa Claims Resolution initiative in 2018. Of course, these codes can still change at any time.

In order to limit incoming disputes, Visa’s subscription rules affect the following:

Finally, Visa won’t leave you to self-verify compliance with the Visa recurring payments and free trial rules. The card scheme plans to impose ongoing merchant monitoring to ensure compliance.

The company will routinely monitor your recurring indicator and statement descriptor. They will also keep an eye out for excessive disputes and fraud, and intervene if they suspect abuse. Lastly, Visa will require both mystery shopping and transaction monitoring to watch for:

• Appropriate disclosures
• Notifications
• Adequate cancellation processes

These rules aren’t designed to “punish” anyone for offering free trials. Instead, Visa aims to facilitate a fair and sustainable payments ecosystem. With that goal in mind, the card network aims to decrease the likelihood and frequency of chargebacks associated with subscription and recurring billing transactions.

How Do Visa Recurring Payments Affect Chargebacks?

These rules were a significant step forward for all Visa merchants and operators. The Visa free trial rules reflect several practices you should already have in place.

For instance, fully informing your customers of the details associated with their free trial is a bit of a no-brainer. Being up front with your policies is a sensible first step to avoiding recurring billing chargebacks. Customers are far less likely to file chargebacks when they know exactly what they’re getting into.

Additionally, it’s always wise to give customers an easy out. If they don’t want to be billed for goods and services, they will likely file a chargeback rather than cancel with you. In that case, it’s best to constantly ensure they can cancel the subscription at any time, especially if their subscription begins with a free trial. Keep in mind that when a customer files a recurring billing chargeback, the bank overturns the latest transaction and every transaction since the beginning of service.

Lastly, the fact that all merchants engaged in the negative option model are now considered “high risk” is a significant concern for some. High-risk merchants face more obstacles in day-to-day operations, including higher fees, costly account reviews, and more. Plus, there are still other chargeback risks to watch out for… namely, friendly fraud.

Best Practices for Visa Recurring Payments & Free Trial Subscriptions

It is entirely plausible to do business without the constant threat of chargebacks looming over your head. To do so, you should follow network rules very closely and do your best to limit merchant error whenever possible. Often, chargebacks result from misunderstandings over billing practices… or mistakes on the merchant’s part.

To protect your business from chargebacks and remain compliant with network rules, you should ensure your subscription policies, including your terms and conditions, are provided to your customers at checkout. The “three C’s” of commerce—clear, concise, and comprehensive—should be your guidestone when writing a customer policy. If you bury your terms in the fine print, you can expect chargebacks to follow.

Offering free trials and recurring billing can be highly lucrative business models. That said, chargebacks are a primary concern for most merchants in these markets.

The Visa free trial billing rules should help level the playing field and minimize your exposure to chargebacks. That said, the risk is still high, even if you follow industry policy to the letter. Click below to learn more about how effective chargeback management can help minimize risk and boost your bottom line.