Updates to Visa’s Free Trial Billing Rules are Coming April 2020. Are You Ready?
Do free trial products and subscriptions factor into your business model? If so, the new Visa free trial rules may impact how you conduct your day-to-day operations.
The rule change is currently scheduled to take effect on April 18, 2020. All merchants who accept Visa cards and who offer free trials or engage in upselling will be affected. The policy also impacts those engaged in negative option billing, or the practice of giving customers a service not previously provided, then charging unless buyers explicitly decline the service.
The new code represents Visa’s parallel of the Mastercard negative option billing policy implemented in 2019. There are key differences between the two rulesets, though. In this post, we’ll examine Visa’s reasons for the policy change, the key components you need to know, and how they may impact your business.
Why the Change?
First off, the rule adoption isn’t meant to “punish” anyone. Visa isn’t targeting you for offering free trials or negative option billing to shame or abuse you. Rather, the goal is to refine existing rules to facilitate a fair and sustainable payments ecosystem. With that goal in mind, the card scheme notes several common, recurring complaints these Visa free trial rules are meant to address:
Cardholders often forget, or do not understand, the terms they agree to when enrolling in ongoing transactions. This is especially problematic for physical goods subscriptions.
Lack of Transparency
It’s hard to track and monitor these transactions, as they occur across numerous MCCs. This, in turn, is a common chargeback trigger, as cardholders can’t recognize transactions.
Lack of Issuer Insight
Disputes are filed using inconsistent reason codes. This makes it hard to parse large data sets. As a result, it’s near-impossible to distinguish bad actors from legitimate merchants.
The company’s existing policies concerning free trials and negative option billing aren’t enough to contend with these problems. The revised Visa free trial rules, though, make substantial progress toward fixing said issues.
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The ruleset wasn’t established arbitrarily, either. Visa consulted with several issuers in global markets to drill-down and identify problems these banks experience. The company wanted to learn what issuers believe is most necessary to address existing policy shortcomings.
Overall, the issuers brought up consistent points. In their observations, two of the key 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 descriptor alone, they are much more likely to file a dispute. The same goes for situations in which 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 cancelations without resorting to chargebacks.
So, we know the problems that precipitated the new Visa free trial rules. Now, let’s delve into the rule changes themselves.
We can break the Visa free trial rules down into four primary provisions: enhanced disclosures, easier cancellation, clearer disputes, and ongoing monitoring. Let’s examine these step-by-step and see how they’ll impact your business.
Provision 1: Enhanced Disclosures
Under the old policy, 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 try and guarantee informed consent. This should, in turn, significantly reduce chargebacks caused by cardholder confusion.
The new policies require you to provide:
- Digital Receipt & Disclosure: You must give customers a receipt of purchase upon enrollment, even if you’re not yet collecting any payment. You must also provide a copy of all terms and conditions, an outline of ongoing obligations, and a link to cancel service online.
- Electronic Notification: You must notify customers before the end of a trial period, and provide a link to cancel online at least seven days before the first transaction at the end of a trial or promotional period. This can be in the form of an email, SMS, or other similar means.
- Statement Descriptor: Your descriptor in BASE II must clearly identify your initial transaction as a free trial or promotion. For example, “Trial Offer” or similar indicator.
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Provision 2: Easier Cancelation
It’s not enough to provide notice that customers can cancel; Visa will soon require you to make cancelation as easy and straightforward as possible. This reassures both cardholders and issuers that you’re a legitimate operation and, in turn, prevents chargebacks stemming from suspected merchant fraud.
This demands easy-to-find—and to use—tools to cancel services. Easier cancellation should (minimally) constitute an online site. It will help, though, to provide multiple options for cancelation, 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 online, regardless of how they initiated that service. Even if the customer started a trial at a physical outlet or kiosk, they should still be able to cancel online.
Provision 3: Clearer Disputes
Like all card schemes, Visa has their own list of chargeback reason codes. The company condensed and revised their reason code list with the implementation of the Visa Claims Resolution initiative in 2018. Of course, these codes can still change at any time if needed.
Now, reason code 13.5 – Misrepresentation covers merchant fraud identified as false advertising. The Visa free trial rules expand existing dispute rights outlined under this reason code.
Consumers have the right to file disputes for reason code 13.5 – Misrepresentation if the transaction in question occurred as part of a trial period for which the cardholder was not clearly advised of further billing. If consumers aren’t aware they’re signing up for a service, they can’t be held to it. In response, you have the right to fight back by proving evidence of adequate disclosure, cardholder acceptance, and subsequent notification.
Provision 4: Ongoing Monitoring
Finally, Visa won’t leave you to self-verify compliance with the Visa free trial billing 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 & fraud, and intervene if they suspect abuse. Lastly, Visa will engage in both mystery shopping and transaction monitoring to watch for:
- Appropriate disclosures
- Cancellation processes
Have More Questions About Free Trials & Recurring Billing?
Offering free trials and recurring billing can be extremely lucrative business models. That said, chargebacks are a primary concern for most merchants in these markets.
The Visa free trial rules should help level the playing field and minimize your exposure to chargebacks. The risk is still high, though, 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.