The Why: All about Subscriptions
Subscriptions have become an everyday part of life for many people and even more so in these COVID times. From monthly clothes boxes, to dog food treats, vitamins and beauty supplies, subscriptions come in all shapes and sizes. In 2019, McKinsey estimated the total market size of subscription e-commerce services to be between $12 and $15 billion and growing.
So what do you need to be concerned with, while you are growing your business?
Understanding the Rules
Yes! There are rules. If you are offering subscription billing - selling something that comes on a recurring basis and has to be cancelled - the rules of Negative Option Marketing apply, and regulators as well as card brands both have something to say about it.
The important thing to know is the ins and outs of negative option and making good choices along the way. The regulations are to protect consumers from being billed on a recurring basis for products or services they did not intend to purchase — and cannot easily cancel.
You can find negative option requirements in the:
- Electronic Funds Transfer Act
- Restore Online Shoppers Confidence Act
- Federal Trade Commission's Negative Option Rule
Alot to consider? We will review the best practices.
Best Practices - Compliance
In order to stay compliant with the rules and regulations, merchants should:
- Clearly and conspicuously disclose all material terms of the transaction before gathering consumer's billing information, and gather consumer's express informed consent before taking a payment.
- Provide an email receipt about the conditions of payment, offering a way to cancel future recurring payments, and send an email notification before the first recurring payment is charged to the consumer's card.
- Offer simple ways for consumers to cancel and stop their recurring payment.
The card brand rules are even more explicit for merchants using free and reduced trial offers in their subscription program. Mastercard and Visa both updated their requirements for this type of negative option marketing in the past two years.
Best Practices - Preventing Churn
Forty percent of subscription box services are cancelled within six months. So having a good retention plan at the beginning will help manage this behavior. Know when to reach out to the customer, and how often, will be key to bringing both your company name and value to the forefront. Test and iterate on the retention plan. Always have a well designed cancellation page that may support and encourage a change of heart.
Almost a quarter of subscription transactions fail each month, according to Visa. So using Account Updater, a feature that harvests the new expiration date when consumers' cards are reissued, and new card numbers may well be worth the investment. And remove the hassle for the customer to provide up to date information.
Best Practices - Keeping a close eye on Disputes
Issuers, as they have focused on consumer experience and decreasing their operational costs, have made challenging a transaction as easy as possible (the easy button). Consumer initiated disputes are processed without much human oversight as financial institutions adapt in the new COVID world. Issuers are letting technology do the work which can mean more disputes. Read, prepare, and respond to these disputes. Be prepared to adapt business processes to what you learn while responding to the dispute.
Create the best possible defense for disputes by implementing the requirements outlined in this article, and also folding in learnings from dispute management. Of course, avoiding disputes is always preferable, so make cancellation easy and work refunds quickly.
Best Practices - Keeping a close eye on Disputes
Subscriptions by their nature mean that cardholder data is stored somewhere - ideally tokenized with a card brand-registered PCI compliant vendor. Choose your vendor and software carefully and understand your PCI compliance needs. Review our blog article about PCI for more information.
Once you have considered what it means to offer a subscription and have put in the work to make the program successful, relax, order yourself one of your products and watch the easy, compliant, customer-focused process work its ching ching magic, month after month...
About Qualpay
Qualpay is a fully-integrated payments platform that utilizes the most up to date technology to reduce costs and streamline back-office operations. Its comprehensive system addresses and resolves the payment challenges businesses face, ensuring a stronger, more robust infrastructure that allows companies to focus on growing their business. Qualpay's reporting intelligence and data analytics allow customers to quickly and efficiently manage their payment finances, saving them both time and money. Simply put, Qualpay provides a better way to manage payments. For more information, please visit www.qualpay.com.
