5 Must-Haves For A New (And Not So New) Online Subscription Business
Got a subscription business that needs payment processing?

5 Must-Haves For A New (And Not So New) Online Subscription Business

Got a subscription business? You’re in good company.


The future is bright for subscription business merchants in any vertical. In turn, more entrepreneurs need reliable payment processing solutions. And, demand for independent merchant accounts keep increasing.

According to US-focused research by Clutch.co “More than half of online shoppers (54%) say they subscribe to a subscription box service.” This reflects how lucrative the subscription box e-commerce market is in North America. But it’s not only subscription boxes. Global entrepreneurs are finding great opportunities from all types of subscribers. The market includes subscriptions for info products, and goods in health and wellness. Plus, let’s not forget services like software licensing and gaming.

Have you run an online business before? If so, you will know about the challenges finding a payment solution. For one, securing a merchant account isn’t as easy as it appears. It’s harder if your business model is high-risk. And, it’s doubly difficult if you’re a foreign merchant applying for a solution beyond your borders. As many discover, targeting customers in a different country or region is not as easy as it sounds.

Subscription ventures anywhere in the world need a robust payment solution. The reason for this is because payments occur on a recurring basis. Recurring transactions are higher risk. And, they are more complex compared to your run-of-the-mill, low-risk online offer. Thus, if you’re a subscription merchant reading this blog, you need more reinforcements for your company.

You must have at least one of the following in place before you get approved for merchant processing. It doesn’t matter if it’s your first, second or third merchant account application.

  1. proper legal structure
  2. proper financials
  3. excellent website compliance (relevant licenses and agreements signed and in place)
  4. diverse marketing campaign
  5. fraud prevention plan

With the above in mind, here’s our recommendations for subscription merchants. The advice below will make sure your next merchant account application is approved. Plus you can quickly start scaling.


Must-have #1 for a subscription business: a proper legal structure

This must-have is aimed at readers in two specific categories. The first are those who have yet to even create their subscription company. The second are those who are applying for offshore processing for their subscription company. If neither applies to you, feel free to skip to must-have #2.

Some startups come to us registered as a sole proprietor or general partners. There is nothing inherently wrong with this type of legal structure. But most payment providers won’t accept it.

Acquiring banks and payment providers want little liability. So, establish a more favorable setup like a limited liability company or a corporation for your business. In both cases, the liability is further removed from you, the owner.

For foreign merchants targeting buyers offshore, do your homework. For example, a subscription merchant (or any vertical for that matter) based in Australia or Hong Kong, cannot get a US merchant account remotely by simply registering a business only. The following is required:

  • A legally registered corporation in the US.
  • A local director or shareholder who is a resident of the US. They must serve as the authorized signer for your registered business in the US and submit their social security number on the merchant account application.
  • A business (not a personal) checking account in the name of the company you created. Yes, your local director or shareholder must be the authorized signer.

Your domestic or offshore merchant account has a higher chance of approval with a rock solid legal corporate structure. There must be a clear way to identify the ultimate beneficial owner (UBO). A structure with multiple layers may help with tax planning, but makes obtaining a merchant account more strenuous. Ultimately, acquirers want the name of a person who owns the company.


Must-have #2 for a subscription business: proper financials

A solid banking and processing history for your subscription business enhances your chances of getting a “Yes” for your next merchant account application. If you’re a seasoned online entrepreneur, you know what this means.

Banking history

Your company’s designated director will also be the authorized signer on the merchant account application. The beneficiary and company name for the bank account must reflect the same information found in a legal business entity and on your tax forms. Without this, it’s a nightmare for acquiring banks. Servicing you without this information means they are violating AML (anti-money laundering) laws.

Sometimes entrepreneurs from foreign countries are desperate for merchant processing. In their efforts, they set up a business online abroad without a bank account. Then they’re disappointed to learn they need a local director and a bank account that must be based in the region where they want processing. And, don’t get us started on payment aggregators. As we have previously advised on the DirectPayNet blog, this is not a good solution.

For example, if you are based in Malaysia, it may be tempting to just find a payment aggregator for your US traffic. But, don’t do it! There are several reasons why. Mainly, it’s a fast way to getting your processing channel terminated.

There are good reasons you need a bank and an independent merchant account in your target region or country:

  • It will increase your chance of being approved by the payment provider.
  • You will have a higher transaction approval rate on domestic traffic. These orders will be recognized by a local financial institution and it will cost less per transaction.
  • When applying for an offshore merchant account, displaying a positive processing history – even if it is from a different region – can be helpful in getting an approval.

Getting a bank account in North America remotely is nearly impossible. A business and bank account must be registered in the same country. The business information as well as the director of the company must match also. Often, non-US business owners like to use e-wallets. This is a big no-no, especially in North America.

During the approval process a bank does a credit check on the owner or the director. They will be looking at your credit and financial history to ensure you are a reliable business owner and pay your bills on time. What exactly will they be looking for? Normal business transactions. For example, a payment to a fulfillment company. Commission payout to an affiliate or marketing agency.

And, the bank will feel a lot better if they see some money in your account. Your balance should not be below $5000 if you are asking for the ability to process monthly sales of $25,000 or more. Also, the lead time to getting paid by your payment provider won’t happen overnight. So, it’s best to shore up some working capital. This way your operations won’t stall.

Processing history

Many subscription box business start-ups don’t have much money. They operate with a “sell first, order later” philosophy. This makes getting a merchant account approval challenging, especially a new business. All the more reason why you need processing history to complement your bank history.

Processing history in the majority of cases is a must for getting a merchant account. We know that startups find this frustrating. How do you get processing if you need to show processing history?

If you happen to have some, great. Always have your last three calendar months of statements ready to show. It’s what will help get you approved to process that sales volume of $100,000 per month you’re requesting.

If you don’t have processing history for your subscription business, this is where having good credit will help. Your credit history is always reviewed as part of your application. And if the numbers look right, that can help get you approved.

payment advice for subscription merchants

Must-have #3 for a subscription business: excellent website compliance

Customer subscriptions are serious business. Users trust you when they are entering confidential information into your system. These details is very attractive to hackers. Especially credit card numbers, personal emails and security questions. Don’t let information like this be compromised. Or, your company will be slapped with fines or a lawsuit. Thus, the level of security (or lack thereof) in your business matters.

For this reason, always ensure your website is secure and meets PCI DSS compliance standards. Does your website have an SSL or TLS certificate? Have you retired all test login credentials? Do only select authorized individuals in-house have access to customer data?

PCI DSS compliance is a must for any online subscription business. This is especially true if you collect and store credit card data or use third-party tools to do this.

Be transparent about what you’re selling

Besides having a secure website where potential customers won’t doubt buying your product or service, you need to be transparent. Particularly about fees you will charge them.

For example, let’s say you launch a coaching business offering relationship advice. Imagine you’re selling six-month courses or workshops at $19.99, $69.95 and $129.99 per month. The monthly subscriptions include a 14-day trial. With it comes two-week access to a member’s area. Naturally, a potential client might think the trial is free. But you must tell buyers about any upfront fees they must pay as well as any future monthly charges.

Do not be deceptive. Like charging a user’s card for a small fee of $9.99 and then charging an extra $10 on day 15 if they don’t cancel. Tell potential clients about rates and fees before they checkout. Besides, credit card networks have unique rules all merchants must follow. If you offer trials, you must adhere to those regulations.

In April 2020, Visa will enforce new rules for subscription merchants. Read more about the changes that will affect your business here.

Terms and conditions, and licenses

Subscription merchants should have relevant licenses and agreements on hand. For example, if your product is a US-based software licensing service, be ready to show licensing agreements and similar supporting documents to your provider.

Additionally, website compliance is next to godliness. A rock-solid terms and conditions page, plus detailed user and/or cancellation policies are crucial.

In a nutshell, pay attention to security and compliance. Ensure you’re not violating any laws enacted by the FTC or similar government agencies.


Must-have #4 for a subscription business: diverse marketing campaign

Some online merchants put the carriage before the horse. They sign up for a payment solution before having a marketing plan in place. Merchant account providers expect to see approved merchants generate revenue within 30 days of going live. So, you should be reaching close to $20,000 in your first or second month of operation if your requested monthly limit is $50,000.

Get the traffic to your site before you get a merchant account. You need to get traction quickly, because dormant activity can get you penalized or shut down. You should be launching your first test for a new Facebook campaign before you get approved.

Another mistake some merchants make is only using one marketing channel to drive traffic. Have you read the news lately? Google has plans to phase out third-party cookies. Also, as we’ve mentioned before on our blog, Facebook Ad compliance is growing more complex.

Essentially, don’t put all your eggs in one basket. Don’t solely rely on an affiliate program. Or, strictly sticking to Facebook ad campaigns. Always diversify your marketing campaigns.


Must-have #5 for a subscription business: a fraud prevention plan

Successful subscription merchants have a fraud prevention plan to guard against risk. If you haven’t done this, put one in place today.

Merchant account providers dislike high chargeback ratios. Specifically, anything above the latest thresholds set by credit card networks (e.g. Visa reduced ratios from 1% to 0.9%). If you’re already processing orders online, you may know about this. And, if this type of fraud is affecting your merchant account, act now. Avoid getting suspended or terminated processing. It is detrimental if you’re in the middle of scaling.

Anti-fraud tools are at your fingertips. Features are in your gateway, CRM and shopping cart. With a few rules you can block high-risk countries from purchasing your product. You can install software to detect unusual activity. For example, when a user changes their IP. Or, their real-time location does not match their billing address.

Worried about chargeback fraud? Make a signature upon delivery a rule. And, if chargeback volumes worsen use 3D-secure to authenticate orders at your checkout. Furthermore, add reactive fraud tools like Ethoca and Verifi. They can detect if a customer will issue a chargeback.

Additionally, always keep an eye on affiliates. If the return on your affiliate marketing isn’t profitable, then perform an audit on your program. Remove dormant affiliate accounts. You shouldn’t work with questionable partners referring sales with low conversion or high refund rates.

If you’re not sure about how to prevent affiliate, chargeback or any type of fraud, reach us for a consultation.


A final word for startup subscription merchants

Be realistic about your payment needs when launching an online offer. In our experience, a lot of newcomers have a lot of misconceptions. This leads to unrealistic demands for processing, when nothing has been delivered.

Here are a few unrealistic requests we’ve heard of from time to time:

  • I want pricing at 2% or less
  • Can I get next day payout?
  • Can they remove the reserve?
  • I need an account to process $100,000 per month

An acquiring bank won’t entertain the above. The only exception is if you have business or personal financials to back up the request. Here’s the reality. You’re a new business. So, you’re at the mercy of merchant account providers, especially ones who deal with high risk. There’s no room for negotiation until you show them the money.

It’s hard to negotiate without any proof of your business’s ability to scale. So, try not to demand things like a high monthly volume (e.g. $50,000), a lower reserve, and don’t try to negotiate unrealistic fees. With DirectPayNet on your side, we will show you the right strategy to eventually getting your wish list.


Make your next move a profitable one

We hope the above information was helpful to you as the owner of a subscription business. These are key items whether you’re applying for your first merchant account or diversifying your banking. So, make sure you have the right mindset and strategy in place before you apply for your next merchant account.

Are you or someone you know running a subscription business in need of a payment solution? Email the DirectPayNet team with your questions and we’ll answer in 24 business hours or less.