Avoid Chargebacks with Mastercard's New Subscription Rules - DirectPayNet

Avoid Chargebacks with Mastercard’s New Subscription Rules

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Mastercard has changed its policy regarding subscription billing, negative billing, and recurring billing.

These new rules are designed to protect consumers from being charged unknowingly, and subsequently to prevent you from receiving chargebacks. You likely already know the consequences of a customer canceling a subscription via their own bank — chargebacks and fees.

Here are the details of the new requirements and how you can avoid subscription chargebacks from Mastercard clients.

What are Mastercard mandates?

Under the new Mastercard subscription rules, merchants must do as follows:

  • Send a confirmation of enrollment for the subscription that includes cancellation procedure, terms, and conditions.
  • Recurring subscriptions that charge some time over 180 days (say, a yearly subscription), a reminder email must be sent between 7-30 days before the charge goes through.
  • For negative option billing, a reminder of the terms must be sent no less than seven days before the billing cycle continues. If the customer decides to cancel, you must send a confirmation of that cancelled subscription no more than seven days after the fact.
  • After every charge, the customer must receive a receipt for the recurring transactions.
  • Merchants selling physical goods: you must obtain consent in some way from the customer for being charged the standard rate after a free trial or low-cost period. If the trial period lasts longer than seven days, you must remind customers between 3-7 days before the end of the trial period that the subscription will continue if they fail to cancel.
  • Cancelation options must be as visible as the unsubscribe button in emails and they must be outlined clearly.

These rules were outline earlier this year in March of 2022. Mastercard has come forward with a September 2022 update that reads as follows:

  • You must clearly state the terms of the subscription trial offer at the point of payment. That includes the webpage where customers enter their credit card details as well as any other webpage that includes details of their order before checkout.
  • You will not be able to redirect customers to these terms on another page nor can they be presented as additional scroll-down text.

Avoiding Subscription Chargebacks Is Easy

If you’ve been a subscription merchant for some time now, then you’ll already be following these Mastercard rules (or almost all of them). That’s because these are all valuable methods for avoiding subscription chargebacks.

Tip 1: Be Upfront

You should never keep customers in the dark. Being sneaky about charging them will never end well for you or your business. So be upfront about what, when, and how a customer is being charged.

If you’re worried about customers canceling, then you have options. You could give them a free month to stay onboard to see how it goes as well as try out new, upcoming features you may have in the works. Or, if they’re adamant about leaving, you can provide them with a discount code for when they decide to return.

Everything should always be on the up-and-up, meaning don’t get on their bad side and don’t let them see yours.

Tip 2: Make Canceling Easy

Not too easy that everyone will flock to it, but don’t make it exceedingly difficult. By that, we mean providing multiple cancellation methods to your subscription services and making those methods easy to access.

For example, you can have a cancellation button on the user home screen in their account view, allow live chat cancellations with your customer support team, or let them email their cancellation request in. As a service provider, you want to make every process possible and friendly.

The customer experience is important and it extends to even the moments when they unfortunately decide to leave.

Tip 3: Extend the Trial

If customers are not willing to pay afterward, then offer to extend the length of the trial period. Maybe three days or a week isn’t enough time for them to get a good feel of how your product can benefit them. But a month could.

You can also provide a discount for their first year’s subscription. You may not be gaining as much as you wanted, but at least you won’t lose the sale. And that gives the customer an entire year to fall in love with your product and become a firm supporter.

Tip 4: Research

If you see a drop in customer subscriptions or people aren’t so keen on joining your program, then find out why. Do the research and discover the underlying reasons why your product isn’t selling.

A few tweaks to the product, the price, or even just the aesthetic can convert trial-goers to paying subscribers.

Why is there a drop in subscribers?

There’s a reason Mastercard updated its recurring payment terms. In fact, there are a few reasons. But first and foremost, let’s look at the data.

According to this data, 60% of chargebacks stem from subscriptions on Mastercard’s network. Of those chargebacks, an incredible 76% were from customers who said they didn’t authorize the transaction.

Now, we all know that all of those customers can’t possibly unknowingly subscribe to things. So let’s look at what’s causing this increase in subscription chargebacks.

  1. Too many subscriptions — Customers are burnt out. While subscriptions seem to be the future of ecommerce and continually rise in popularity, they’re exhausting for customers. Think about it: Netflix, Disney+, HelloFresh, Blue Apron, Amazon Prime, and all the other services we subscribe to—it’s a lot. All those costs per month add up, even if we end up saving money with the subscription. It’s the commitment that people don’t want.
  2. We’ve hit a recession — Folks simply don’t have the money. They are worried about paying more important bills like mortgages, car loans, food, and electricity. Your subscription seems superfluous to them.
  3. Canceling is too difficult — As an online merchant, you don’t want people to cancel. So you make it difficult for them to do so. But that stops subscribers from unsubscribing normally and heading to their bank to say “stop this from charging me, I don’t want it.”

Other FAQs About Mastercard Subscription Rules

Does Mastercard allow subscriptions?

Yes, of course. See the updated subscription terms above for more details on how to securely charge subscriptions to Mastercard cardholders and avoid subscription chargebacks.

Can credit card company cancel subscription?

On the consumer end, yes. That’s a subscription chargeback. So don’t think because a customer created a chargeback that it will only affect the one transaction and in one year or six months from now that subscription will continue. That’s not how it works and it’s a fast-track to get on the MATCH list.

Can you chargeback a subscription?

Yes, a subscription can absolutely be charged back. That’s why it’s important to outline your cancelation policy and make it a user-friendly process. Your customers, your bank, and your payment processing provider will thank you.

Can you cancel a subscription with Mastercard?

Yes and no. Technically, if a customer disputes a subscription with their Mastercard credit card, then it will get canceled. But that likely ends up as a chargeback for the merchant which has serious drawbacks.

The best way to cancel a subscription is to do it through the service you are subscribed to.

Having said that, merchants can connect with banks to offer better unsubscribe functionality. That button usually lives within or next to the dispute button on a transaction list. So if you’re a merchant that’s receiving a lot of chargebacks, you should look into ways to make it easier for customer to unsubscribe.

Does Mastercard allow for refunds?

If a customer disputes a transaction amount on the Mastercard network, that dispute can result in a chargeback where the funds are returned to the customer. The merchant will have to pay those funds as well as chargeback fees.

Subscription billing models are the future, as long as you can protect your business from its shortcomings.

If you can ensure that your service is valuable even during a recession and you can outline your subscription terms and conditions AND cancellation policy with clear instructions, then you should be good. This goes for any credit card network — Visa, Mastercard, American Express.

If you have more questions, need help getting a new merchant account due to high-chargeback ratio, or found yourself on the MATCH list and need a way to process order, get in touch. Subscription merchants are high-risk. Stay on your processor’s good side with the right merchant account.

About the author

As President of DirectPayNet, I make it my mission to help merchants find the best payment solutions for their online business, especially if they are categorized as high-risk merchants. I help setup localized payments modes and have tons of other tricks to increase sales! Prior to starting DirectPayNet, I was a Director at MANSEF Inc. (now known as MindGeek), where I led a team dedicated to managing merchant accounts for hundreds of product lines as well as customer service and secondary revenue sources. I am an avid traveler, conference speaker and love to attend any event that allows me to learn about technology. I am fascinated by anything related to digital currency especially Bitcoin and the Blockchain.


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