New MasterCard rules are bringing changes to the ecommerce sector. They apply to merchants who offer free trials to establish selling relationships with buyers. They also apply to some vendors use recurring billing methods in their business. Free trial (also known as negative option billing) is a very popular sales method. Merchants selling subscriptions for items such as weight loss supplements, skin whitening creams, and other physical products must be aware of upcoming requirements for recurring billing practices.
Free trial merchants expected to send detailed receipts
Under the new MasterCard rules at the end of a free trial for a product a merchant must get approval from the cardholder before billing him or her for a continued subscription. Before billing, the merchant must send the cardholder an email or text message with the following information:
- Merchant name
- Transaction amount
- Payment date
- Detailed and clear instructions for cancelling the subscription
Merchants must send similar receipts by email or text message every time they take an additional payment. Subsequent receipts must continue to include contact details and the merchant’s cancellation policy. All charges on cardholder statements must also include contact information for the merchant such as a website URL or a phone number. These rules will take effect on April 12, 2019.
New MasterCard Rules affect mostly subscription merchants
MasterCard has likely adopted these new standards in response to a large number of complaints from cardholders about negative option billing. According to credit industry analyst Ted Rossman, over half of US adults have had an issue with getting charged after unintentionally enrolling in a subscription with an automatic payment plan. This problem has frustrated consumers and forced credit card companies to waste time and money issuing refunds and reversing charges.
MasterCard‘s new rules create the following conditions for merchants who use negative option billing and wish to accept orders via ecommerce platforms:
- MasterCard will assign merchants a merchant category code (MCC) designating them as “Direct Marketing – Continuity/Subscription Merchants”.
- Merchants who use the free-trial model to sell physical products will be classified as high-risk merchants.
- Companies will be required to participate in the MasterCard Registration Program (MRP) in order to make sure they are complying with standards.
- Merchants’ website URLs must appear on the customer’s credit card statement as the descriptor and a customer service phone number.
- Merchants must provide MasterCard with a list of third-party service providers who have access to cardholder information. These service providers must also be registered with MasterCard.
- When a cardholder signs up for a free trial, the trial must start on the date that the cardholder receives the product. The free trial cannot start before that date.
- When a free trial ends, a merchant cannot charge a cardholder until the merchant has provided the following information:
- Charge amount
- Date of charge
- Merchant name
- Cancellation instructions
- The merchant must have consent from the cardholder for the transaction before authorizing it. If an initial charge is declined due to insufficient funds, the merchant must communicate the date of a second attempt to charge the card.
- Merchants must process any future transactions with the same information as they used to process initial transactions.
- eCommerce merchants must make it easy to access their cancellation policy. The policy must be located via a direct link on the website where the cardholder shopped.
- Merchants must include their cancellation policy and instructions on receipts for future transactions. They must send receipts for every single transaction.
- When a cardholder cancels a negative option billing plan, the merchant must send him or her written confirmation that the subscription has been cancelled.
*Note: Merchants selling physical nutraceutical and cosmeceutical products, as well as subscription boxes are all already considered high risk. This label from MasterCard applies whether or not you include free trials in your offer. Therefore, merchants are going to be under even more scrutiny by payment providers during the merchant account application process.
Updated MasterCard rules will actually help lower chargebacks
These new MasterCard rules may mean changes for ecommerce merchants who sell product subscriptions. However, they offer an opportunity to make more revenue. Being compliant will reduce the number of chargebacks that result from unclear terms and conditions, and cancellation policies. Additionally, increased communication with customers will lead to fewer complaints about them being unaware of the order or transaction.
A great benefit of the new rules is that merchants can use these rules to develop stronger relationships with their customers. Unfair and unclear business practices frustrate and drive away customers. Complying with MasterCard’s new rules will help merchants to ensure that communications with customers foster a higher level of trust and consumer loyalty.
A cancellation policy inclusive of subscription cancellation steps and the date when the cancellation will be effective is a must! Merchants should review MasterCard’s new rules to avoid potential issues with taking payments and ensure they have required policies and procedures in place by April 12, 2019. Some payment providers may enforce merchants to adopt the new rules earlier.
Help us help you adjust to the new MasterCard rules
In spite of perceived difficulties with compliance, following through with these new standards from MasterCard can ultimately help ecommerce merchants. Customer relationships will be naturally strengthened by ostensibly promoting a more superior sense of integrity and accountability.
DirectPayNet has and continues to work with many subscription and continuity merchants. Contact our team for expert insight about becoming fully compliant and ensuring you don’t lose any revenue!