Merchants likely heard that new Visa Rules slated to go into effect in April are now postponed. COVID-19 continues to significantly affect the North America and European market. Because of this, the card network companies decided to delay the introduction of new fee structures due April 2020. As such, the new Visa Rules intended for release are now set for June 2020 with some of the changes only being enforced in April 2021.
But what do these new rules mean for your high-risk business? And do you know what to expect when they do come into effect?
Will you be closer to losing your online business, because you don’t have the right measures in place? Read on to find out.
How new Visa rules for interchange fees affect you
In 2019, we told you about fraud and chargeback ratio changes that impacted merchants in the VFMP and VCMP programs. (We hope you’re following our recommendations in that post to keep your merchant accounts safe). The 2020 changes also affect chargebacks and fraud. But without an increase or decrease in the ratio requirements.
As you should know, Mastercard and Visa typically change rates twice a year – April and October. But Visa was expected to make one of the biggest structural changes to its interchange fees in over a decade in April 2020. Given the challenges faced due to COVID-19, they indicated that a delay would be in the best interest of all involved.
The delay would limit any disruptions and potential security risks in implementing the changes. (You can find Mastercard’s interchange rate information here. You can follow Visa merchant business news for updates to their rules and guidelines).
But, back to Visa and their planned interchange fees updates.
Interchange fees are transaction fees charged to a business’s merchant account. It occurs whenever a customer uses a credit card to buy a product or service. These fees cover the risks involved in approving the payment like fraud, bad debt costs, and handling expenses. The fees go to the card-issuing bank (your customer’s bank).
Interchange fees are a part of doing business. You cannot escape them once you have a merchant account and accept credit or debit card payments. So, it’s best that you understand them and what they mean for your business.
If you’d like a review of the fees you’re paying to see if you can get a more cost-effective credit card processing system for your e-commerce business, then contact the DirectPayNet team. We specialize in helping high-risk businesses overcome the obstacles of higher than required merchant fees.
How will the Visa interchange fees affect high-risk merchants?
With changes in fees, some industries will see a drop in their rates while others will face an increase. So, for some small businesses, the welcome relief of reduced costs won’t come right away. For others negatively harmed by the changes, they have a few more months to get ready.
One of the most notable changes is the increased charge for card-not-present (CNP) sales. So, the fee for a $100 transaction will now increase from $1.90 to $1.99 if your customer uses a traditional Visa card – a 4.5% increase. If it’s a premium card, then the cost will move from the current $2.50 to $2.60 for a similar $100 transaction.
What you need to know about Visa trial subscription requirements for 2020
The change in the interchange fees is separate from the other measures implemented in April 2020. These measures target trial-based subscription services offering free trials or discounted introductory promotions. In these types of orders credit cards are required for sign up.
The changes affect the acceptance, disclosure and dispute policies for these types of transactions. According to Visa, this is to make trial details clearer. These updates provide better options for cancellations before charging, thereby reducing disputed transactions.
A quick summary of the new Visa rules:
Here’s a highlight of the changes to the Policy for Subscription Merchants Offering Free Trials or Discounted Introductory Promotions. You can learn more at usa.visa.com.
This part of the Policy has been delayed until April 17, 2021, so you won’t need to submit a waiver request if you delay implementation now.
Disclosure, Notification, and Cancellation:
- You’ll need expressed cardholder consent before charging a card following the end of a trial period. The cardholder must receive a copy of these accepted terms and conditions at the time they enroll.
- Reminder notifications must be sent by email or text before a trial or promotional discount period ends.
- Receipts must be more detailed. They should explicitly state that the cardholder will be charged unless they “take steps to cancel any subsequent transactions”.
- The cancellation process must be easy and online options should be available.
Visa has acknowledged the challenges merchants will be facing due to the coronavirus. As such, they’ve taken the decision to “delay proactive enforcement of compliance actions to this policy”.
But this doesn’t mean you should wait until they are ready to enforce to start putting in place the necessary measures to protect your business. In fact, here are some strategies you can take now to limit fraud, reduce chargebacks, and ensure you meet the new Policy for subscription merchants.
Avoid a lockdown by keeping your merchant accounts secure
Online shopping has significantly increased with the implementation of stay-at-home and social distancing measures. Also increasing are instances of fraud as more businesses and consumers move online. But there are measures you can take to protect your business to reduce and limit online credit card fraud.
Trial subscription requirements to safeguard your business
Do you own a subscription business (whether product or service-based)? You should be thinking about and doing the following:
- Make sure to get expressed consent before collecting the customer’s payment information for the trial period. Have a clear pricing policy on your checkout page that your customer should agree to before proceeding with the transaction.
- Send an email or text reminder to your customer at least 7 days before the trial period converts to a paid subscription
- Provide more detailed receipts including all details about the pricing package that your customer selected. Be specific on when charges will appear on their cards.
- Make sure customers can recognize the transaction on their credit card statement by having a clear descriptor as well as a customer service number that appears on their statement.
- Provide your customers with easier cancellation options, whether digital, SMS.
- Consider adding 3D secure version 2 to safeguard your sales and prevent chargebacks.
You could also consider eliminating the requirement for credit card information to access a trial period. Or even doing away with the trial altogether and offer demo support.
Tackling other merchant account requirements
- Fees are inevitable. But some cards do carry lower fees than others, e.g., regular vs. premium Visa credit cards. You can encourage or incentivize customers to pay using cards that have lower fees such as debit cards.
- Implementing solutions to reduce chargebacks are also a necessity. Machine Learning is often the best defense against chargebacks and fraud. With the ability to assess a variety of data points before authorizing a payment, you can pick up on fraudulent transactions quickly.
- Invest in 3D-secure (3DS) protocols for an extra layer of security when processing online credit and debit card payments. This is especially important if you allow CNP payments.
- There are also other anti-fraud tools at your disposal to help secure your payment platform. For example, you can use third-party software to block high-risk countries.
- Use IP/BIN check tools for early fraud detection. In this process, the internet protocol (IP) is cross analyzed with the bank identification number (BIN). This combination of customer location and card country of origin can predict potential fraudulent payment attempts and allow you to cancel before processing.
- You also want to avoid any activity that can trigger deeper scrutiny of your account. So, make sure you watch out for at least these three red flags and routinely conduct a merchant account audit.
- Diversify your payment processing systems to include ACH payments and e-checks.
Final Thoughts on April Visa Rules
These general fee structures don’t mean that individual merchants can’t negotiate other favorable terms for their businesses. Therefore, if you keep your business risks as low as possible with low fraud and chargeback ratios, you stand a better chance of negotiating these. And we can help you with that process.
If you’re a high-risk merchant in e-commerce, let’s talk about finding you the best solution for a robust payment processing system for your business.