The Ins and Outs of Subscription Merchant Services - DirectPayNet

The Ins and Outs of Subscription Merchant Services


There’s been somewhat of a renaissance in recent times when it comes to subscription services.  Industries of all types have embraced this new subscription model as something that delivers consistent recurring revenue, while also providing the financial stability needed to continually improve the customer experience for the end-user.  When done well, this business model can be a magical, win-win scenario whether you are a startup disrupting an incumbent, a small business who is just trying to serve a loyal customer base, or a large corporation implementing a SaaS solution.

However, the billing and maintenance of these recurring payments have their own challenges that must be effectively dealt with to make them work.  Ecommerce as an industry has discovered this time and time again.  Therefore, it’s of paramount importance that you set up your merchant services, payment processor, and credit card processing in a way that puts your best foot forward.  And this needs to happen across all your various payment methods including credit card payments and the usage of a debit card.

Why are Subscription Services Considered High Risk?

It all comes down to perception and expectation management at the end of the day.  When a customer buys a good or service on a once-off basis, you have no recurring obligations to them, and it makes it a much cleaner purchasing experience.  Subscription businesses, on the other hand, come with routine maintenance of that client relationship if you are to deliver exceptional service.

For example, a client might forget to cancel a subscription that they no longer want and then hold you responsible when they are billed.  This can result in complaints that hurt your reputation and the financial impact of chargebacks on revenue that you thought you had earned.

The reputational damage that can be done with regular chargebacks and complaints can be significant and that’s why subscription service businesses have to be continually combing through their revenue base to try and mitigate this risk.  It’s a necessary component of running a business like this, so you have to be very comfortable with all the different components of working with your merchant services provider regardless of the payment options available.

What About Free Trials?

Another contentious issue in this sphere is the use of free trials to bring customers through the door and let them test your product.  Many companies will use this as a growth tactic and then hope to convert that customer into a paying customer after they’ve had a chance to experience the product for themselves.

This can be pushed too far though, and because of opportunistic companies who took advantage of this billing opportunity, we’ve seen new regulations come into play to combat this misuse.  Previously, a company would be able to use their credit card processor to start a billing process and collect monthly fees automatically after the free trial ended.  Visa, one of the major players in the space, has stated that expressed consent is required to bill a customer after a free trial has taken place.  Mastercard is soon to follow suit.

This additional regulation makes it even more important that you have your ducks in a row when it comes to your merchant services – so that you are sure that everything is completely above board.  It requires the right processes and technological tools to do this at high volumes, and it’s something that too many organizations ignore.  The better you do this, the fewer chargebacks you’ll have.

How to Reduce the Number of Chargebacks

Now that we’ve unpacked the importance of managing your merchant services as a subscription service business, let’s look at some of the practical ways that you can manage this risk and reduce the number of chargebacks that are processed by your customers:

Email Confirmations

Communication is a key part of this user journey, and you need to be very clear in confirming when a customer is signing up for a subscription service.  They should be under no confusion as to what the deal is, what it entails, and the charge that they are going to be seeing on their credit card every month.  To prove that you’ve made this communication clear and to have a clean audit trail, you could use email and/or text confirmations with every successful recurring transaction right from the first payment.  The more comprehensive and detailed here, the better.

Online Cancellation Options

One of the cliché customer complaints that you hear often is that companies make it very difficult for a client to cancel a recurring bill.  It’s become a common trope because businesses have added friction to the process on purpose to try and improve retention.  This isn’t helping anyone.  It’s a much more sustainable business process to make it easy for customers to cancel through simple, intuitive online options.  You don’t want to keep customers that are unhappy.  You want to give them every opportunity to leave gracefully without damaging your company’s reputation.  Online cancellation methods are an absolute no-brainer here and they help to avoid unnecessary chargebacks time and time again.

Consistent Pricing

This is another key piece of managing customer expectations.  You want to keep your  prices as consistent as possible over time so that your customer knows what they’re getting themselves into when they see a recurring payment.  If a customer signs up for a subscription service at a specific price and then a few months later it jumps up in price, that’s going to cause some serious frustration which leads to chargebacks.  Do the necessary work to identify the price point at which you can run the business sustainably and stick to that wherever possible, especially for legacy clients.  That means that you stick to the social contract that your customers understand and it makes it much easier to keep them content.

Customer Service Excellence

Customers who sign up for subscription services tend to expect a high quality of customer service when they require it because, after all, they’re paying you monthly fees for the privilege.  As a result, it’s crucially important that your customer service is top-notch when dealing with billing in particular as often you can proactively diffuse nasty situations before they get to be a problem.  If there are short wait times to interact with customer service and they’re able to rectify issues effectively, you’ll find that your chargebacks will be significantly reduced as a result, and cancellations will be reduced.  This comes down to the right back-end CRM or saas software, the right training for your staff, the right refund policy, and sufficient resources dedicated to this part of the business.  This is not something to skimp on when you have a subscription business model.

3DS v2 Authentication

3D Secure has been the leading security protocol for online payments for a long time now and the v2 update brings with it a range of new improvements and changes to make the whole experience much more efficient for both parties at the payment gateway.  The new update allows for risk-based authentication to happen in the access control server layer which removes the need for additional friction in the process and makes for a much smoother purchasing experience.  It also brings with it native mobile integration so that your customers don’t suffer a diminished experience when they’re signing up on their phone.  Your merchant account provider and payment gateway typically provide this service, although there are several PCI certified external providers at low rates that can also provide 3DS authentication services.  All in all, it’s an absolute no-brainer when setting up your payment processing and it helps to manage the risk of chargebacks like no other. Click here for more details on 3DS v2.

Constant Improvement

Lastly, you want to be doing all you can to constantly improve your offering over time.  If you can continually innovate on what you’re doing and bring more and more value to the customer, you’ll put yourself in a great position to maintain that customer relationship for the long-term and mitigate any potential risk of churn.  Stay proactive and listen to your customers to keep the product evolving, and you’ll be off to the races.

Those are just a few of the practical things that you can do to minimize the risk of chargebacks and ensure a reliable and efficient payment process for your subscription service.  If it’s something that you’ve never paid much attention to, then now is the time to rectify that.

The DirectPayNet Solution

You don’t have to do this all alone.  Here at DirectPayNet we are passionate about helping our clients implement robust, stable payment processing in a way that lowers the risks that threaten your business.  We’ve seen it all, the good, the bad, and the ugly and we are able to leverage that expertise to bring you the best of the best in the space.  In fact, we specialize in high-risk merchant accounts and we know what is required to manage a subscription merchant account sustainably, regardless of the service.  We are the one-stop payment solution.

With us as your technology partner and liaison to the processing company, you’ll never have to worry about whether your merchant account is going to be denied, or if chargebacks are going to decimate your business.  Our sole purpose is to take care of any processing solutions risk so you can focus your attention on growing your business.

If subscription billing is one of your business needs, then be sure to get in touch today.  We’d love to hear your story and see how we can help!

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.