5 Steps to Reduce Subscription Chargebacks

terms-and-conditions

Subscription services have boomed in recent years thanks to the millennial generation but have been accompanied by a problem with friendly fraud. Some 92 percent of millennials possessed active subscriptions in 2017, according to a study by merchant acquirer Vantiv. The appeal of the subscription model to millennials and merchants alike makes sense: millennials get the convenience of regular service with a “set it and forget it” payment approach and merchants get stable, regular cash flow and strong customer retention. However, the likelihood that the customer forgets they have a subscription also means an increased probability that they will file a chargeback when they see the bill.

Dealing with forgetful customers

Dealing with forgetful customers

The problem of customer forgetfulness can be worsened by longer subscription periods. For example, an annual subscription means that when the service comes up for renewal the subscriber has had a year to forget they bought the subscription in the first place. Subscribers may even intend to cancel their subscription before their next billing date, but they forget in the interim. The bill received for the new subscription period then becomes a reminder that they meant to cancel and a push to request a chargeback.

Merchant pain points specific to subscription chargebacks also exist. For example, there is no proration for a chargeback. The customer can be significantly into their subscription period before requesting a chargeback. As a result, the merchant faces not only chargeback fees but also the expenses related to the product or services already consumed.

Another issue with subscriptions is the use of free trials that auto-convert to paid subscriptions after a specific timeframe. Even if you’ve asked for subscribers’ credit card details during the free trial sign up it doesn’t mean they are aware that they will automatically be moved to a paid plan after the trial ends. This confusion can quickly escalate into a chargeback request.

quickly escalate into a chargeback request

All of the above problems with the subscription model mean that acquirers typically consider merchants that operate based on recurring payments to be high-risk. Subscription-based merchants pay higher transaction processing fees as a result. They are also at a greater risk for entering the credit card networks’ chargeback monitoring programs, which have increased chargeback fees.

Reducing subscription chargebacks

There are five steps that merchants that utilize recurring payments can take to lower the risk of friendly fraud chargebacks:

  • Ask the customer to read all terms and conditions and agree by filling a check box  before issuing the bill for the initial transaction.
  • Make the terms for cancelling a subscription as transparent as possible. When the cancellation process is complicated, your customer is likely to become frustrated and decide it’s easier to just request a chargeback.
  • Maintain open and timely communication with the customer so they feel comfortable approaching you. Some 86% of consumers who filed chargebacks went directly to their issuer without ever contacting the merchant or only reached out to the merchant after filing the chargeback, according to Verifi.
  • Notify the subscriber at the renewal of each subscription period before you bill them. This prevents any chargebacks due to surprised customers.
Ask the customer to read all terms and conditions and agree
  • It also would help matters immensely to provide an order summary to customers before they complete their purpose. In this summary you should include:
  1. Reminder that it is a recurring transaction
  2. Date of the transaction
  3. Whether the recurring transaction amount is variable or fixed
  4. The exact amount that will be billed for each recurring transaction
  5. The specific amount being billed upon the initial purchase
  6. How you’ll be communicating with the subscriber

The summary gives the customer the opportunity to confirm all the above information, and their confirmation of these pieces of information can help protect you if a chargeback is filed.

Using a chargeback mitigation service

  • Dealing with chargebacks can be tough, especially the 80 percent that are illegitimate. Consider outsourcing the handling of your response to a chargeback mitigation service. Justt offers a tailor-made solution that yields an industry leading 83 percent success rate for chargebacks fought. With a success-based fee, you can only improve your bottom-line using Justt. Contact us to learn more.

Our solution is tailored to fit your business to ensure industry leading success rates. We also work based on the success-based fee so there is no risk, just upside for your bottom-line.

 

 

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