Starting 18th April 2020, subscription businesses offering free trials or discounted introductory offers need to comply with payments giant Visa’s updated rules. With free trials being increasingly abused by many merchants, Visa’s upcoming rules are a step in the right direction.
The subscription model has become increasingly popular with online and offline businesses. Subscriptions are a great way for merchants to onboard customers at competitive prices and retain them by providing a good subscriber experience. Consumers have also willingly turned into subscribers thanks to a seamless payments experience, discounted offers and of course free trials.
Except that free trials are often not so free after all! Despite the increasing popularity of the subscription model across industries, a recent report
found that 59% of US subscribers who signed up for free trials were charged against their will. Moreover, complaints about free trial abuse have doubled between 2015 and 2017, with the last three years registering 40,000 complaints in the US alone.
The Federal Trade Commission (FTC) in the US has taken action against several businesses for allegedly offering bogus free trials where they billed customers without authorisation. In fact, one company is said to have defrauded subscribers out of more than $35 million. This has prompted the FTC to call for public opinion to improve regulations on auto renewals and subscription programs
. The FTC may introduce stricter regulations in line with specific laws around subscriptions and auto renewals that already exist in US states such as California
, North Dakota and Virginia, among others.
In fact, bad actors in the subscription industry have found all sorts of sneaky tactics
to trick unsuspecting customers into paying money. A lot of these ‘scammy’ businesses convert free trials automatically into paid plans without it being clear to the consumer. Others obfuscate their offerings through the use of deceptive UI elements and hard-to-cancel subscription offerings, among other misleading tactics.
What do Visa’s new rules entail?
To counter this growing trend, Visa published an updated version of its product and service rules in October 2019. These updated transaction rules apply to merchants selling physical and/or digital goods and services who offer free trials or discounted offers as part of a subscription. These changes will come into force from 18th
April 2020 onwards, and Visa will undertake proactive monitoring of compliance with these rules. Violation of these requirements may result in Visa removing card processing capabilities from these merchants.
Here are the key pointers of these policy updates by Visa
- Explicit Consent - At the time of enrolment, merchants must require the cardholder to expressly consent to an ongoing subscription service for recurring payments.
- Enhanced Notification - At the time of enrolment, merchants must provide a copy of the terms and conditions of the subscription service to the cardholder, even if no amount is due at the time. This must include information such as start date of subscriptions, details of goods and services, and ongoing transaction amount and billing frequency, among other details. Merchants also need to send an electronic reminder notification along with a link to online cancellation at least seven days before initiating a recurring transaction after a trial period, introductory offer or promotional period has expired, or if the nature of the recurring agreement has changed (for example, the price or billing period).
- Explicit Transaction Receipts - Merchants must disclose information such as the length of any trial period, introductory offer, or promotional period, including clear disclosure that the cardholder will be charged unless they take steps to cancel any subsequent transactions; transaction amount and date for the initial transaction and for subsequent recurring transactions; and a link or a simple mechanism to easily cancel subsequent transactions online, in the transaction receipts.
- Easier Cancellation/Modification - Merchants must provide an easy way to cancel the subscription or payment method online, regardless of how the cardholder initially interacted with the merchant.
- Statement Descriptor - An additional descriptor indicating a trial period-related transaction will be required in the merchant name field of the clearing record for the first transaction at the end of a trial period. The descriptor will appear on cardholder statements.
In addition, the updated provisions bring in expanded dispute rights, expanded policies for negative option
and up-selling merchants, as well as updated complaint forms.
Enabling greater choice, transparency and control for subscribers
The upcoming rules for subscription merchant transactions are designed to improve the subscriber experience, enable cardholders to clearly identify such transactions and bring more clarity to when disputes can be raised. According to Visa, cardholders will benefit by expressly acknowledging the ongoing subscription agreement, as well as immediate confirmation from merchants on the actual terms, proactive notification of future transactions and easier cancellations.
Visa follows arch-rival Mastercard which established similar rules earlier this year
. However, Mastercard’s rules focus only on businesses selling physical goods, whereas Visa’s rules are all encompassing for both physical and digital players in the subscription space.
Ideally, such customer-friendly practices should have come from the merchants themselves, as subscriptions are all about putting customers first. In the absence of this, the regulators and payment giants have now stepped in and set the rules of the game. The top-down approach is a step in the right direction, but a bottom-up approach where subscription businesses truly understand their responsibility towards subscribers will serve the industry better in the long run!