Andrew Reszka, Regional Head APAC, Verifi
Recurring, or subscription, billing presents great opportunities for businesses – it delivers repeat customers! Recurring billing is when a merchant automatically charges a cardholder for goods or service on a prearranged schedule. Many of us are familiar with this type of payment, thanks to the growth of subscription services like Netflix, Spotify, Skype Premium, gym memberships, phone plans, and as we’ll soon experience, Amazon Prime.
Recurring billing increases cash flow as it reduces delays between payment cycles and creates opportunities for upselling and cross-selling through upgrades and add-ons. It helps merchants better predict long-term profits and benefits customers too, as they can authorise once and not need to think about it again. It can also make it easier to access a product or service, in monthly instalments, rather than a large, one-off charge.
However, there are some downfalls to recurring billing that merchants must be aware of. If the correct processes and actions aren’t followed, merchants are at great risk of receiving a chargeback, which can be detrimental if not dealt with properly.
Chargebacks cost businesses billions of dollars, annually. More than the cost of an individual transaction basis, chargebacks can result in the automatic cancellation of subscriptions, increased customer churn, added risk to merchant IDs, and even issues with the bank and card issuer. However, when done well, recurring billing can reduce churn and prevent chargebacks. These three steps can help to ensure it:
- Clear terms of agreement
A large portion of recurring billing chargebacks occur because the customer doesn’t fully understand the terms and conditions (T&Cs).
If the good or service was sold over the phone or in person, it’s a good idea to send an email with a rundown of the plan, when payments are charged, and what name the customer will be billed from. If they’ve signed up online or via an app, as many now do, it’s essential to explicitly outline everything that the plan entails. Most of the time this can require the customer to tick a box, accepting the terms and conditions before payment.
The best way to avoid confusion, disputed transactions, and therein chargebacks, is to clearly lay out the recurring transaction agreement with the customer. Ensure the customer understands vital information like:
- Billing frequency and dates
- The fixed payment amount and any variable payments that may arise
- Length of promotional or free trial periods and the process for discontinuing within this timeframe (e.g., money back guarantee when cancelled in the first two weeks)
- Refund and cancellation policy
Making the cancellation process easy to access will reassure customers. Being transparent and friendly, even when a customer wants to cancel, is far more beneficial for a merchant’s reputation. And at some point, the customer may want to sign up again for the service.
That said, there are some time frames put in place to protect merchants when customers request a chargeback and they’re well into their subscription and goods have already been provided. For the likes of cards issued by Mastercard, a subscriber generally has 120 days from the day of the original transaction to request a chargeback. Times vary by card issuer, and for the specific reasons of the chargeback.
- Open communication
Should a customer have an issue or concern, they must be able to contact the merchant with ease. Customers often won’t reach out, unless there is an issue. Being able to discuss their concerns quickly, and with the right information to hand, gives merchants an opportunity to demonstrate their quality of customer service. It’s also an opportunity to act on their feedback, potentially retaining them as a customer. And if not, initiating a chargeback as a merchant is far cheaper than it coming to you via the customer’s bank.
Should the customer want to go ahead with a cancellation, act on this immediately to be sure they aren’t billed beyond the agreed period. Once successfully cancelled, send an email confirmation and thank them for their custom.
- Use the right chargeback solution
As more people buy online, the likelihood of merchants receiving chargebacks is increasing. People change their mind frequently, and after trying a recurring good or service, they may not want to continue using it.
Some customers will contact the merchant and request to cancel the subscription. However, others will use whatever excuse needed to secure an illegitimate chargeback from their bank. We call this “friendly fraud” and it’s equivalent to online shoplifting. Friendly fraudsters often commit this type of activity because it’s seen as a no-hassle solution.
The key to identifying friendly fraud is knowing who your customers are. This can be easier for a recurring biller, as you capture more data about the customer and the consumption habits they may have with regard to your product or service. The experts at Verifi can help you set up a chargeback solution to identify and stop these types of fraud.