The Importance of a Secure, Recurring Payment Subscription Model
Subscription Models and Recurring Payments
- Communications: Video Conferencing, broadband networks, digital infrastructure, fiber networks.
- Manufacturers: (B2C and B2B) Brick & Mortar, supply chain, hardware products
- IoT Companies: Web-connected hardware providers
- Business Management: Legal aid, data services, market research, recruitment, advertising
Churn rates and chargebacks
Churn rates and chargebacks are subscription-based business’ worst headaches. Churn rates measure the health of a business that depends on recurring revenues. A high churn rate shows a lower customer lifetime value, which results in a reduced revenue stream. One strategy to lower churn rates is to adopt a pricing model that retains customers loyalty once the promotional period is over. Unintentional churn is yet another hurdle that subscription businesses face. Involuntary churn could be caused by insufficient funds or maxed-out credit cards or connectivity issues. This problem can be solved by dunning, the process of retrying payments attempts and reminders to customer after a transaction has been declined. Processors can set up back-up payment methods for each customer. To keep customers and minimize churn, it is crucial to optimize customers’ experience and guarantee transparency.
How to prevent recurring billing chargebacks?
Be clear about free trial periods, offer transparent pricing models and make it easy for customers to cancel subscriptions in time. Spell out the frequency of charges, the date(s) of future transactions and the amount to be charged. Allow customers to confirm the subscription details before the transaction is processed and highlight recurring payments. Make sure that subscriptions become a win-win for both the merchants and the customer. If the customer is left to guess, with no way to contact the merchant in time, this leads to subscriptions not being canceled on time, or to double-billing or missed billing cycles. Issues that result in a recurring billing chargeback (Code 13.2 /Visa and Code 4850 /Mastercard). Increased chargeback risk that is a reason for acquiring banks and processors to label subscription business as high-risk. A sizable part of chargebacks results from “friendly fraud” where customer try to mislead the merchant. For example, the cardholder orders a “starter pack” and files a chargeback after enjoying the service/access. Card networks have implemented some restrictions to prevent recurring transaction chargebacks. Besides the 120 days from the date of the original transaction to request a chargeback, Visa updated its rules related to recurring transactions in 2020.