Visa Policy Updates: Free or Discounted Billing Models

Visa Policy Updates: Free or Discounted Billing Models

Visa recently launched an initiative to update policies regulating negative option billing and subscriptions with free trials or introductory offers.

Visa terms and conditions for merchants has been updated and aims to improve transparency and streamline processes for subscriptions that include a free trial or introductory offer. Mastercard has also come out with new rules for negative option billing.

Those rules went into effect in April of this year. While both Visa and Mastercard have similar initiatives, they’re several differences. Merchants who process both should be aware of how policy expectations differ.

So, what is Visa’s goal of this? To encourage merchants to communicate openly and honestly to improve customer experience.

Who’s Impacted By The New Visa Policy Updates?

For merchants whose business practices are one hundred percent transparent and up-front, the changes in Visa’s terms and conditions for merchants probably aren’t going to affect your business at all. But there is a tendency for merchants to offer “free trials” that are, in actuality, a full sign-up, with one free month. The new rules apply to the sale of physical goods, digital goods, and services

1. Merchants Who Offer Free Trial

Merchants who offer a free trial or introductory offer that turns into an ongoing subscription. Most of us have experienced this, right? You sign up for a free month of a streaming service or some subscription-based platform, and when the free month is up… we get hit with a five, fifteen, thirty dollar charge on our credit card.

2. Merchants Who Use Negative Option Billing

Merchants who use negative option billing, with or without a free trial. What is negative option billing?

It’s not just “free trials”Customers don’t always know they’ve been signed up for payments. They see “free no-risk trial” and they click “sure, why not.” Maybe their payment info autofill, it’s a very easy, casual experience for the buyer. Then a month later they see a charge of ten, fifteen, thirty, forty dollars on their card and have no idea what it’s for. Most of the time, negative option billing winds up costing money to the consumer who did not intend to spend any money, simply because they forgot to cancel their free trial, or because the cancelation process was difficult to understand or hard to find on the company’s website.

3. Merchants That Offer Up-Sells

Up-selling is where a seller induces the customer to purchase more expensive items, upgrades or other add-ons in an attempt to make a more profitable sale. This can become a problem when the merchant doesn’t make a consumer consent to buying an additional product.

When Will Initiative Take Effect? The new Visa rules will go into effect on April 18, 2020.

Visa Policy Updates

New Visa Rules

Visa has updated some of its existing policies and has also made new ones that will take effect next year. Visa terms and conditions for merchants, which include introductory offers, free trials, up-sells, and negative option billing first went into effect in 2011. Since then, the card network has identified ways to enhance or complement existing policies.

Cancelation Process

The cancellation process must include a digital, self-service option. For example, a customer should be able to fill out an online cancellation form or send a text message to the merchant. Visa’s goal is to make it as easy to cancel subscriptions as it is to unsubscribe from emails.

Expressed Consent and Disclosure

Before finalizing the initial transaction (or trial period), the customer must acknowledge the subsequent subscription and consent to recurring payments via a “click to accept” button. If an up-sell is involved, the customer needs to consent to this additional purchase.

As part of the consent process, merchants must disclose the following information:

  • Merchant’s name
  • Length of the trial period or introductory offer
  • Clear disclosure that the customer will be charged unless subsequent transactions are canceled
  • Initial transaction amount (if applicable)
  • Description of the goods or services being offered
  • The date the trial begins or the initial transaction date (if applicable)
  • Date and amount of subsequent transactions
  • Cancellation policy

Visa added these two new rules to the visa terms and conditions for merchants:

  • Last four digits of the card being used for the subscription
  • Instructions on how to cancel the subscriptions

Transaction Receipt

You must send a transaction receipt immediately after the customer’s consent has been granted. You will need to send this in electronic format, either via email or text message.

The transaction receipt must contain the following information:

  • Confirmation that the customer has agreed to the up-sell, free trial, or introductory offer and the subsequent subscription
  • Merchant’s name
  • Description of the goods or services being offered
  • Length of the trial period or introductory offer
  • Clear disclosure that the customer will be charged unless subsequent transactions are canceled
  • The date the trial begins or the initial transaction date (if applicable)
  • Initial transaction amount (if applicable)
  • Date and amount of subsequent transactions
  • Last four digits of the card being used for the subscription
  • Cancellation policy
  • Instructions on how to cancel the subscriptions
  • Name of the up-selling merchant clearly listed in a way that differentiates it from the original merchant (if applicable)

Notifications

Before the trial period or introductory offer has ended, the merchant must remind the customer of the upcoming transaction. The merchant must also notify the customer if the subscription terms have changed. Examples of situations that would warrant a notification include, but are not limited to, a price change or an alteration to the billing period.

Additional cardholder notifications include:

  • Notification sent seven days before processing the first post-trial transaction
  • Notification sent seven days before processing a transaction if the terms of the subscription have changed

Billing Descriptor

The recurring payment indicator must be added to the first transaction processed, even if the amount is discounted as part of the trial or introductory offer. The first transaction processed after the trial period has ended needs a unique billing descriptor. The merchant name must be updated to include a phrase such as “trial”, “trial period”, or “free trial” to help distinguish the transaction on the customer’s statement, online banking, mobile app, text alert, etc.

Dispute Responses

Merchants can respond if they’ve complied with Visa’s new rules and a 13.5 dispute is invalid.

Merchants must include the following:

  1. Proof that the cardholder agreed to future transactions
  2. Proof the merchant reminded the customer of the first post-trial transaction at least seven days in advance

How Visa Will Enforce New Rules

In Visa’s latest announcement they released several new regulations. The new visa terms and conditions for merchants seem to focus primarily on increasing awareness of existing policies and demanding greater compliance. Visa states that “ongoing monitoring and enforcement are key” to the initiative’s success. At this point, it is unknown how noncompliance will be addressed, but the network promises to “undertake proactive monitoring and mystery shopping”. Merchants are encouraged to start making updates early to ensure on-time compliance with Visa’s implementation timeline.

Maverick aims to simplify complexities for the entire merchant processing system. If you have questions about these new Visa rules or want help making necessary changes, don’t hesitate to contact our team of payment experts. For more useful insights regarding payments and growing your business, schedule a free consultation with our team of experts today!

Visa Terms and Conditions for Merchants

 

 

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