Mastercard is about to roll out massive changes to their rules…and it could have a drastic impact on your business.
Over the last few years, there has been a surge in free (plus shipping) and free trial offers, known as negative option billing, that automatically convert into monthly or annual subscriptions.
It’s a fantastic way for you to get your product in front of your customer for free or a discounted rate and allows the customer to try it, test it, and make sure it’s something they actually want.
It seems like a win win…unfortunately there has also been a spike in…let’s call it overly creative marketing by a few less than reputable businesses that tend to bury all of the information surrounding the subscription in the fine print or in confusing language that the customer doesn’t understand.
While the vast majority of business owners are fair, upfront, and honest with their customers about how their free trial works, MasterCard has seen such a drastic increase in chargebacks that they have no choice but to instate a new set of rules to curb the rise in chargebacks and customer confusion.
A few bad apples really do spoil the bunch…
In an effort to make transactions more transparent for the consumer, Mastercard unveiled a new set of rules that will go into effect on April 12, 2019.
These rules specifically target businesses that utilize a negative option billing model.
Who will be affected by Mastercard’s new Negative Option Billing rules?
If your marketing relies on customers converting from a “free trial” into a paid subscription, you need to pay close attention to the information below.
Mastercard’s new negative option billing rules cover any ”card-not-present” transaction where the customer is offered a free trial or purchases a subscription to automatically receive a physical product (such as Cosmetics, healthcare products, vitamins, T-shirts, etc) on a recurring basis.
It is important to note that fully digital services are not covered by these rules. That said, the original release by Mastercard did include digital products and services. It wasn’t until late January 2019 that Mastercard amended this to only physical products. Be sure to bookmark this page as we are keeping a close eye on any updates from Mastercard that may change this designation.
Business owners who fail to act on these new rules will be in violation of Mastercard’s terms of service and could face hefty fines and even termination of your merchant account.
While these rules will go a long way to protect consumers, they will also create a nightmare scenario for many business owners trying to navigate these new rules.
But don’t worry, we’re here to help make this transition seamless and as easy as possible.
Remember, you have until April 12 to comply with MasterCard’s new rules… but I urge you to consider making these changes now to avoid a headache in the near future.
Are you unsure if these new rules apply to you? Feel free to give us a call and we’ll walk you through it- or click here if you’d prefer to send an email
12 Steps You Must Follow To Remain Compliant With Mastercard’s Updated Negative Option Billing Rules:
- Businesses which utilize negative option billing will be assigned an MCC of 5968 -Direct Marketing: Continuity/Subscription Merchants.
- Businesses utilizing negative option billing to sell physical products will now be designated as a “high risk” merchant. (to make them easier to monitor)
- To ensure compliance with the new rules, acquirers (merchant account providers) must register any negative option billing merchants, as well as any third-party service providers with access to account data (CRMs, Shopping carts, possibly Dropshipping companies), in the Mastercard Registration Program (MRP).
Regulations regarding payment processing
- Mastercard has added the stipulation that a customer’s free trial can not begin until the customer receives the product- NOT before.
- At the end of a free trial period, the business must receive the cardholder’s explicit consent* before charging the consumer. This could simply be the consumer checking a box or clicking a button that says “yes, I want to continue my subscription” – but the following must also be present with that request:
- The transaction amount
- The payment date of the transaction
- The second date of the attempted transaction (if the first one fails)
- The merchant’s name in the descriptor
- Clear and easy to follow Instructions for terminating recurring payments
- ALL subsequent transactions must be run through the same merchant account that the first charge was run through.
- Any time a charge is declined, the cardholder must receive a receipt along with a reason why the authorization was declined (insufficient funds, expired card, etc).
- Acquirers (Merchant Account Providers) are responsible for monitoring and verifying multiple purchases from the same account holder. The acquirer is required to reach out to the merchant to verify that sales were bonafide, such as with a cardholder receipt. Records must be kept on file for a full year. (The intention here is to force merchant account providers to help prevent business owners from utilizing multiple merchant accounts in detrimental ways)
- Disclosure of Contact Information- in order to remain compliant your customer service phone number must be made available on your site maintenance (404) page that will be displayed when the site is down for maintenance.
Negative option billing rules regarding subscription cancellation
- All eCommerce merchants must list their cancellation policy via an easily accessible direct link on the website where the cardholder purchased the product.
- To maintain compliance, every receipt a customer receives must contain the companies cancellation policy as well as instructions on how to cancel their subscription.
- The merchant must send a written confirmation to the cardholder upon cancellation of the negative option billing plan.
In order to ENSURE that these changes are forced upon businesses, Mastercard has enacted several mandates to credit card processing companies themselves:
Regulations for NEW merchant accounts and on-boarding
- Businesses which utilize negative option billing will be assigned an MCC of 5968 -Direct Marketing: Continuity/Subscription Merchants.
- Businesses utilizing negative option billing to sell physical products will now be designated as a “high risk” merchant. (to make them easier to monitor)
- To ensure compliance with the new rules, acquirers (merchant account providers) must register any negative option billing merchants, as well as any third-party service providers with access to account data (CRMs, Shopping carts, possibly Dropshipping companies), in the Mastercard Registration Program (MRP).
Mastercard is about to ruffle a lot of feathers when this goes live, but if you want to get ahead of the game you can get started now to avoid the last minute mad dash to make sure your business is compliant before April 12, 2019.
But you don’t have to do it alone… Let Easy Pay Direct take the hassle and hard work out of being compliant.
Open the chat box below now to speak with your Certified Payment Specialist to make sure your business isn’t at risk of becoming non-compliant.
We’re here to make things easier. 🙂
