For companies that rely on subscriptions—an increasingly popular business model for all kinds of products—a Mastercard announcement last week has set them on edge. The Purchase, N.Y.-based card network said it will require companies that offer free trials to get the approval of cardholders at the end of the trial period before they start automatically billing.
“To help cardholders with that decision,” the company said in a post on its corporate blog, “merchants will be required to send the cardholder—either by email or text—the transaction amount, payment date, merchant name along with explicit instructions on how to cancel a trial.” Mastercard also said merchants must send an email or text receipt for each recurring transaction after that, again including explicit instructions on how to cancel.
The move was not entirely unexpected, according to Melanie Stout, partner at Paul Larsen Consulting, who said Mastercard has been looking to limit friendly fraud chargebacks from its cardholders. Initially, the new rule was thought to cover free trials of all products, but Mastercard later said the requirement would apply only to physical products. While digital-goods merchants rejoiced, physical-goods sellers still need clarification before they change their processes.
“We don’t know what the penalty will be for non-compliance,” Stout said. “Will it be fines? A chargeback liability shift? None of that has been expressed. We’re not telling anyone to do anything yet because I don’t think Mastercard has announced enough to be fully clear.”
In addition to having to change marketing that works, Stout said merchants could run into increased payment logistics complexity depending on when Mastercard determines that a free trial starts—at the time the order is placed or when the item is delivered. And, finally, will the new rules be guidelines or requirements and what kind of warning system, if any, will be in place?
Until Mastercard answers some of these questions, subscription merchants are in jeopardy of losing an effective marketing technique with little direction on how they must change.