Free Trial & Subscription Billing Rules: Mastercard vs. Visa
-
- May 27, 2020
- 8 minutes
Both Mastercard® and Visa® recently updated policies regulating negative option billing, subscriptions with free trials or introductory offers, and upsells.
Negative option billing is a recurring payment plan that continues until the customer proactively cancels the subscription, otherwise it is automatically renewed. And introductory offers usually provide goods or services at a discount for the first subscription billing cycle.
These sales methods are popular with ecommerce, mail order, and telephone order merchants. However, the tactics are heavily regulated by the card brands.
Free trial and subscription billing rules change periodically. To make these updates easier, Midigator® created this free trial guide. We’ll share new information as it becomes available and help you understand how the changes could impact your business.
We encourage you to bookmark this page and check back often.
Mastercard & Visa Free Trial Rules Overview
When it comes to free trials and negative option billing, Mastercard and Visa have the same basic goal: encourage merchants to communicate openly and honestly to improve the customer experience.
While the initiatives are similar, the card brands’ regulations have several significant differences. Merchants who process both Mastercard and Visa transactions should be aware of how policy expectations differ.
Check the side-by-side comparison for a high-level overview of the policies. For a more detailed look at free trial rules, as well as updates for each of these networks, continue to the sections below the table.
 |  | |
|---|---|---|
| Merchants Impacted | Merchants with a negative option billing model, the nutra industry being a particular focus |
Merchants who offer a free trial or introductory offer that turns into an ongoing subscription Merchants that offer up-sells Merchants who use negative option billing, with or without a free trial |
| Items Regulated | Physical goods | Physical goods, digital goods, and services |
| Enforcement Date | April 12, 2019 | April 18, 2020 |
| MCC Classification | 5968: Direct Marketing—Continuity / Subscription Merchants | 5968: Direct Marketing—Continuity / Subscription Merchants Digital goods or content subscriptions can use MCC 5815, 5816, 5817, or 5818 |
| Billing Descriptor Updates | Include the phone number (MO/TO) or URL where the customer shopped | Use the recurring payment indicator for the initial transaction Include “trial” or a similar phrase for the first post-trial transaction |
| Relationships with Third-Party Service Providers | Disclose all service providers with access to cardholder data (for example, CRMs) | Not specified |
| Trial Start Date | Trial must start on the day the customer receives the product, not before | Not specified |
| Timing of Consent | After the trial has ended but before the card is charged | Before the initial transaction or the trial begins |
| Information Disclosure |
• Merchant’s name • Date and amount of subsequent transactions • Cancellation instructions • The date the merchant will attempt to charge the card again if the account has insufficient funds when the first attempt is made | • Merchant’s name • Date and amount of subsequent transactions • Link to cancel future transactions • Cancellation policy • 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 cancelled • Date the trial begins or the initial transaction date (if applicable) • Initial transaction amount (if applicable) • Last four digits of the card being used for the subscription |
| Subscription Confirmation or Transaction Receipt | Sent after the trial ends | Sent immediately after customer consent has been granted |
| Additional Cardholder Notifications |
Sent after an approved authorization attempt Sent after an unsuccessful authorization attempt |
Sent seven days before processing the first post-trial transaction Sent seven days before processing a transaction if the terms of the subscription have changed |
| Cancellation Policy | Published on the website the customer shopped at |
Available online, regardless of how the customer shopped Include a digital, self-service cancellation option, such as completing an online form or sending a text message |
| Disclosure of Cancellation Instructions |
After the trial has ended but before the card is charged After each subsequent authorization request | Before the initial transaction or the trial begins Immediately after consent is granted Before processing the first post-trial transaction Any time subscription terms are updated |
| Written Confirmation of Cancellation | Required | Not specified |
| Trial-Specific Reason Code | Not specified | If a transaction is disputed because the customer wasn’t aware of or didn’t agree to a subscription after the trial period, the issuer must use reason code 13.5 - Misrepresentation. |
| Compliance Monitoring | Inclusion in the Mastercard Registration Program | Mystery shopping |
New Mastercard Negative Option Billing Rules
Mastercard created these new policies because the card brand receives a significant amount of complaints about deceptive merchant practices. These regulations are meant to encourage merchants to communicate openly and honestly with their customers in order to reduce complaints and provide better customer experiences.
There are several new and noteworthy updates to Mastercard’s standards. We’ve broken them down into three categories.
Jump to a specific category or read all the regulations below.
Regulations Pertaining to New Merchant Account Creation and On-Boarding
There are several regulations that merchants and acquirers must adhere to when creating and registering merchant accounts.
Rule 1: MCC Classification
Merchants who use negative option billing will be assigned a card acceptor business code or MCC of 5968: Direct Marketing — Continuity/Subscription Merchants.
Rule 2: High-Risk Designation
Merchants who use negative option billing to sell physical goods — not services or digital content — will be classified as high risk.
Rule 3: Inclusion in the Mastercard Registration Program (MRP)
Acquirers must register all merchants who use negative option billing through the MRP to ensure compliance with new standards.
Rule 4: Disclosure of Contact Information
Merchants must share the following information in the appropriate ways:
- Ecommerce Merchants: List the website URL where the customer shopped in data element 43, subfield 1 in the dual message system. Also, share a customer service phone number on the maintenance page that will be displayed when the website is offline for software updates, scheduled maintenance, technical difficulties, etc.
- Mail Order and Telephone Order Merchants: List the merchant’s contact phone number — one that is valid and accessible worldwide — in private data subelement 0170, subfield 1 in the dual message system.
Rule 5: Disclosure of Third-Party Service Providers
As part of the on-boarding process, merchants must list all of their third-party service providers that have access to cardholder or customer data (such as customer relationship managers).
The merchant’s acquirer must register these service providers with Mastercard.
Regulations Pertaining to Payment Processing
Merchants and acquirers must comply with regulations during the trial period and beyond.
Rule 6: Trial Start Date
Mastercard stipulates that the trial period must begin on the date the product was received by the cardholder — not before.
Rule 7: Initial Payment Processing
a. After the trial period ends, but before the debit or credit card is charged, the merchant must reach out to the cardholder and share relevant information, including:
- The amount the card will be charged
- The date the card will be charged
- The date the merchant will attempt to charge the card a second time if the account had insufficient funds when the first attempt was made
- The merchant’s name as it will appear on the cardholder’s statement
- Subscription cancellation instructions
b. The merchant must obtain the cardholder’s explicit consent for the transaction amount before initiating the authorization request.
Rule 8: Subsequent Payment Processing
The initial transaction and all subsequent transactions must be processed with the same information.
The merchant ID (or MID) entered in DE 42 and the merchant name in DE 43, subfield 1 must match.
Rule 9: Unsuccessful Authorization Attempts
If an authorization attempt is unsuccessful, the merchant must send the cardholder a receipt and explain why authorization was declined.
Rule 10: Verification of Multiple Purchases
Acquirers must carefully monitor authorization messages. They need to be on the lookout for situations where a single cardholder account number is used to process transactions on multiple different merchant accounts.
If this repeat activity is noticed over a 60-day period, the acquirer must reach out to the merchants to verify the sales were bonafide transactions.
Documentation the merchant might provide to verify the transactions could include a copy of the cardholder’s receipt.
Acquirers must retain this information for at least a year and share it with Mastercard if requested.
Regulations Pertaining to Subscription Cancellation
Cancellation policies will have a significant impact on the future sales structure.
Rule 11: Disclosure of Cancellation Policy
All eCommerce merchants must list their cancellation policy on the website where the cardholder shopped. The policy must be easily accessible with a direct link.
Rule 12: Continued Reference to the Cancellation Policy
Each time the merchant submits an authorization request for a subsequent transaction with recurring billing transaction, a receipt must be sent to the cardholder via email or text message. The receipt needs to include instructions on how to cancel the subscription or negative option billing plan.
Rule 13: Cancellation Confirmation
The merchant must send a written confirmation to the cardholder when the negative option billing plan has been cancelled.
New Visa Negative Option Billing Rules
Visa’s rules for free trials, introductory offers, 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.
As of April 18, 2020, merchants are expected to fully comply with all of the following rules.
Simple Cancellation Policies
Merchants must create clear, easy-to-understand policies and make it simple for customers to cancel subscriptions that automatically bill.
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. new
Visa’s goal is to make it as easy to cancel subscriptions as it is to unsubscribe from emails.
Disclosure and Expressed Consent
Before finalizing the initial transaction (or trial period), the customer must acknowledge the subsequent subscription and consent to recurring subscription payments via a “click to accept” button. If an up-sell is involved, the customer must consent to this additional purchase.
As part of the consent process, merchants must disclose the following information:
- Merchant’s name
- Description of the products 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
- Date the trial begins or the initial transaction date (if applicable)
- Initial transaction amount (if applicable)
- Date and amount of subsequent transactions
- Cancellation policy
- Last four digits of the card being used for the subscription new
- A link to allow the cardholder to easily cancel future transactions new
If transactions are processed from stored account information on a recurring basis, the following must also be disclosed and agreed to:
- How the merchant will notify the customer of any changes to the subscription
- How the customer’s stored account information will be used
- The subscription’s expiration date (if applicable)
- Transaction currency
- Merchant’s location
This disclosure needs to be separate from the general terms and conditions notification.
If the transaction includes an up-sell item, the name of the up-selling merchant must also be clearly listed in a way that differentiates it from the original merchant.
Transaction Receipt or Written Confirmation new
Immediately after consent has been granted, the merchant must send a transaction receipt (if applicable) or some other form of written confirmation — even if the card hasn’t been charged yet. This needs to be sent in electronic format, either via email or text message.
The receipt needs to 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 cancelled
- 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
- A link to allow the cardholder to easily cancel future transactions
Subsequent Notifications new
In addition to the transaction receipt, there are two other types of customer notifications that merchants must send.
- Before the trial period or introductory offer has ended, the merchant must provide notification of the upcoming transaction before they attempt to bill customers.
- 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.
Notifications must be sent via email or text and should be delivered at least seven days before a transaction is processed. All communications should also include instructions on how to cancel the subscription.
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. updated
Also, 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 card statements, online banking, mobile app, text alert, etc. new
Disputesnew
If a customer chooses to dispute the charge because they weren’t aware of or didn’t agree to a subscription after the trial period, the issuer must use reason code 13.5 – Misrepresentation.
Issuers should only use reason code 13.2 – Cancelled Recurring Transaction if the merchant was instructed to cancel a subscription but didn’t.
Dispute Responsesnew
Merchants can respond if they’ve complied with Visa’s new rules and a 13.5 dispute is invalid.
Compelling evidence must include both of the following:
- Proof that the cardholder agreed to future transactions
- Proof the merchant reminded the customer of the first post-trial transaction at least seven days in advance
How Visa Plans to Monitor and Enforce Rules
Visa’s latest announcement has several new regulations. However, the initiative seems 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.”
It’s important to note that “compliance” is subjective. Rather than do the bare minimum in an attempt to fulfill requirements, merchants should instead aim to align with Visa’s primary objectives.
The goal is for merchants to communicate openly, honestly, and transparently to provide a better customer experience. If merchants make that their top priority, they should have no problems adhering to Visa’s new rules.
Stay Updated as Free Trial Rules May Change
Midigator® will share new information as it becomes available. We encourage you to bookmark this page and check back often.
Also, follow Midigator on social media to be notified of changes. You can find us on LinkedIn and Facebook. Or, sign up for our newsletter here and receive tips to make the transition easier.
Midigator aims to simplify complexities for the entire payment ecosystem. 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.
