A Positive Outlook on Negative Option Billing

In revised standards to technical document AN 2202 posted on the Mastercard Technical Resource Center, Mastercard has determined to impose a global mandate that may have serious implications for how you do business. This mandate applies to merchants that use a negative option billing model.
Negative option billing is the billing practice of offering a sample or “free trial” of a product or service in exchange for payment card details and account information to be billed later. Generally, these contracts and payments automatically trigger upon completion of the agreed-upon term.
An increase in complaints from regulators, issuers, and cardholders prompted Mastercard’s enforcement of new procedures to mitigate deceptive business practices.
The negative option billing model is popular among many merchant segments, notably those offering subscriptions and memberships. In the revised standards published as AN 2202 in October 2018, Mastercard focused on the nutraceutical industry, specifically identifying it as a high-risk category.
Changes for those impacted
From Verifi’s review of Mastercard’s document, we believe any business engaging in the “free trial” or negative option billing model, where there is an exchange of a physical good, may now be deemed “high risk.” Also, merchants using this billing model are required to be designated under the Merchant Category Code 5968, Direct Marketing, Continuity, Subscription Services. Acquirers are required to register physical goods merchants using negative option billing through Mastercard’s Registration Program (MRP) to support tracking to ensure compliance. Services and digital content merchants are not currently included in these changes.
Your acquirer will work with you to execute changes in operational processes. Below is an outline of those processes, as referenced by Mastercard:

  • Merchants must initiate the trial period on the date the product is received by the cardholder.
  • E-commerce merchants must include the URL of the website where the cardholder initiated the purchase on their cardholder descriptor. Mail Order/Telephone Order merchants must provide a valid and easily accessible phone number.
  • All recurring payments processed through the same acquirer must occur under the originating merchant ID for the initial payment.
  • Following the trial, and before recurring billings begin, merchants must provide each cardholder the following information and obtain the cardholder’s explicit consent to bill the recurring payment amount:
  • Payment transaction amount
  • Payment date
  • Merchant name and billing descriptor
  • Subscription cancellation link with clear instructions
  • With each attempted authorization, merchants must send a receipt to the cardholder including instructions on how to cancel the service.
  • Merchants are required to provide written confirmation to the cardholder upon cancellation of a cardholder’s trial period or negative option billing plan.
  • Acquirer’s must maintain transaction verification information for at least one calendar year

Verifi’s Chargeback Prevention Solutions
If you’re not already using Verifi’s chargeback suite, now is the ideal time to get started! According to a recent report by Javelin Strategy & Research, commissioned by Verifi, cardholders bypass the merchant to initiate a transaction dispute with their issuer up to 76% of the time.
With increased visibility to recurring transactions, it can be inferred that your chargeback volume may increase. Increased visibility is great in providing outstanding customer experience, but as we have witnessed, the issuer is still likely to be the first contact for cardholders to initiate a transaction dispute.
With Verifi’s Order Insight®, you can provide detailed billing descriptors as part of actual transaction data. This helps to clear up billing confusion and provide cardholders with all the details of their purchases, directed through their issuer’s online or mobile channels. This same transaction data is supplied to the issuer’s call center representatives, where trial and recurring payment amounts, terms, and consent/authorization data are reviewed with cardholders in near real-time at inquiry or dispute.
Verifi’s Cardholder Dispute Resolution Network™ (CDRN®) keeps you protected. Our patented closed-loop network provides you the opportunity to resolve transaction disputes directly with cardholders, rather than involving your acquirer or any card brand.
What’s Next
Mastercard will begin enforcing these operational updates on April 12, 2019. We will provide any updates on these changes as they become available from Mastercard.