Recurring Billing Risk Management for High Risk Merchant Account

Recurring billing for subscription sales, online memberships, and web continuity programs can incur higher levels of chargebacks, disputes, returns, and online credit card fraud than typical card not present credit card transactions. Payment processing for recurring billing or re-bills, can require a high risk merchant account and a high risk merchant account provider. Internet or online merchants who process recurring payments can obtain cost savings in their processing expenses by using low cost and easy to implement strategies to reduce chargebacks and prevent fraud.

Get a new authorization for each and every billing.

Never process a recurring billing payment on an old authorization (like the original authorization from sign up) or a voice authorization or a forced authorization. These transactions can be charged back by the cardholder as being “unauthorized”. Which is exactly what they are: the cardholder’s issuing bank settled funds to the merchant’s acquiring bank without a valid authorization. When disputed, the merchant and acquirer cannot produce a valid authorization and will lose the chargeback (the original authorization from sign up is not valid for a monthly membership or subscription, each month must have their own authorization).

Do not process $1.00 or like size amount authorizations to test a card’s validity or availability of funds. Never authorize for one amount and settle for another.

When an issuing bank places an authorization on a cardholder’s credit card or debit card the merchant and the acquiring bank lose control of the transaction. An issuing bank can leave an authorization on a cardholder’s account for an extended period of time: sometimes up to 7 days and the merchant and acquiring bank have no say on when it comes off the cardholder’s account. Sometimes the authorization amount may be subtracted from the cardholder’s available balance and an online statement may show the held funds as an actual charge. In the case of a debit card can these authorization can be held against the available balance in the cardholder’s checking account. One dollar authorizations followed by the full amount of the sale can appear to a cardholder to be a double billing or extra charge and can generate disputes and chargebacks. If a merchant charges a low sign up fee and a higher monthly membership and authorizes the card for the membership amount and settles for the sign up fee amount it can appear to the cardholder as a double billing for twice the membership fee. With a debit card this can result in double the amount the cardholder expected being held against their available balance and their bank’s online statements can make it appear that the funds are already out of the account. This can cause anxiety among cardholders and result in chargebacks, disputes, and cancellations. Plus, in the case of a chargeback, the settlement will be unauthorized due to the different amounts.

Send an email giving notice prior to charging a cardholder for a membership fee, subscription, recurring billing, or installment payment plan.

This allows the cardholder an opportunity to opt out of a membership or cancel a subscription before being charged. This can avoid escalating the issue to the level of a dispute. An email notice reminds the cardholder of the purchase, so they have a better chance of recognizing the descriptor in their billing statement, and provides the merchant with an opportunity to provide new information about additional or up coming products, services, or sales. If the email bounces or gets any other out of the ordinary response, such as the cardholder not recognizing the sender, the merchant should investigate this transaction further as possible fraud.

Make sure the billing descriptor is recognizable to the cardholder and provides quick and easy tools for providing more information about the membership, access to customer service and support and dispute resolution and membership cancellation.

Always use a dedicated a toll free customer service phone number with the descriptor. If the descriptor references a web address or URL make sure that it provides the cardholder with content and tools to speed resolutions, such as clearly stated contact information with dedicated customer service email addresses and toll free customer service phone numbers, product information, terms & conditions, refund policies, cancellation policies, and billing policies. Making these policies clear and easy to find will minimize cardholder confusion and the potential for disputes. Providing clear contact information will make it more likely that the cardholder will contact the merchant to resolve disputes. Along with being clear, policies should be accompanied by features that make it easy for cardholders to resolve problems. Provide feedback forms for terms & conditions and auto cancellation and refund request tools.

Load balancing processing volumes between more than one merchant account can be an effective tool for monitoring transactions, tracking sales volume, mitigating risk, and reducing chargebacks in a recurring billing environment.

Merchants that have high transaction numbers, high sales volume, multiple product lines or sales urls, or work with affiliate marketers, could all potentially benefit from load balancing initial sign ups and recurring billings for memberships and subscriptions among more than one merchant accounts. Merchants with more than one offer or subscription, can use load balancing to provide more recognizable and accurate descriptors for each individual membership or subscription, reducing cardholder confusion, disputes, and chargebacks.

Continuity merchants who offer free trials or shipping and handling only followed by a recurring monthly membership or subscription should use BIN blocking tools to block prepaid or reloadable debit cards.

BIN blocking identifies prepaid debit cards via the Bank Identification Number or Issuer ID contained within the credit card number. Prepaid debit cards often hold enough funds to pay for the smaller initial set up fee or trial, but not enough to pay for the membership or subscription, resulting in a decline on the first recurring billing charge.