Scaling Your Customer Service Team

Customer service, at its core, is ensuring that your customers are happy with your products and company so they will continue doing business with you. Seems simple, right? Yet it’s becoming increasingly complex as the responsibilities of customer service change, the number of customer service channels expand and customer expectations increase. When you consider that 82% of consumers have stopped doing business with a company because of bad customer service, you begin to understand the scope of the issue. Poor customer service ultimately means lost customers and lost revenue. Even worse, given the information-sharing tools available today, unhappy customers can impact the choices of prospective customers more than ever before.

The good news? Customer service still comes down to prompt, honest, empathetic communication with your customers, and even small companies can do it well. The question is – how? We are tackling this question on our Focus On: Customer Service series, where we’ll explore planning for, implementing and scaling customer service for your subscription business. The full series includes:

  • Customer Service: The Basics
  • Establishing a Customer Service Department
  • Outsourcing Customer Service
  • Handling Common Customer Service Questions
  • Your First Customer Service Hire
  • Scaling Your Customer Service Team

Hopefully, there will come a happy time when your organization has grown large enough to need the tips in this article – or you may be there already! If so, you likely have individuals on staff, support of service and technology providers or the ability to hire consultants. This article simply highlights some of the key Customer Service challenges a large organization faces, along with a few final tips. 

Achieving Data Integrity and Systems Integration 

One of the best indicators of world-class customer service is when a customer feels like they’re being treated as an individual. This requires a 360-degree view of your relationship with that customer and is extraordinarily difficult to achieve, as some of the largest publishers and subscription businesses in the world have yet to master it. Particularly, data inconsistencies in organizations that have grown as a result of an acquisition are some of the most difficult challenges to overcome. Even the best system integration in the world can’t make up for misspellings, inconsistent abbreviation and use of different classification systems. The good news? With a methodical review and some system redesign, establishing data integrity is mostly just about setting proper rules and sticking to them. The following are some of the action steps toward gathering quality and current customer data:

Leverage Existing Standards   

DUNS numbers, EIN’s, SIC and NAICS codes may not be a perfect fit for your organizational data needs, but appending them to your customer files in addition to other, in-house coding systems will ensure that you have some ability to consolidate, sort and analyze all your customer data. There are all sorts of data providers you can use to append customer information, these services include updates to individual and company data, individual and corporate-level purchasing data and much more. Depending on your needs and budget, you can not only normalize your customer data through existing standards but also layer in added intelligence and updated data for your customer service team.

Another tip in this category is to use USPS address standards instead of creating your own.

Establish a Business Data Dictionary 

The information you collect about your customers gives you the ability to help them better, faster and more effectively (yes, cheaper too!). Take data consistency seriously by creating and maintaining a business data dictionary. Chances are, your IT staff already has a Data Dictionary – probably several of them, probably all with different requirements for the same data. When the business side of the organization creates data requirements in collaboration with the engineering team, the results are significantly more user-friendly.

Make the Systems Do the Work 

A product manager at a subscription business serving the legal profession commented on this topic, saying “I recently worked for a competing company where the leadership was saving money by giving a binder full of data-entry rules to the sales and customer service teams, rather than updating the systems to validate for proper data entry. To say that it’s not working out is the understatement of the century.” Tying systems together so that a subscriber’s address, for example, is entered just once and then auto-populated everywhere else, is an example of making your CRM and other Business Intelligence systems work for you. 

Empowering Customer Service 

It’s natural for a business leader to want to stay involved in all the workings of the company, but impossible to keep up in practice. Keeping senior executives in the loop on every decision is a recipe for disaster, so how can you push responsibility and decision-making down into the ranks of Customer Service?   

Revisit and Update Policies 

Make sure that your subscription terms are spelled out clearly for customers at the outset, and that approval policies for refunds and cancellation still make sense given the bandwidth of the approver. 

Establish a Workflow for Transferring Decision Rights 

One of the reasons empowerment fails is because it’s implemented all at once, instead of in phases. First, explain to the Customer Service team that a policy is going to change, how that process is going to happen and approximately when you hope to have it completed. Then, depending on the significance of the decision (full versus partial refund, for example), you may decide to implement a “decide alongside” process for a period of time where the Customer Service rep brings their recommendation to the former decision maker for validation or correction, prior to acting on the choice. This engages both team members in a positive way while continuing to minimize the risk of a bad decision until the nuances of a policy are completely understood. 

Next, you can implement a “downstream correction.” This process delivers the decision made at the line level to the former decision-maker after the fact, so that it can be reviewed. While these decisions may not be revocable, the process minimizes the impact of any ongoing misunderstanding of the policy. 

Finally, everyone is ready to move into their new role. The former decision-maker is freed up to work on other responsibilities, while the front-line rep feels – and is – empowered to make increasingly responsible decisions as part of their job. This process removes the stress of transition from both parties, ensures that service to customers remains excellent and improves job satisfaction by elevating the responsibilities of both parties in the equation. 

Centralizing Knowledge 

Another area of concern for the high-growth subscription business is policies that were set back when everyone was working on card tables in the garage. We’re talking about product requirements that were never written down and customer surveys that are still in a marketing person’s desk, under a banana peel from 2009. 

This was fine when you were just starting out, but to ensure that you and your customers are getting the best possible value from your customer service organization, it’s time to centralize the information that the team needs to do its job. Earlier we discussed tying systems together and tidying up customer data to give customer service a 360-degree view. By centralizing key business knowledge in a Business Information (BI) system, however rudimentary, you: 

  • Accelerate the ramp-up of new hires. 
  • Ensure consistency of policy execution. 
  • Increase the frequency of one-touch customer issue resolution. 
  • Unify the team around a foundational set of business knowledge. 

Even large organizations that are new to centralizing knowledge may want to use a simple tool, like the free version of Dropbox or BaseCamp, although they are short on cross-source aggregation and analytics capabilities. To truly integrate within a complex organization, an interactive BI platform like Tableau allows users to create “data stories” to which Customer Service contributes and leverages. Our goal with this article, however, isn’t to evaluate BI systems but to encourage you to incorporate some level of knowledge centralization into your own business. Some Final Thoughts on Customer Service

Former Dell CIO Jerry Gregoire said, “The customer experience is the next competitive battleground.” According to a 2014 study by Gartner, 64% of people say the customer experience is more important than price in their choice of a brand. Clearly, customer service will be foundational to your success as you grow your subscription business. 

Critical to providing customer service that will give you a competitive edge is planning and establishing standard policies. Even at the very beginning of a new business or product, anticipating how best to serve customers will bring a confidence and ease to your customer interactions that will benefit both of you. 

As you expand, hiring the right people for customer service roles will be critical. The time has passed when businesses hired less-than-qualified individuals or farmed out call center work to any 3rd-party firm. Today, challenging interview questions and a sharp eye for indirect skills such as personality, phone skills and grammar are techniques you must employ in order to bring the very best talent to your team. And, whether that talent is in-house or offshore, the ability to measure success will allow you to continue to improve as your company grows. 

It’s easy to lose the personal touch in customer service as your organization grows, but the implementation of standard and centralized technology can not only provide a 360-degree view of the customer that enables excellent customer service, it can tie your team together, no matter how large and dispersed it is. 

Since 1750 BC, Customer Service has evolved, becoming nearly as important as the product itself in assuring your success. We hope that this series of articles gives you a few tools you can leverage in your own subscription business to provide truly excellent customer service. Good luck! 

Handling Common Customer Service Questions

Customer service, at its core, is ensuring that your customers are happy with your products and company so they will continue doing business with you. Seems simple, right? Yet it’s becoming increasingly complex as the responsibilities of customer service change, the number of customer service channels expand and customer expectations increase. When you consider that 82% of consumers have stopped doing business with a company because of bad customer service, you begin to understand the scope of the issue. Poor customer service ultimately means lost customers and lost revenue. Even worse, given the information sharing tools available today, unhappy customers can impact the choices of prospective customers more than ever before.

The good news? Customer service still comes down to prompt, honest, empathetic communication with your customers, and even small companies can do it well. The question is – how? We are tackling this question on our Focus On: Customer Service series, where we’ll explore planning for, implementing and scaling customer service for your subscription business. The full series includes:

Handling Common Customer Service Questions

One of the best foundations for good customer service is preparing for the common questions that frequently come up. It’s imperative to identify inquiries that your customer service representatives may receive, prepare standard ways to respond to those inquiries and know when to escalate an inquiry to someone else. While there’s no right or wrong answer, the key ingredient is consistency across your organization once you have developed your customer service response process.

Use this customer service response blueprint and create a database with specific responses consisting of email copy, phone scripts and protocols for each issue identified in your response blue print and each communications channel that you use, including email, phone, chat, social media and others. The database could be simple or fancy in excel, word docs, draft emails, or in your CRM system, it just needs to be easily accessed by your team.

The Refund Request:

Since refund requests are a common issue for subscription customer service teams, here is an example of mapping out your responses in a sample customer service response blue print:

Policy for Refund Requests:

What is the policy for your customer service team? Are there specific tools they need to use? Are there internal team members they need to notify after the refund is given? As a reminder, this is an example for a company using best practice notifications, renewal receipts for every monthly and annual renewal and with clear communications on their cancellation policy (no refunds, only forward cancels). It’s important that you make sure your customer service response policy is uniquely designed for your company’s products, services and customers.

Monthly Subscription Example:

Customer Service reps are authorized to provide refunds if a request is received within seven days of a monthly renewal anniversary for the most recent term.

Annual Subscription Example:

Customer service reps are authorized to provide refunds if a refund request is received within 30 days of an annual renewal anniversary.

It’s better to pleasantly provide a refund and maintain a cordial contact than to stick to your published refund policy and anger your now ex-subscriber. That kills the chance they’ll be back, but guarantees they’ll tell some of your prospects how unreasonable you are. So, also think about when there are exceptions to your rules. Perhaps you will give your customer service reps the authority to refund up to three months (for a monthly subscription) if the customer insists. If a customer calls late into an annual subscription, you may want to provide a full refund or a prorated refund. Make the decision on these policies ahead of time, reflecting what is best for your company.

Communications Channel Response:

Here are sample responses by communications channel. Remember to review your responses on an annual basis, at minimum. The tone and approach to these communications should map to the overall personality and brand of your subscription business.

Hi Jim,

We are sorry to see you go!

I just want to confirm that we have processed your refund of $XXX.XX. You should expect to see that on your credit card statement shortly.

Please let me know if you have any questions. If you need anything else, please do not hesitate to reach out.

Regards,

Sean

Customer Service Team

While this sounds like a lot of work, it is a lot less work than the time wasted by your customer service team writing individual responses each time an inquiry comes in, or even worse, communicating inconsistent or incorrect information.

While the following is an extreme example, after acquiring a competitor, a company encountered high chargeback rates. It turned out that the reps were telling subscribers that if they wanted to cancel, they needed to call their credit card company! Fortunately, the fix in this case involved doing exactly what is recommended above, creating a database based on the blue print of your customer service response plan with expected responses to expected answers. The reps had directions for how much leeway they have to deal with a question directly without escalating, and finally, knowing exactly when to escalate an inquiry to another person.

Are You Ready for These Three Types of Inquiries?

While most Customer Service reps will tell you that something new comes up every day, they’ll also each have a story about at least one of the issues below. While there’s no right or wrong answer, escalation process or policy for any of these situations, the following attempts to provide some insight into how others in the subscription industry handle them:

Outside-of-Standard-Policy Refund Request:

Good customer service preparation lays the foundation of subscriber trust with a clear policy on cancelation, directions on how to cancel and your terms and conditions for cancelations. Best practices dictate a clear outline of your cancelation terms during signup, in your FAQ’s, on your order form and in your purchase confirmation communications. However,, it’s inevitable that as a subscription business you will receive refund requests and even the occasional request for out-of-scope (or even completely unreasonable) refunds. Contrary to what you may want to believe, outrageous requests are not at all uncommon!

Every subscription business has received the dreaded Truly 

Unreasonable Refund Request, where a subscriber or member requests a refund far beyond the current term. Can you blame that subscriber? If they don’t ask, they don’t get . . . but this is an area to be assertive, as well as pleasant.

At the risk of sounding like something out of Fargo, consider this true story. Several years ago a call came into a digital content company from a subscriber who was angrily talking louder and louder. He was trying to convince (bully?) the customer service rep who took his call into giving him a 10-year refund! The customer service rep kept his cool and told the subscriber he needed to talk with his manager. The rep went to the CMO per the protocol of the company, with the subscriber’s very unusual request. The subscriber claimed that because of his brain tumor, the people managing his affairs had never cancelled the subscription and he deserved a full refund for the previous 10 years. As it happened, the subscriber had an unusual name and was from the same town that the CMO grew up in. A little investigation confirmed that the subscriber not only worked with her father, but had been healthy the entire time! The CMO took the customer service call herself and told the subscriber who she was (and her dad said “hello!”) and that she hadn’t heard anything about him being ill. Long, awkward story short – no refund was given!

What would you have done if you had received this request? You may not be so lucky as to know the subscriber making the crazy request, but you should know what your team will do and say when these situations come up. Unfortunately these requests aren’t as rare as you’d expect. Many subscription organizations receive similar requests. But how should you respond?

• 

Stay calm: Steer clear of the Mistakes to Avoid and leverage the 12 Basic Tips from earlier in this document. Trust, but verify: Treat any assertion by the subscriber as true until proven otherwise. Remember, she knew the guy who asked for the 10-year refund, otherwise she would’ve asked for medical documentation, after first of course expressing sympathy for the misfortune.

• 

Have a backup for extreme situations: Many companies will offer refunds up to the length of a chargeback if a request that’s both real and extreme comes in, matching the amount a customer would get back if they opened up a complaint with a credit card company.

Forgotten Passwords

A good rule of thumb is “never send a customer on the phone to an answer on the web.” If the customer wanted to search for online help, they would have done so. However, changing or verifying a password over the phone is a not advisable.

In this time of increased hacker sophistication, even the online protocols for protecting passwords are being reviewed and upgraded. No matter how much you’d like to, manually updating a password outside of the system should be a last-ditch-only option.

One of our own Subscription Insider subscribers shared this story, “I had a customer call recently who not only did know her password, she was pretty sure it had expired, and she’d signed up under and old work email that was no longer active. She also had no idea what the answers to her security questions were. . . I just gave her the password.”

The best answer here is a secure and robust closed system of online verification and resolution. While most of us aren’t selling state secrets or plans to the atomic bomb, you should keep password security out of the hands of Customer Service as is humanly possible. But how?

• Technology: Leverage systems that allow email password resets.

• Back-up Customer Contact Information: Require a backup email and contact information for all subscribers. If they forget the email they’re registered under (or it is inactivated), there’s still a way to validate that they are who they say they are.

• Customer Service Policy: Create a logical policy and put it in writing. Access to a subscription is different from access to credit card information. Establish password-recovery systems and rules based on the relative level of security needed.

Chargeback Threats

Unlike refunds, chargebacks are requests from the credit card issuer as a result of a customer complaining about fraudulent use. According to CardFellow, chargebacks occur for several reasons, including not recognizing the name of a vendor on their credit card bill, to suspected fraudulent card activity. Consider these tips when dealing with chargebacks:

Do not refund the customer yourself. If the chargeback process has already started, the bank will do that immediately upon the dispute being filed, so you don’t want to double the refund. Comply with information requests promptly and thoroughly. Keep on top of the paperwork as chargebacks can take two to three months to resolve, even with your prompt and cooperative help.

Head it off at the pass. This is an excellent example of the best defense being a good offense. Set up a clear descriptor of your company name to appear on credit card bills. If your legal name is ABC Memberships, but your product is Wild Candy Monthly, be sure to use the Wild Candy name. When subscribers sign-up, make sure in your FAQ, the sign-up form and your post order communications there is language and cancelation terms that clearly states that they are, indeed, agreeing to a monthly fee that will be automatically billed to their credit card. Documentation such as this will help your case with the credit card companies.

Customer Service Success Metrics: A Checklist

The goal of measuring your customer service performance at the initial stages of a subscription business is primarily to learn how to hone your customer service activities and forecast your need for future resources. It’s the time to focus on resolving customer issues and finding out where the gaps are in your current processes and policies. As the company grows and you begin to automate aspects of customer service or use an outside call center, you’ll begin gathering performance metrics such as Hold Time and Time to Resolution, among others. The following is a checklist with metrics of success as well as “to-do” items to create as you build out customer service:

  • Bug Fix Log: Number and type of questions received. Priority of new product enhancements and fixes; customer mood; staffing skills needed. Immediately Doesn’t have to be just bugs or fixes, but can capture all Voice of the Customer questions, comments and concerns.
  • # of inbound contacts, by media: How many customer calls, emails or live chats are you having each day? Capacity needed. Immediately Helps determine future staffing strategy.
  •  “Do Not Send” list: Create a list of subscribers who ask to be removed from market emails and call campaigns.
  • # Rings: Number of times the phone rings before a Customer Service rep answers.
  • Time on Hold: Amount of time a customer spends waiting for a customer service rep once the phone has been answered. 
  • # of Transfers: Number of times a customer is transferred. Efficiency, Issue Complexity, Empowerment, Knowledge.
  • First reply: How quickly the customer hears from the company after delivering an issue.
  • Time between check ins: How frequently the customer is updated on progress.
  • Resolution Time How quickly the customer’s issue is resolved. Efficiency, Capacity, Issue Complexity, Empowerment.
  • Open Cases: The number of issues (“tickets” as they are commonly called in customer service software).
  • Backlog: the number of cases opened compared to the number of cases closed
  • First Contact Resolution: Percentage of cases resolved in a single customer interaction.
  • Account Summary: A view of the most active customers, in terms of submitting issues.
  • Channel Attribution: A count of how many issues come through via the phone, email, Facebook, etc.
  • Net Promoter Score: A one-question survey of how likely your customers are to recommend your business to a friend or colleague.
  • Customer Effort Score: A measure of the amount of effort customers expend when they interact with customer service

Affiliate Marketers Beware: Subscription Businesses are Liable for Affiliate Program Offers

Affiliate network of online marketers and the three people behind it held liable for $179 million

A recent FTC court settlement names a vast network of online marketers and the three people behind it liable for $179 million for using unsubstantiated health claims, fake magazine and news sites, bogus celebrity endorsements, and phony consumer testimonials as well as improper charges in auto renewing programs to sell more than 40 weight-loss, muscle-building, and wrinkle-reduction products to consumers.

The FTC alleged that the defendants used deceptive offers of “free” and “risk-free” trials, and automatically enrolled consumers without their consent in negative option auto-ship programs with additional monthly charges.

Consumers were generally offered “risk free” trials and were told that, in exchange for $4.95 to cover shipping and handling, they would receive samples of the defendants’ products. The websites failed to adequately disclose that consumers who signed up for the supposedly free trial offers would be enrolled in negative option continuity programs, through which they would be charged for the initial supply of the products if they did not cancel within a short period of time, and then be billed about $87 every month thereafter.

In addition, although the websites promised that the trial offers were “risk free” and “guaranteed 100% satisfaction,” the complaint alleges that the websites did not clearly disclose the steps consumers needed to take to cancel their orders and avoid being charged.

The defendants also allegedly created different versions of websites for their products, in an apparent effort to conceal their deception from banks and payment processors. The decoy websites featured more-prominent disclosures, and the defendants shared these with banks and processors as part of their applications for merchant accounts that would allow the defendants to process payments for online purchases by consumers. They maintained alternative sets of webpages with inadequate disclosures, or in some instances no disclosures at all, and took steps to ensure that these were the versions of the websites that most consumers would encounter when purchasing the products.

The court ordered judgment of $179 million represents the amount that the FTC alleges consumers nationwide paid the defendants over a period of more than five years. Due to the nature of the defendants’ financial position, that amount will be suspended after the defendants pay approximately $6.4 million to the Commission.

Insider Take 

Using affiliate marketers will not give you a pass in creating offers that comply with the law in any negative option sales and the FTC is going after large settlements to ensure all marketers in the “food chain” as well as advertisers are compliant.

Recent FTC Settlement on Deceptive Offers

The Case:

A court recently settled an enforcement action against Allstar Marketing Group for its promotion of multiple “buy-one-get-one-free” offers which included Snuggies, the Magic Mesh Door, and other “as-seen-on-TV” type products in which some 218,000 consumers took part. As part of the settlement, the FTC is mailing refund checks totaling $7.2 million to those who participated in the offer, with consumers who bought products receiving checks averaging $33.14. The New York Office of Attorney General filed a parallel action against Allstar also assisted with the refund planning process.

This case and the allegedly deceptive offers have been going on for some time: In March 2015, the FTC first alleged that since at least 1999 Allstar used deceptive direct marketing TV commercials to sell its products. While the products varied, Allstar’s sales pitch was often the same-a “buy-one-get-one-free” offer. However, the FTC alleged that Allstar did not disclose all the costs and in addition that the ordering process was confusing, resulting in some customers being charged more than expected and for more products than they wanted.

One example of such deceptive practices was a commercial for Magic Mesh which promised that it would ‘double the offer’ for consumers if they just paid processing and handling fees. The FTC said in its press release: “While consumers were led to believe that they would then be getting two $19.95 products for ‘less than $10 each,’ in fact, the total cost with the undisclosed $7.95 ‘processing and handling’ fees jumped from the advertised price of $19.95 to $35.85.” Consumers who called All-Star were often immediately instructed to enter their billing information and were charged for at least one “set” of products. Since the set was the only sale offered, it was not really a buy one get one free offer.

The Law:

Marketers are required to disclose all costs, including processing and handling fees and sales or bargain claims and must be based on bona fide comparisons. Claims such as “Buy one, get one free”, “Buy one get another for half price”, “Suggested retail price: $25. Our price: $5.95”, “Yours for only $95. You save $50” are ubiquitous but unless those pricing claims are strictly true, they can violate Section 5 of the FTC Act as well as many state laws.

The FTC Guides against Deceptive Pricing set forth certain principles: 

  1. Comparisons of the sale price to a former price must compare against a former price which is bona fide and which has been offered for a substantial period of time in the near past.
  2. The price comparison must be made against comparable products.
  3. “Suggested retail price”, “MSRP” or “List Price” does not change the analysis: the resulting claim of a bargain is deceptive if the product does not sell for those comparative prices in the marketplace of the seller.
  4. Bargains based on the purchase of something else requires literal accuracyIf the original selling price is increased, or if the size or quantity of the bargain-priced product is reduced, to make up the difference in the regular price and the bargain ‘two for one’ or ‘buy one get one at a reduced cost’ offer, that is deceptive.
  5. False claims to explain a sale price such as “going out of business” or “limited time offer” are common advertising gimmicks but must be true or are likewise deceptive.

Takeaway:  

Make sure that your sales price claims are truthful and based on legitimate properly comparative facts.

GDPR: New Guidelines Adopted For Jurisdictional Reach

There is good news for U.S. entities on the privacy front: on November 16, 2018, new draft guidelines were adopted in the EU to provide clarity with respect to the territorial scope of the GDPR, namely how the law will be applied to business entities located in different parts of the world (for our purposes, the United States).

To remind those that need a primer, GDPR went into effect in May 25, 2018 and imposes significant requirements on “data controllers,” (entities that determine the purpose and means of processing personal data), and “data processors,” (third-party businesses that process data on behalf of data controllers). The reach of the law covers entities both within and outside the EU if the organizations: (1) offer goods and services to persons in the EU; or (2) monitor behavior of individuals in the EU.

Since almost all businesses with an online presence profile or monitor the behavior of all visitors to their websites, the jurisdictional reach of the law seemed overreaching, but also seemed clear in its intention. Given the severity of the penalties for violations of the GDPR, this was not good news for U.S. businesses who collected data from individuals in the EU without targeting them intentionally.

Thankfully, the guidelines clarify which entities are considered within the EU and which entities located outside the EU are subject to the GDPR. The guidelines provide, in part, that a data controller located outside the EU will not be deemed to be an EU-based entity for the purposes of GDPR merely because that controller’s website is accessible in the EU. This is wonderful news. There are nuances, of course: you need to analyze your presence, if any, in the EU (even if you have just one employee in the EU); and you also need to ensure you are not “targeting” individuals who reside in the EU. Targeting can be done by offering goods and services to individuals in the EU regardless of whether or not money changes hands, or by specific monitoring of such individuals.The guidelines also clarify that if a data controller is located outside the EU but uses an EU-based processor, that alone will not make the data controller subject to the GDPR. However, the EU-based processor in this situation will be subject to the relevant GDPR provisions that apply to data processors. And, in this situation, the data controller must still ensure, by written contract, that its data processor processes its data in compliance with the GDPR. Therefore, knowing who is touching your data and where it resides is still a critical business concern.

Similarly, if you are working with a data controller who is subject to the GDPR, it is still necessary for that data controller to ensure by contract that you will process the EU data controller’s data in accordance with the GDPR. Therefore, if you are processing data for clients in the EU you should be prepared for your clients to require that you be contractually bound to various GDPR requirements.

This is merely a brief summary. In order to truly know if your data activities are subject to the GDPR, and the potential liability under that law, it is still advisable to data map and know what data you collect, share and store and where that data resides. If you want to discuss whether you are subject to the GDPR (or how to ensure you are not), feel free to reach out to me.

VISA Delays Enhanced Descriptor Requirement Until April 2021

VISA has announced an Emergency COVID-related Operational Business update. The announcement delays VISA’s enhanced descriptor requirement until April 2021 with proactive compliance enforcement put on hold for the time being. All other aspects of the policy including clear T&Cs upon enrollment, reminder notification, and online cancellation remain in effect as of April 18, 2020.

REFRESHER:

As we have previously outlined, here are the new requirements VISA first announced in October 2019. The rules apply to not just free trials but also introductory or discounted offers that convert to regular pricing. They will not apply to stepped-up pricing if the first term is not touted as being a promotional or introductory rate. That said, VISA encourages all merchants offering negative option plans to consider and follow the rules as a “best practice.”

Enrollment Disclosures:  

Prior to this month, VISA rules required merchants offering a negative option transaction to obtain a consumer’s express informed consent to the offer by disclosing all purchase terms and conditions before initiating the initial transaction, including:

· The name of the merchant,

· A description of the goods and services,

· The transaction amount and date(s) for recurring charges,

· The length of any trial period after which the consumer will be charged for the

· goods or services if not canceled, and

· The merchant’s cancellation policy.

The revised rules require merchants to provide enhanced enrollment disclosures which also includes:

· The name of the merchant

 . A description of the goods and services

· The transaction amount and date(s) for recurring charges

· The length of any trial period after which the consumer will be charged for the goods or services if not canceled

· The merchant’s cancellation policy

· That the consumer will be charged unless they take steps to cancel subsequent transactions

· The transaction amount and transaction date for the initial transaction (even if no amount is due)

· The last four digits of the account number to be charged (which is impossible to do if you don’t have the card yet so we are waiting for clarification, but which was apparently always required under Visa’s current stored card requirements)

·         Instructions for an easy way to cancel the agreement or subsequent charges

Express Informed Consent: 

Under the new rules, if the initial transaction is an Electronic Commerce Transaction (i.e., online or via mobile app) all of the above information must be clearly visible on the checkout screen, and the consumer’s express informed consent must be obtained via a “click-to-accept” button on the checkout screen

Notices Required To Be Sent Post Transaction:

· Transaction Receipt: The current rules require a merchant to provide consumers with a receipt of the transaction containing a description of the purchase. The revised rules will require merchants to include all the revised enrollment disclosures noted above. This is probably already done by most of you. If you are not already adding the last four digits of the card being used this is now required on this receipt.

· Additional Notices: The revised rules will require merchants to send a written notice to consumers containing the revised enrollment disclosures at least 7 days prior to initiating a subsequent payment transaction after the Promotional Term is going to end. This is in addition to the initial transaction receipt. This additional notice must also be sent any time the price is changing, or other terms of the agreement have changed, (in which case the additional notice must include the changed terms).

· Combined Transaction Receipt and Additional Notice: Visa has indicated that if the Promotional Term is 7 days or less, the transaction receipt and additional notice can be one and the same document. Whether any Promotional Term that is more than 7 days would enable a combined transaction receipt/additional notice is still unclear, but Visa has indicated that a 30-day Promotional Term would not be sufficiently short to avoid having to send both a transaction receipt and the additional notice. Again, this additional notice has to be sent no less than 7 days before the end of the Promotional Term.

Method of Dissemination:

If a consumer’s consent to future transactions occurs on a website or via a mobile app, the receipt/confirmation and future notices must be sent by email or text, which may be problematic for transactions conducted by phone or through mail order where an email address or mobile number may not be collected. To date, VISA has not articulated what it expects under these circumstances. 

Billing Descriptors:

This requirement VISA just postponed to April 2021:

After the Promotional Term, the first full charge must include a billing descriptor that indicates it is the end of the initial term/offer. The suggestion provided by Visa was 8 characters “endtrial” – but with only 25 characters to work with and with “trial” not being applicable to all promotional offers this could be confusing.

Cancellation:

Merchants must provide a simple way for consumers to cancel to avoid future charges. If the notices required are sent via email, the notice must contain a link to a page on the merchant’s website where the agreement, order, or any subsequent transaction can be easily canceled. This mirrors the requirement for Wash DC. The online cancelation is required regardless of how the consumer signed up for the products or services.

Automatic Renewal Protections Act of 2019

Regulation of automatically renewing contracts is continuing at the state level with Washington DC. The law which originally passed in March of 2019 has now been funded and will take effect in October 2020. 

The Automatic Renewal Protections Act of 2019 now stipulates new requirements, including a second opt-in for contracts that include a free trial before charging the consumer for the automatically renewing paid term. 

Here are the details:

  • The law requires businesses that offer a product or service to disclose the automatic renewal clause clearly and conspicuously in the contract along with the cancellation procedure. 
  • If the initial term of the contract is 12 months or more and the contract automatically renews for a term of one month or more the seller must send a renewal notice.
    • This notice has to be sent even if, for instance, a first year annual term subsequently renews monthly.
    • The annual notice must be sent no less than 30 days and no more than 60 days before the first cancelation deadline for the first automatic renewal and thereafter annually.
    • Notices which are sent by mail must be sent by first class mail. 
    • If renewal notices are sent by email the notices must include an active weblink to allow the consumer to cancel the automatic renewal.
  • The law requires that an offer which includes a “free gift or trial” must include a clear and conspicuous explanation of the price that will be charged at after the trial ends, or the manner in which the pricing will change upon conclusion of the trial.
  • If a contract provides a free trial of one month or more which automatically renews, the seller must send a notice no later than 15 and no earlier than 30 days before the expiration of the free trial.
  • The law also requires that the seller obtain affirmative consent to the automatic renewal separate from the consent to the free trial prior to charging the consumer. There are potentially different interpretations as to when this “second” opt in can be obtained.

The law will apply even to contracts entered into before the effective date. That will require renewal notices where applicable.

Auto-Renewal Worst Practices: How NOT To Violate The Law Or Lose In The Court Of Public Opinion

The recent avalanche of revelations about the unfolding disaster that is the Equifax data breach debacle includes a cautionary tale for subscription businesses that use automatic renewal.

There’s plenty of advice out there on “best practices” for running a business. But when a major scandal exposes remarkable malpractice, it can be an illuminating case study in “worst practices.” Well, as news continues to break about a huge database hack that has exposed literally half of the United States and Canada to identity theft and worse, it offers an excellent object lesson in how not to handle crisis management, how not to handle personal information, and how not to use your subscription service to profit from your victims.

One of the top three credit reporting services, Equifax, has been the target of a huge theft of data. Personal information for 143 million people has been compromised, including names, address histories, tax data, and social security numbers. That includes credit card numbers for about 200,000 people. Experts say that if you have a credit history, you should assume you are affected. The news is all over the Internet, but a good place to start is this New York Times article. Also check out this article in ArsTechnica by Dan Goodin: Why the Equifax breach is very possibly the worst leak of personal info ever.

Okay, so the hack itself is very bad news, but this story just gets more disturbing. From the top, let’s stipulate that Equifax has made mistakes that boggle the mind — and suggest malfeasance. Consider:

  • The company has already had three prior data breaches, in 2013, in 2015, and in 2016. This history of data breaches suggests a lack of attention to basic security. We do not know what the company did after these breaches to improve security, if anything,
  • We do know that after these hacks, Equifax lobbied to weaken consumer protections after data breaches, according to a report in the International Business Times.
  • The company discovered the latest breach but did not announce it for five weeks. During that time, the company allowed three top executives to sell $2 million in stock. Later, the company said the execs, including the CFO, “had no knowledge” of the incident beforehand, according to Business Insider.
  • Also after the breach was discovered but before it was made public, Equifax CEO Rick Smith was named to the Atlanta Business Chronicle’s list of Atlanta’s Most Admired CEOs of 2017. In an Aug. 1 interview, Smith was asked, “What are the keys to CEOs building a high level of trust in their organizations?” He answered, “Transparency, candor, consistency, and humility.”
  • After the hack was announced, Smith said he was “disappointed” in a tone-deaf apology; Equifax went on to flub its social media response, too. See Davia Temin at Forbes.
  • The company’s public response was to launch an insecure, phishy-looking website where people could find out if their data had been compromised. Dan Goodin explains all the things Equifax did wrong implementing this:
  • “What’s more, the website www.equifaxsecurity2017.com/, which Equifax created to notify people of the breach, is highly problematic for a variety of reasons. It runs on a stock installation WordPress, a content management system that doesn’t provide the enterprise-grade security required for a site that asks people to provide their last name and all but three digits of their Social Security number. The TLS certificate doesn’t perform proper revocation checks. Worse still, the domain name isn’t registered to Equifax, and its format looks like precisely the kind of thing a criminal operation might use to steal people’s details. It’s no surprise that Cisco-owned Open DNS was blocking access to the site and warning it was a suspected phishing threat. (Update:The whois records were updated on Sunday and now show the domain is registered to Equifax.) Another indications of sloppiness: a username for administering the site has been left in a page that was hosted here.”
  • If users actually try to use the site, they are required to enter the last six digits of their social security number, and they are offered a free year of security monitoring through Equifax’s TrustedID Premier service. But in the fine print of the service terms, users agreed to waive their rights to sue, according to MarketWatch. The outrage over this was widespread on Capitol Hill, and the company responded by altering its terms.
  • Many users of the site complained, according to Fox Business News. “Consumers said they were still receiving erroneous and confusing responses. Some said they made up fake last names and social security numbers and received responses from the site that suggest it didn’t recognize they were fictitious identities.”
  • Equifax set up a phone hotline, but it connects callers to a third-party subcontractor with support staffers who do not actually have any answers and who just direct users to the website, as reported by USA Today. Equifax says it has since increased its call center staff to 2,000.

Okay, sure, Equifax has made many mistakes and has even engaged in what BoingBoing’s Cory Doctorow calls “gross misconduct.” So what? What’s the lesson for subscription businesses?

Let’s go back to that free year of security monitoring that Equifax is offering through its TrustedID Premier service. That’s a subscription service. Those who want to take advantage of the free year have to submit credit card data, and after the year is up, they are automatically renewed and charged for the service.

In an interview with TheRealNews.com, William K. Black, a professor of economics and law at the University of Missouri Kansas City and author of The Best Way To Rob A Bank Is To Own One, puts this in perspective:

They also said, “Hey, this is a chance to make money on the victims.” It turns out, if you sign up for this one-year of free protection, it’s automatically renewed, and they charge you for it after year one. Again, they know that if they do this to some tens of millions of people, that most people will simply not track that it’s a year later and that they have to kill this protection, and so they’ve turned this massive abuse, this greed upon greed upon greed, into yet another opportunity to make money off the customers who they’re treating in the most atrocious fashion possible. This is like a bad novel that someone wrote who hated corporations, except all of it’s coming from the senior leadership of the corporation.

That’s a clear illustration of the skeevy underbelly of the automatic subscription renewal business model: Users who sign up for free trials often do not opt out before the trial period expires, and they end up paying for service that they do not want and likely are not using. It is a business tactic that relies on human fallibility, not on providing a service to satisfied subscribers.

A poll by CreditCards.com and Princeton Survey Research Associates International released last month sheds some statistical light on the issue. Some highlights:

  • 35% of respondents have enrolled in automatic payments without realizing it.
  • 42% of consumers said it’s difficult to turn off recurring charges.
  • Gen-Xers (44%) and millennials (37%) were mostly likely to get hung up in automatic payments.

The Equifax example is particularly predatory because few users recall that an annual billing date is coming up. But the business practice is not especially rare. Gym and fitness subscriptions are notorious for this. For example, consider this report in the LA Times, filed a few weeks ago: Santa Monica fitness brand Beachbody is fined $3.6 million over automatic renewals.

In response to growing outrage, consumer advocates and legislators are taking action. As reported in the LA Weekly and here at Subscription Insider, bipartisan support for a new California law means that soon it may be illegal to use these bait-and-switch trial subscriptions. Subscription Insider Guide to Subscription Regulation and Compliance, Lisa B. Dubrow, Esq. writes:

  • The law would require that any offer that includes a free gift or trial include a “clear and conspicuous explanation of the price that will be charged after the trial ends or the manner in which the subscription…pricing will change upon conclusion of the trial.” The law will also require that any offer that is accepted online also be able to be canceled online, “including a termination email formatted and provided by the business that the consumer can send to the business without adding additional information.”

Clear pricing info and easy cancellation are practices that subscription service marketing execs can embrace when they are confident that their product is compelling and offers real value to subscribers. The opposite is what a consumer advocate quoted in the LA Weekly refers to as a “scam”:

You subscribe to a magazine or join a gym for a special rate and months later realize you’re paying a lot more for renewals. And those fees keep hitting your bank account while you try to figure out how to make it stop. “This is the kind of classic, everyday scam that drives people nuts because we’ve all had this experience,” says Richard Holober, executive director of the Consumer Federation of California.

The LA Weekly report also notes that “the law would also require three to seven days’ notice when a company is about to hit up your account for a renewal.”

Under an existing California law, Peet’s Coffee is currently facing a class-action suit based on the company’s automatic renewal subscription, reports Law360.

The fight against misleading subscription auto-renewal is not limited to California. The FTC is now in court suing DirecTV for $4 billion dollars for deceptive subscription pricing. According to Ad Law Access, the FTC alleges “DirecTV misled consumers by failing to disclose that it would raise its monthly subscription price after a consumer subscribed for three months, and then again after a year.”

The FTC is also working to shut down a seller of tooth-whitening products. Operating through more than 50 firms all helmed by the same person, Blair McNea, these sellers offer very low-cost trials and then ramp up the bills. According to Lexology.com:

  • The McNea-directed companies created websites that charged visitors small fees for supposed one-time trial offers of a tooth-whitening product, but which wound up enrolling consumers in a negative option scheme whereby consumers would be charged monthly fees thereafter unless they canceled. While the sample prices could be as low as $1.03, the monthly fees could reach $100 until the consumer affirmatively canceled the plan. In addition, the websites would often double-enroll customers in two separate negative option schemes. Required disclosures of the terms of the agreements were often posted in tiny, grayed-out text on the bottom of the sales web pages.

Both of these FTC actions were launched under the aegis of the Restore Online Shoppers’ Confidence Act (“ROSCA“). The federal law refers to automatic renewal as a “negative option.” One law firm describes the law this way:

  • A “negative option” feature is a provision in an offer to sell goods or services under which the consumer’s silence is taken as an acceptance of the offer. It is improper to utilize a “negative option” feature unless the seller satisfies the following requirements: (1) clearly and conspicuously disclose all material terms of the transaction before obtaining the consumer’s billing information, (2) obtain the consumer’s express written consent before charging the consumer, and (3) provide a simple mechanism for the consumer to stop recurring charges.

As public opinion builds against auto-renew trickery, complying with the ROSCA requirements becomes not only a sound legal strategy but a way to follow best practices for building customer loyalty and pre-empting social opprobrium. 

Insider Take

Customers are becoming increasingly intolerant of auto-renewal business practices that take advantage of human weakness to “trick” subscribers into continuing to pay for services they do not want or need. That intolerance is being expressed through public outrage, enforcement of existing consumer protection law, and forthcoming passage of more laws. In the aftermath of a consumer-service debacle such as Equifax’s data breach response, it behooves all subscription execs to make sure they are not following in Equifax’s disastrous footsteps.

Subscription Payment Trends: 7 Trends That Will Impact Your Recurring Payments in 2020

What are the trends and issues that will impact your ability to get paid by your members and subscribers in 2020? In this on-demand briefing we:

  • Examine trend data to help you understand how your business needs to navigate 2020.
  • Discuss other key emerging issues in 2020 to prepare for.
  • Walk through tactics and best-practices your business should employ to mitigate any negative impact from these trends.

If you operate a subscription or membership business – regardless of subscription vertical, industry, consumer focus, or transaction volume – your revenue is impacted by payment trends and market dynamics happening right now. And, if your business is still operating with payment best practices from 12 months – or even 5 years ago – you are leaving money on the table. This briefing will help you understand what you need to learn and plan for so you won’t leave money on the table from involuntary churn.

A Bit of History

So as we’ve entered a new decade, I thought we would look back a little bit over the past year to get a brief history lesson. Everyone loves the subscription economy, which is wonderful news for all of us here. Consumers have adopted it in droves. Hard brands have been changing regulations to help support services and improve the experience for merchants and for consumers and tech companies are diving in to solve additional needs. Over the past decade, M commerce has exploded as phones have become multipurpose tools. Earlier phones like this one were very small, often didn’t even have full keyboards and made it very difficult to transact by mobile device. Newer phones obviously are kind of one stop shop devices for consumers to really do everything and manage everything in their lives on enabling transacting on mobile devices wherever they may be much simpler.

In 2007 Netflix added streaming content, which blazed the path for a shift to OTT as an option for TV and movies and then Dollar Shave Club became a major disruptor with its launch in 2011. From here, the subscription model rapidly expanded to include replenishment, access and curation models that are now the norm. Also, digital subscriptions have grown with an increase in gaming with content and particularly as some print publications are switching to either digital only or digital plus print. But the more things change, we are still seeing some similarities and the early 2010s we had massive data breaches. Prepaid cards began to pose a retention problem and American spent to their credit limits causing declines for insufficient funds. Now there are breaches. One was just announced two days ago, I believe Wawa had about 30 million cards breached that are not for sale on the black market. Invasive fraud is also expanding now. Prepaid cards are gaining rapidly in usage, but there are better detection tools for them and a booming economy means higher limits, but Americans are still spending to those limits.

When we look at approval rates from 2010 and 2011 versus 2019 this was across the subsection of PLC clients. We see a lot of it is very similar. Amex and Discovers still remain higher approval rates. Overall, not a lot of influxion in 2019 but we do see in general the approval rates are slightly lower now than they were back then. Although that is largely due to an increase in retry attempts and adding in additional decline responses that we traditionally were not retrying. Now we are and we’re seeing great success with some of those decline responses.

TREND 1: The Age of the Customer

So our first trend is this is the age of the customer. Competition has been fierce and is only increasing, [inaudible] subscribe and save on Amazon and pretty much everywhere else. Auto replenishment on just about every usable product on most retailers, box subscriptions for everything under the sun. It means you’re likely not the only one in your category.

There are more than 3,500 subscription box companies in the US not even accounting all of the other continuity services such as streaming media, gaming content and more. All of this can be overwhelming for a consumer and they have multiple options to get what they need, wherever they wish. If you’re playing to win in the space, the best way to thrive is by offering stellar customer service, meeting the subscriber where they need you and allowing the ultimate flexibility in your subscriptions. This means many of the traditional models and even technology platforms made no longer contribute to your success. The customer is always right. That old [inaudible] rings true still. Allow customers to pay when and how they want. Installment billing is on the rise. It’s been very popular around the world and it’s now becoming more popular in the US, alternative payment methods and wallets are all options to consider to help increase conversion.

Also, it’s becoming increasingly important to allow your customer to self-service, allow them to upgrade, to downgrade, to pause, to change frequency. If you have a food company, for example, someone’s on vacation for a week, they might not want to receive it. Allow them to shift even with print publications. If you’re going to be on vacation or if you’re feeling overwhelmed with things in your mailbox, you might want to pause, allow consumers to do that and allow them to do it themselves. Also, becoming very important is allowing customers to cancel by text or email or online. Financial institutions agree with this and they have actually enacted some different regulations now, more coming in April where they’re requiring more disclosures in the conversion path, more communications before billing and restrictions on free and low intro trials. So you’ll have to inform the customer more beforehand as well as make sure you communicate with them before you bill them after the free or low intro trial and allow them to cancel simply through an email or through a text.

The card brands are now implementing these regulations which are more stringent and similar to laws that have been rolled out in multiple States like Vermont and California, and we can expect that trend to increase. There are almost as many apps to help manage and cancel subscriptions as there are subscription companies these days. So when you’re offering your consumers complete flexibility and self-service, they’re going to be less likely to resort to using these types of tools more comfortable coming to you, and then you’ll have an opportunity to actually keep them in there without letting them go and cancel the whole subscription. So if you allow them to change their frequency, or changing their next scheduled billing date, then they’re going to be more likely to stay with you.

It’s important to understand your volume by issuer as well. Capital One for example, offers a tool for their card members to cancel subscriptions and manage their subscriptions online. As a second leading issuer in the US they likely make up a large proportion of your subscriber volume. So by making the subscription, tailoring experience as simple as possible for your customers on your site, you’re allowing yourself the opportunity to retain them in some capacity.

TREND 2: How People Are Paying

People are paying differently now. We can see this is a through 2000 to 2015 debit cards have gone up, credit cards have gone up, ACH is increasing slightly, paper cheques have obviously decreased. Consumers are getting away from that and prepaid debit cards have increased quite a bit. That has actually grown quite a bit more since 2015. The reasons for the increase in prepaid card usage are primarily related to un-banked and to debt-averse consumers.

About 8% of US households have no bank at all, which equates to about 17 million adults. Another 20% are under-banked. Recently New York City has joined Philadelphia and San Francisco in banning cashless stores in order to ensure that the 25% of the city’s population who are unbanked can still transact. Other cities, including Chicago and DC are going to follow suit. Your card not present eCommerce store is essentially a cashless place, so you need to also ensure that you have an opportunity to allow these consumers to transact if you want to have them as customers. But the fact that these laws are coming about really highlights how pervasive the unbaked population is. In some cases you might want to prevent prepaid cards from coming in. Some acquirers or gateways offer prepaid cards screening. That’s one size fits all.

But with these types of consumers and the growth in prepaid, there are different types of prepaid cards being used now. Your business may be one that appeals to an under-banked demographic or to people using government benefits card or payroll cards. So if you’re blocking all prepaid cards, it might not be an effective strategy any longer and it might be causing you to lose out on revenue and customers. There’s also a different type of consumer who’s using prepaid cards while they’re embracing subscriptions for convenience and things that they know they want and need. There’s still is a reluctance for some consumers to commit to a longterm relationship. So oftentimes prepaid cards are used to enable dabbling with your service. Your initial offer can make you more or less susceptible to these gamers.

These may be the scenarios where you wish to block the prepaid card usage, so it’s important to understand whether cards are reloadable or non-reloadable or what type of prepaid card the consumer is using, whether it is a payroll card or a social security card or something in that nature. When we look across PLC’s clients at auth rates by issuer, we can see some of the key prepaid issuers here having very low response rates, very low approval rates. And so if you look for example at Comerica bank, the overall approval rate for the quarter was around 15%, 20% that includes social security cards because they are the issuer for social security benefits. If you have an older demographic, you don’t want to block all of those. If your acquirer or your system is only blocking by all of prepaid, you might be missing out on a demographic that could be doing well while there are others within that brand that you do wish to block.

TREND 3: FinTech

FinTech is the buzz word of tech and finance merging. What we see with FinTech is a few things. The pervasive pays. FinTech is enabling new ways to pay and making payments easier. Tech companies are expanding into banking services and banking companies are focusing on growth in tech, so banks saw that growth with peer to peer payments via Venmo and they quickly banded together to create their own solution called Zelle. This crossover between tech and finance has been contributing to ramp an M & A in the space and the developments in tech have also enabled new ways of commerce including voice and even incur commerce to gain ground. If we focus on the pays first, you can see the payment methods used in 2018 the stored card is still the highest, PayPal at 22% has actually grown a bit in 2019 and the other pays combined averaged about 10% of overall transaction volume in 2018.

The question on which pay to take varies based on your demographic, but Apple pay has about 400 million users globally continuing to grow as acceptance in contact those payments increase. However, Apple pay historically was more of an in person contactless transaction, so using it at Starbucks, using it for your mass transit. PayPal just announced yesterday that they now have 300 million active accounts. They do have nearly two times the conversion and checkout versus any other wallet. All of the pays have global reach and can make cross border shopping easier for your customers. While let’s behave similarly to credit or debit cards because they’re funded by credit cards and make accounts. Historically, merchants have been reluctant to accept these payment methods because consumers could cancel directly in the wallet, but now with sophisticated consumers canceling without contacting you anyway, you may as well go ahead and accept them.

The upside to taking the pays is that these wallets have multiple funding sources available, so if one payment method fails, they can go to another. They can look at the different cards or bank accounts that are attached to that wallet and try different options. Additionally, consumers are motivated to keep their payment methods current within their wallets because they’re using them in more than one place. As we look at the leading peer-to-peer facilitators, both companies are showing the same growth trend, but Venmo as the first in the space is definitely leading in volume. In Q3 of 2019 Zelle had 196 million transactions. Venmo had 27 billion transactions in that same time period.

For a few of the companies that are really tech first, and we’re looking at Venmo and Apple, they’ve actually both launched their own cards. Venmo actually just announced today that they’re just going to be by visa, so this graphic will change, I assume, but both will be accepted wherever Visa and MasterCard are accepted. Venmo’s card is tricky. It’s funded by peer to peer payments, so when you’re a recurring business, they will only have funds on it when they’ve been paid by a peer. Unlike a regular debit card where you can assume it’s funded once payroll hits every other Friday or the 15th and 30th of the month, for example, a peer to peer type of payment, the Venmo card will only be funded if someone goes out to dinner with her friend, for example, and they split the check and their friend pays them by Venmo. There’s not a regular schedule to the replenishment of funds.

However, the Venmo card does allow for automatic reloads from an associated bank in increments of $10 assuming the cardholder has agreed to those terms in advance. So it could be possible to have funding come in, but it’s going to be a trickier one to tackle. Apple card is just a MasterCard issued by Goldman Sachs and it’s a credit card just like a regular credit card. They are offering cashback rewards that they’ll be delivering daily and can be transferred to an Apple pay account or it can be used in iTunes or the Apple store. And because it’s a credit card, there really aren’t any special considerations that need to be taken into account. But what could be useful information is if you see a lot of your users coming in using an Apple card and you’re not taking Apple pay, perhaps you would want to add that payment method as well.

Recent M&A demonstrates the fluidity of the tech companies and financial institutions coming together. As acquirer to a consolidating, they’re working to pull the best functionality from each of the companies. So if you’re able to benefit from one of these acquisitions, make sure that whoever you’re working with is bringing those synergies to your solution as well. V-commerce is a new opportunity and there are about 53 million people who have access to a voice-enabled device. About 40% of those are shoppers, currently, that’s primarily single sale, not recurring, but there are opportunities for the future to consider how you can translate those into subscriptions and how you can also add those to replenishment. The risks and the unknowns here are how will you get them to truly opt-in, what will be the requirements for voice opt-ins and the biggest unknown remains the fraud risk. There’s definitely additional exposure potential, but we don’t know what that will look like yet.

TREND 4: Card Brands Embracing Subs

Car brands are embracing subscriptions. They have been for a while, but they’re definitely making more strides. Visa announced actually in November at subscription show 2019 that they’ve changed their retry restrictions, which were previously up to four times over 16 days, now up to 15 times over 30 days. So they’re seeing the value in continuing and extending the retry process and extending the amount of times you can see if the card is good. They’ve also launched realtime account updater, which could bring updates to the forefront sooner so you don’t have to retry as long or you’ll get more update information. There’s also the new fairly new card on file indicator. A lot of merchants and acquirers are not ready for this yet, but those who have been using it have seen a slight uptake in approval rates for the card on file indicator, which really just shows that issuers do value the recurring transaction and they’re likely are to prioritize an approval on a recurring transaction than on a non-recurring.

What we’ve seen at PLC over the past three years, this is showing issue or participation. In 2017 74% of issuers participated in account updater, in 2019 that rose to 98% of issuers. We are expecting that to at some point reach as close to 100% as possible. So that is excellent news for everyone who relies on account updater.

TREND 5: Global Expansion

Digital content has fewer barriers to global entry than physical, obviously. So if you’re a digital company, you should consider expanding going globally. So an example from Netflix. Half of their revenues come from the US which means that half of them don’t. Growth in the U S has matured as they’ve reached a saturation point. Much of this growth can be attributed to price increases rather than incremental subscribers in the US but there’s much room for growth and rapid growth in global markets. The digital media growth in the world is expected to grow by 3.6% by 2024 but when we look at the growth in the US it’s only expected to be 2.4% increase and in Europe 3.2% so that means the rest of the world is responsible for most of this growth.

And that’s 3.8% growth for China was actually predicted before the trade deal with China was announced. The first phase of this trade deal has opened the opportunity for US card brands to obtain licenses in China, which they’ve never had before. So this will make it much easier for US-based merchants to easily accept payments in the sought after market. PayPal also just announced a deal with China UnionPay, which will enable PayPal merchants to accept payments from Chinese consumers who are using China UnionPay and it will also accept Chinese merchants to enact with American consumers. When you’re expanding globally, the challenge is knowing when to go local with presentiment and settlement. You should begin by testing regions and testing presentiment currencies. If your volume warrants it, you may decide to establish a facility in that region and then eliminate the cross border fees.

TREND 6: Evolving Fraud

Fraud has been evolving over the years. Bot attacks was still on cards and card testing are continuing. We saw a huge growth in that about two years ago and that hasn’t subsided too much, but new forms of fraud are coming on the horizon. These types, which first began as account takeover are now morphing into cell phone takeover. Account takeover was really predominant when Uber and Lyft began. You could buy credit cards on the black market for a couple of pennies and you could buy an Uber account for many dollars. It gives more information about that account holder. It gives personal information including passwords, usernames, email addresses and payment information. These types of attacks are actually making it much harder for fraud to be detected.

The new SIM card swapping is growing quite a bit. Jack Dorsey’s SIM card was stolen in August and Jeff Bay’s cell phone was actually just hacked into this month. So everyone is susceptible to this type of fraud and it’s very difficult to be detected. The biggest risk now is also what’s next. So what is on the horizon? What will the fraudsters come up with as fraud tools evolve? What will they come up with to counter those? Again, voice purchasing opens up an entirely new opportunity for fraud and we can expect this to continue. The good news is that fraud losses in terms of dollars have decreased in the past few years and they are expected to continue decreasing. This decrease is largely expected as a result of sophistication with broad tools, machine learning, being employed, and just general knowledge about what’s happening in the environment.

But we are still seeing bot attacks. So this is an example, a case study of one of our clients who was suddenly hit by car testers. The problem progressed, it was identified early, but it continued for a couple of months because the fraud prevention was being developed. They did not have a fraud strategy in place beforehand other than CVV potential AVS screening. So building this in took time while the car testers were still running wild with testing accounts and getting quite a number of them through. So as fraud continues to evolve, it’s really important to have that tech tool in place to prevent an attack. Despite efforts of issuers and card brands to reduce dispute volume, there was an upward trend in disputes over the past year. The primary reason is fraud, but this does also include friendly fraud. So again, communicate with your customers, offer them easy ways to cancel before they’re billed and check your billing descriptors.

So we recommend testing your billing descriptors personally across multiple issuers and even testing them in different media. For example, I recently looked at my charges via my bank’s app and then at my bank’s website and the same charges displayed different information. On the app there was no phone number or website on the website there was. So just test and see what’s out there. See what your consumers are seeing to help prevent any sort of friendly fraud.

TREND 7: Tech Stack

Making sure your tech stack meets your needs is also critical. Do you have a flexible billing system? Can your billing system allow you to have your customers self-serve? Are they able to change the frequency? Can they schedule their billing date? Make sure that your processor is a recurring focus processor, so you want to be sure that they understand recurring billing, that they are experts in recurring billing. Not all processors are created equal. Certain information, as we’ve mentioned before with the card type, different types of prepaid cards, funding available, the demographics of the cardholder, having flexibility in payment methods, having flexibility in presentiment, currencies and settlement currencies are all important.

The other thing you want to do is make sure that your billing system and your processor or your gateway have the tightest integration possible. So a billing system may have all the bells and whistles you need, but they might not be accessible with the processor you’re using integrated with them and vice versa. Your processor may do everything under the sun, but the billing system you’re using might not be able to access all of those rich features. The other thing you need nowadays in your tech stack is a purpose-built fraud solution. So there are a lot of solutions built into billing systems and built into acquirers, but a lot of those don’t cover what we’re seeing now. They’re limited, they’re more of IP testing or velocity checking. So having a machine learning purpose-built fraud solution, particularly for certain demographics or certain merchants that are most at risk is becoming increasingly important.

SUMMARY

So what does all of that mean for 2020 and beyond? Delight your customers offering flexibility and subscription terms. That’s a deep dive analysis into your card type and your payment method success. Determine your rules around prepaid and whether you should actually be blocking any or none or some. And then can you identify those which ones you need to be blocking? Add alternative payment methods if you don’t already add wallets, consider adding different currencies in different payment methods globally. Always you should adhere to issuer and state regulations on notifications and on terms throughout the shopping cart. Test the global waters or go deeper if you’re already there. Add tools purpose built for fraud detection and prevention and evaluate your vendor’s capabilities to ensure they can meet current and future demands. In the end it is still all about maximizing capture by minimizing churn while also mitigating fraud. So with that, any questions?

How to Minimize Chargebacks For Subscription Payment Processing

Chargebacks can be parasitic to your subscription revenues, forcing you to not only refund payments but pay steep fines to do so. In worst-case scenarios, your merchant account can be frozen, making it impossible to do business. Read on to discover the four ways chargebacks can affect your bottom line, how to handle the three main types of chargebacks when you should contest a chargeback, and when you don’t need to worry.

What are Chargebacks?

Chargebacks occur when a customer directly calls their credit card company, such as MasterCard, Visa, American Express, or Discover, to contest a charge. The credit card company then contacts your payment processor to initiate a refund. If a customer calls you directly to cancel a purchase/subscription or request a refund, that is not a chargeback.

Therefore, credit card companies consider chargebacks to be an indication of merchant malfeasance. However, they can also be indications of fraudulent activity by identity thieves (more on that below).

Chargebacks can be issued for credit, debit or pre-paid cards. They are not issued for PayPal accounts. Banks can stop-payment on a check, e-check, or line of credit, but this is not considered a chargeback.

4 Ways Chargebacks Affect Your Bottom Line

Chargebacks can affect your bottom line in four major ways:

  1. Admin Costs: For each chargeback, not only do you lose the money you thought you had, you also entail a fee from your payment processor for each chargeback. That fee can be as steep as $25 per chargeback. In addition to the fine, credit card companies can charge you a transactional fee. Plus, you’ll have to waste one of your employees valuable time by having him respond in writing to each chargeback notice.
  2. Lost Opportunities to Save an Account: If a subscriber calls you directly to cancel or receive a refund, a skilled customer service team can “save” up to 25% of these cancellations or refunds with special offers or personalized care that doesn’t harm your reputation. In today’s hyper-connected world, you want to make sure your cancels and refunds are satisfied customers as well.
  3. Account Flagging: Chargebacks are tracked for each type of credit card. Therefore, you can be flagged by Visa but not by American Express. Also, if you have multiple merchant accounts with a payment processor, chargebacks are tracked by each card for each account. So if one of your sites has a high chargeback rate, so long as you have separate merchant accounts for each site, your other sites/accounts should not be affected or flagged.If you receive a high number of chargebacks, credit card companies will usually flag your account as possible fraudulent, especially if you are selling virtual products and services. A flagged account usually gets fined and has higher processing fees going forward. In extreme cases, your merchant account can be frozen.
  4. What constitutes a “high” number of chargebacks can vary by credit card company or payment processor:
  • Visa: To be deemed a possible fraudulent merchant by Visa, you need 100 individual chargebacks in a month, and those 100 chargebacks should be 1% of more of your total transactions. If you have low volume–anything less than 10,000 transactions–you could hit the 1% rate and still be OK. Your chargeback rate is calculated by dividing the total number of chargebacks in a month by the total number of transactions in the same month.
  • Discover: Same process as Visa.
  • MasterCard: 50 individual chargebacks in a month will get you flagged by MasterCard. They don’t seem to have a 1% requirement like Visa and Discover, but they do take volume into account as well. MasterCard calculates a chargeback rate as the total number of chargebacks in a month divided by the total number of transactions in the previous month.
  • American Express: Has a complex algorithm based on volume of transactions and types of charges. It’s hard to get a specific number from them, but it’s estimated to be around 3%.
  1. Mergers & Acquisitions: If you are looking to sell your site or company in the future, your chargeback rate will be considered as part of the financial health of your company. This is a good reason to keep your chargeback rate under 1% if possible, says Paul Larsen, a leading payment processing consultant.

How to Handle the 3 Types of Chargebacks

When you receive notification of a chargeback by postal mail, the letter will indicate why the chargeback was requested. These reasons fall into three main categories, each of which is avoidable.

#1. Technical:

These types of chargebacks usually occur because of a software or clerical error, such as duplicate billing, incorrect amount billed, or not issuing a refund.

This is a stupid way to lose money. Make sure your technology is working smoothly and that your accounts receivable team has clear procedures for processing and auditing your revenues, as well as clear ways of handling refunds and cancellations.

#2. Customer Confusion:

Customer confusion is often a reason for needless chargebacks. Here are some of the most common reasons for confusion and solutions to resolve them:

  1. Customer claims they never received the goods purchased.
    1. If you offer a physical product, proof of delivery is usually enough to contest this type of chargeback, but it is a time-intensive task and you may want to forego the process. For online goods and services, you have little recourse; it’s best to refund the customer unless he/she does it on a repetitive basis, in which case you should contest. However, if you see someone is repeatedly buying a subscription and then cancelling, you can work with your tech systems to prevent them from making any future purchases.
  2. Customers feel they can’t access the online product or service.
    1. The #1 way to resolve this complaint is to email your subscribers their ID and password as soon as they sign up. You should also monitor how long it takes the usual subscriber to use the site, and if a new subscriber hasn’t used the site in that amount of time (maybe a day or week), email them their ID and password again.
  3. Customer is dissatisfied with product or service.
  4. Never use misleading marketing or advertising tactics that make subscribers feel like they’ve been victims of a bait and switch. You can also consider offering a money-back guarantee. Always make it easy to cancel (a cancellation is just lost revenue; a chargeback is lost revenue and a fine).Also, new subscribers are less likely to be confused if they are given a hard offer and no free trial. If you find that a lot of your chargebacks are due to customer confusion, consider changing your free trial to a non-refundable$1 trial. (See our Case Study about Subscription Site Insider‘s free trial for more information on this technique.) However, according to Larsen, “Visa and MasterCard have recently taken a strong position against $1 pre-authorizations,” which are refundable $1 trials. They have mandated the migration to $0 pre-authorizations, and there’s a nickel penalty for every non-$0 pre-authorization (called “Misuse of Authorization Fee”). Expect that fee to continue to rise until merchants convert to $0 pre-authorizations.
    1. If you see that a lot of chargebacks are coming from one affiliate, contact that affiliate immediately to see how they are presenting your product or services. If the high chargeback rate continues, end your affiliate agreement and refund all the charges made through that site.
  5. Customer can’t get in touch with a company to cancel a subscription (or they’re too lazy to do so).
  6. Credit card companies are supposed to check to make sure customer have requested a cancellation or refund before initiating a chargeback, but customers sometimes lie. Either way, you should follow these best practices:
  • Set up your Merchant Account with your payment processor so that the charge line has the name of your site (not your payment processer or parent company) and a phone number. For example, our parent company Anne Holland Ventures, Inc. has separate merchant accounts for each of our publications. When a customer buys a subscription to our sister site, WhichTestWon.com, his credit card statement will read “WhichTestWon 401-354-7555.”
  • Make sure a telephone number is listed on your site. Also, make sure someone answers that number, especially on the weekends and evenings, as that is when most people are reviewing their household bills. (A lot of times someone will call because their spouse doesn’t know they made the charge. Having a live person to resolve this will go a long way.)
  • Create a “Manage Your Account” section on your site so people can cancel without calling.
  • Send a notification to customer before renewal so that they know they’re going to be renewed and can cancel instead of issuing a chargeback. (Note that this last tip can lead to an increase in cancellations which otherwise would have continued to recur, so balance the risks and costs carefully).

#3. Fraud:

These types of chargebacks occur when a consumer tells their credit card company that they didn’t authorize the charge. This often occurs because the consumer is the victim of identity theft.

To prevent fraudulent activity on your site, require customers to enter the CVV code on their card (the 3-digit number on the back of Visa and MC cards, and the 4-digit number on the front of an Amex card). Also require they enter their billing address for verification. You should also be using an encrypted and secure server for all payment processing.

However, even if you follow all these best practices, you might still receive chargebacks due to fraud. That’s because of a technique called “carding” used by identity thieves, to which subscription sites are particularly susceptible. The thief looks to charge an innocuous amount on a stolen card to see if the card has been cancelled yet or not. Since the thief doesn’t need a physical product, just real-time processing, web site subscriptions and charitable donations are often used for carding purposes.

Some payment processors are aware of this technique. But one payment processor also told us that one merchant went from one to two chargebacks a month to 400 in one month because his site became known as a “cardable” site.

If you see these types of chargebacks dramatically on the rise for your site, upgrade your fraud setting instantly. If the problem still exists, cut off the source from which they’re coming, such as an affiliate or a certain country. The absolute last resort is to delay your credit card processing by one to two hours or even a day. That means your new subscribers won’t have instant access, but it will keep you in good standing with your payment processors — which can keep you in business. Consider sending new subscribers onboarding materials during the delay, such as a welcome video and/or personal phone call.

Getting Back in Good Standing

If you are flagged for too many chargebacks, your payment processor will usually call you to help you employ more of the best practices mentioned above. They should also review the types of chargebacks you’re receiving (Confusion v. Fraud), where they’re coming from (one IP address v. many) and your transactional volume.

Individual card issuers also have programs. For example, Visa issues a one month warning. If you continue to have high chargebacks, they will enter you into a “rehab” program and eventually begin to fine you. They may even terminate your account. MasterCard, on the other hand, will fine you right away and continue to fine you, not doing much to get you back in good standing nor ending your account privileges.

Should You Contest a Chargeback?

Every merchant has the right to contest a chargeback. If you’re sending something in the mail, and have proof of delivery, you will have a stronger case than if you have a virtual product. But it takes time to contest. And, as Larsen states, very little is to be gained by doing so since the loss of goodwill can hurt your reputation tremendously, especially in the online environment, where blogs and social media document customer dissatisfaction instantaneously and permanently.

Overall, prevention, not retaliation, will serve you best in reducing chargebacks.

To contest a chargeback you will need to gather all documentary evidence — such as proof of delivery, images of customer account set-up, and subscriber access logins. You’ll also need to do a screen capture of the payment authorization screens for the transaction in question. Contact your payment processor if you need guidance on how to access these screens within your particular system.

Once you have everything you can think of which might help you prove your case, complete the chargeback notice form which arrived in the mail. Mail or fax it back to the company processing your chargebacks (it may be a third-party vendor used by your payment processing provider). Frequently by the time the letter arrives at your office, there may only be a day or two left in the challenge window, so make sure you have a time-responsive system in place to deal with all chargebacks.

Processing a Chargeback

If you’re not contesting a chargeback, your payment processing will automate the deductions from your merchant account. Usually, refunds are given right away and fees and transactional costs are deducted on a monthly basis.

You should call your payment processor to find out how much they charge per chargeback and how much the credit cards you accept charge as a transactional fee. Also, you’ll want to watch your merchant account carefully and make sure there’s enough of a prudent reserve in it to cover these fees on a monthly basis.