Free Trial Rules & Subscription Billing Rules: Mastercard vs. Visa

Both Mastercard^® and Visa^® recently updated policies regulating negative option billing, subscriptions with free trials or introductory offers, and upsells.

Negative option billing is a recurring payment plan that continues until the customer proactively cancels the subscription, otherwise it is automatically renewed. And introductory offers usually provide goods or services at a discount for the first subscription billing cycle.

These sales methods are popular with ecommerce, mail order, and telephone order merchants. However, the tactics are heavily regulated by the card brands.

TABLE OF CONTENTS

• Mastercard & Visa Free Trial Rules Overview
• New Mastercard Negative Option Billing Rules
• New Visa Negative Option Billing Rules

Mastercard & Visa Free Trial Rules Overview

When it comes to free trials and negative option billing, Mastercard and Visa have the same basic goal: encourage merchants to communicate openly and honestly to improve the customer experience.

While the initiatives are similar, the card brands’ regulations have several significant differences. Merchants who process both Mastercard and Visa transactions should be aware of how policy expectations differ.

Check the side-by-side comparison for a high-level overview of the policies. For a more detailed look at free trial rules, as well as updates for each of these networks, continue to the sections below the table.

	Imagen	Imagen
Merchants impacted	Merchants with a negative option billing model, the nutra industry being a particular focus	All merchants who offer a free trial or introductory offer that turns into an ongoing subscription Merchants that offer up-sells Merchants who use negative option billing, with or without a free trial
Items regulated	Physical goods	Physical goods, digital goods, and services
Enforcement date	April 12, 2019	April 18, 2020
MCC Classifications	5968: Direct Marketing—Continuity / Subscription Merchants	5968: Direct Marketing—Continuity / Subscription Merchants Digital goods or content subscriptions can use MCC 5815, 5816, 5817, or 5818
Billing descriptor updates	Include the phone number (MO/TO) or URL where the customer shopped	Use the recurring payment indicator for the initial transaction Include “trial” or a similar phrase for the first post-trial transaction
Relationships with third-party service providers	Disclose all service providers with access to cardholder data (for example, CRMs)	Not specified
Trial start date	Trial must start on the day the customer receives the product, not before	Not specified
Timing of consent	After the trial has ended but before the card is charged	Before the initial transaction or the trial begins
Information disclosure	Merchant’s name Date and amount of subsequent transactions Cancellation instructions The date the merchant will attempt to charge the card again if the account has insufficient funds when the first attempt is made	Merchant’s name Date and amount of subsequent transactions Cancellation instructions Cancellation policy Description of the goods or services being offered Length of the trial period or introductory offer Clear disclosure that the customer will be charged unless subsequent transactions are canceled Date the trial begins or the initial transaction date (if applicable) Initial transaction amount (if applicable) Last four digits of the card being used for the subscription
Subscription confirmation or transaction receipt	Sent after the trial ends	Sent immediately after customer consent has been granted
Additional cardholder notifications	Sent after an approved authorization attempt Sent after an unsuccessful authorization attempt	Sent seven days before processing the first post-trial transaction Sent seven days before processing a transaction if the terms of the subscription have changed
Cancelation policy	Published on the website the customer shopped at	Available online, regardless of how the customer shopped Include a digital, self-service cancelation option, such as completing an online form or sending a text message
Disclosure of cancelation instructions	After the trial has ended but before the card is charged After each subsequent authorization request	Before the initial transaction or the trial begins Immediately after consent is granted Before processing the first post-trial transaction Any time subscription terms are updated
Written confirmation of cancelation	Required	Not specified
Trial-specific reason code	Not specified	If a transaction is disputed because the customer wasn’t aware of or didn’t agree to a subscription after the trial period, the issuer must use reason code 13.5 - Misrepresentation.
Compliance monitoring	Inclusion in the Mastercard Registration Program	Mystery shopping

New Mastercard Negative Option Billing Rules

Mastercard created these new policies because the card brand receives a significant amount of complaints about deceptive merchant practices. These regulations are meant to encourage merchants to communicate openly and honestly with their customers in order to reduce complaints and provide better customer experiences.

There are several new and noteworthy updates to Mastercard’s standards. We’ve broken them down into three categories.

Regulations Pertaining to New Merchant Account Creation and On-Boarding

There are several regulations that merchants and acquirers must adhere to when creating and registering merchant accounts.

Rule 1

MCC Classification

Merchants who use negative option billing will be assigned a card acceptor business code or MCC of 5968: Direct Marketing — Continuity/Subscription Merchants.

Rule 2

High-Risk Designation

Merchants who use negative option billing to sell physical goods — not services or digital content — will be classified as high risk.

Rule 3

Inclusion in the Mastercard Registration Program (MRP)

Acquirers must register all merchants who use negative option billing through the MRP to ensure compliance with new standards.

Rule 4

Disclosure of Contact Information

Merchants must share the following information in the appropriate ways:

• Ecommerce Merchants: List the website URL where the customer shopped in data element 43, subfield 1 in the dual message system. Also, share a customer service phone number on the maintenance page that will be displayed when the website is offline for software updates, scheduled maintenance, technical difficulties, etc.
• Mail Order and Telephone Order Merchants: List the merchant’s contact phone number — one that is valid and accessible worldwide — in private data subelement 0170, subfield 1 in the dual message system.

Rule 5

Disclosure of Third-Party Service Providers

As part of the on-boarding process, merchants must list all of their third-party service providers that have access to cardholder or customer data (such as customer relationship managers).

The merchant’s acquirer must register these service providers with Mastercard.

Regulations Pertaining to Payment Processing

Merchants and acquirers must comply with regulations during the trial period and beyond.

Rule 6

Trial Start Date

Mastercard stipulates that the trial period must begin on the date the product was received by the cardholder — not before.

Rule 7

Initial Payment Processing

a. After the trial period ends, but before the debit or credit card is charged, the merchant must reach out to the cardholder and share relevant information, including:

• The amount the card will be charged
• The date the card will be charged
• The date the merchant will attempt to charge the card a second time if the account had insufficient funds when the first attempt was made
• The merchant’s name as it will appear on the cardholder’s statement
• Subscription cancellation instructions

b. The merchant must obtain the cardholder’s explicit consent for the transaction amount before initiating the authorization request.

Rule 8

Subsequent Payment Processing

The initial transaction and all subsequent transactions must be processed with the same information.

The merchant ID (or MID) entered in DE 42 and the merchant name in DE 43, subfield 1 must match.

Rule 9

Unsuccessful Authorization Attempts

If an authorization attempt is unsuccessful, the merchant must send the cardholder a receipt and explain why authorization was declined.

Rule 10

Verification of Multiple Purchases

Acquirers must carefully monitor authorization messages. They need to be on the lookout for situations where a single cardholder account number is used to process transactions on multiple different merchant accounts.

If this repeat activity is noticed over a 60-day period, the acquirer must reach out to the merchants to verify the sales were bonafide transactions.

Documentation the merchant might provide to verify the transactions could include a copy of the cardholder’s receipt.

Acquirers must retain this information for at least a year and share it with Mastercard if requested.

Regulations Pertaining to Subscription Cancellation

Cancellation policies will have a significant impact on the future sales structure.

Rule 11

Disclosure of Cancellation Policy

All eCommerce merchants must list their cancellation policy on the website where the cardholder shopped. The policy must be easily accessible with a direct link.

Rule 12

Continued Reference to the Cancellation Policy

Each time the merchant submits an authorization request for a subsequent transaction with recurring billing transaction, a receipt must be sent to the cardholder via email or text message. The receipt needs to include instructions on how to cancel the subscription or negative option billing plan.

Rule 13

Cancellation Confirmation

The merchant must send a written confirmation to the cardholder when the negative option billing plan has been canceled.

New Visa Negative Option Billing Rules

Visa’s rules for free trials, introductory offers, up-sells, and negative option billing first went into effect in 2011. Since then, the card network has identified ways to enhance or complement existing policies.

As of April 18, 2020, merchants are expected to fully comply with all of the following rules.

Simple Cancelation Policies

Merchants must create clear, easy-to-understand policies and make it simple for customers to cancel subscriptions that automatically bill.

NEW

The cancellation process must include a digital, self-service option. For example, a customer should be able to fill out an online cancellation form or send a text message to the merchant. new

Visa’s goal is to make it as easy to cancel subscriptions as it is to unsubscribe from emails.

Disclosure and Expressed Consent

Before finalizing the initial transaction (or trial period), the customer must acknowledge the subsequent subscription and consent to recurring subscription payments via a “click to accept” button. If an up-sell is involved, the customer must consent to this additional purchase.

As part of the consent process, merchants must disclose the following information:

If transactions are processed from stored account information on a recurring basis, the following must also be disclosed and agreed to:

• How the merchant will notify the customer of any changes to the subscription
• How the customer’s stored account information will be used
• The subscription’s expiration date (if applicable)
• Transaction currency
• Merchant’s location

This disclosure needs to be separate from the general terms and conditions notification.

If the transaction includes an up-sell item, the name of the up-selling merchant must also be clearly listed in a way that differentiates it from the original merchant.

NEW

Transaction Receipt or Written Confirmation

Immediately after consent has been granted, the merchant must send a transaction receipt (if applicable) or some other form of written confirmation — even if the card hasn’t been charged yet. This needs to be sent in electronic format, either via email or text message.

The receipt needs to contain the following information:

• Confirmation that the customer has agreed to the up-sell, free trial, or introductory offer and the subsequent subscription
• Merchant’s name
• Description of the goods or services being offered
• Length of the trial period or introductory offer
• Clear disclosure that the customer will be charged unless subsequent transactions are canceled
• Date the trial begins or the initial transaction date (if applicable)
• Initial transaction amount (if applicable)
• Date and amount of subsequent transactions
• Last four digits of the card being used for the subscription
• Cancellation policy
• A link to allow the cardholder to easily cancel future transactions

NEW

Subsequent Notifications

In addition to the transaction receipt, there are two other types of customer notifications that merchants must send.

• Before the trial period or introductory offer has ended, the merchant must provide notification of the upcoming transaction before they attempt to bill customers.
• The merchant must also notify the customer if the subscription terms have changed. Examples of situations that would warrant a notification include, but are not limited to, a price change or an alteration to the billing period.

Notifications must be sent via email or text and should be delivered at least seven days before a transaction is processed. All communications should also include instructions on how to cancel the subscription.

Billing Descriptor

UPDATED

The recurring payment indicator must be added to the first transaction processed, even if the amount is discounted as part of the trial or introductory offer.

NEW

Also, the first transaction processed after the trial period has ended needs a unique billing descriptor. The merchant name must be updated to include a phrase such as “trial”, “trial period”, or “free trial” to help distinguish the transaction on the customer’s card statements, online banking, mobile app, text alert, etc.

NEW

Disputes

If a customer chooses to dispute the charge because they weren’t aware of or didn’t agree to a subscription after the trial period, the issuer must use reason code 13.5 – Misrepresentation.

Issuers should only use reason code 13.2 – Canceled Recurring Transaction if the merchant was instructed to cancel a subscription but didn’t.

NEW

Dispute Responses

Merchants can respond if they’ve complied with Visa’s new rules and a 13.5 dispute is invalid.

Compelling evidence must include both of the following:

• Proof that the cardholder agreed to future transactions
• Proof the merchant reminded the customer of the first post-trial transaction at least seven days in advance

How Visa Plans to Monitor and Enforce Rules

Visa’s latest announcement has several new regulations. However, the initiative seems to focus primarily on increasing awareness of existing policies and demanding greater compliance.

Visa states that “ongoing monitoring and enforcement are key” to the initiative’s success. At this point, it is unknown how noncompliance will be addressed, but the network promises to “undertake proactive monitoring and mystery shopping.”

Stay Updated as Free Trial Rules May Change

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Kount aims to simplify complexities for the entire payment ecosystem. If you have questions about these new Visa rules or want help making necessary changes, don’t hesitate to contact our team of payment experts.