Mastercard Compliance Requirements For Subscription Payments in 2022

September 4, 2022

Recurring digital payments have grown by double-digit percentages in recent years as consumers enjoy the convenience of auto-replenishment services and curated subscription boxes. In turn, subscription merchants, too, have benefited from steady recurring revenues.

However, it is seen that subscription payment auto-debits are witnessing rising customer objections and chargeback incidents. Common reasons behind this include friendly fraud, alleged merchant malpractice, and classic subscription fatigue. Data from Mastercard reveals that 60 percent of chargebacks filed with their network concerned subscriptions. Furthermore, 76 percent of these disputes cited unauthorized recurring transactions as the reason for filing a chargeback. 

Amid these developments, the leading card network, Mastercard, has intervened with regulatory updates for subscription merchants. The idea is to increase transparency and consumer confidence and reduce merchants’ multiplying chargeback burden. Below are the updated compliance requirements for merchants billing recurring transactions for physical and digital goods in 2022.

Mastercard Rules Update for Subscription Chargeback Prevention in 2022

The leading card network has released several new rules to introduce greater clarity in subscription billing. In addition to subscription merchants, these updates also encompass all merchants offering negative billing models like low-cost or free trials. They have come out in two parts and are required to be followed from March 2022 and September 2022, respectively.

Latest Mastercard Chargeback Prevention Measures In Effect from September 2022

Here are the Mastercard rules that merchants need to comply with starting in September 2022:

  • Merchants need to clearly outline the varied terms of any offers they are running, whether for a trial, subscription, or recurring billing plan. This information needs to be clarified at the point of payment.
  • The point of payment for eCommerce merchants means the final payment screen. This is usually where cardholders have to enter their card details to initiate a transaction. The point of payment may also include any other summary screens that outline the final order summary before a cardholder authorizes their payment.
     
  • In the interest of maintaining transparency between consumers and merchants, Mastercard with this update is banning the use of redirected links to the above information or embedding it further down a scrollable page. Either of these practices would be considered non-compliance. 

These updates are a sequel to the rules announced earlier this year in March 2022.

Mastercard Recurring Payment Rules Applicable from March 2022

  • Merchants must send out a clear confirmation whenever any customer enrolls for a subscription plan. This information can be in the form of an email outlining all the subscription plan terms. It needs to include the merchant’s cancellation policy and how customers can cancel should they wish to discontinue.
  • Whenever any subscription payments as per the policy are debited, merchants need to inform customers and supply them with a debit receipt. The cancellation details must also accompany this debit slip for the benefit of any customers who may desire to cancel.
  • For less frequent subscription plans, such as those with payment cycles of 180 days or more, merchants need to send payment reminders. These reminder notifications should be at least seven days before the due billing date. However, they shouldn’t be more than 30 days before the scheduled billing date.
  • Many subscription merchants offer negative billing options. They need to remind customers about the upcoming revised billing terms as the negative billing period nears its expiry. Merchants must send this reminder seven days before the billing date.
  • If a subscriber requests cancellation, the merchants must send a confirmation email no more than seven days after the date of cancellation.
  • For physical product merchants that are resuming billing at the regular rate after a free or a low-cost trial ends, there are now additional requirements to obtain explicit consent from the card holders.
  • For merchants offering free trials that exceed seven days, there needs to be a proper system of reminders. These should clearly specify that the subscription will be considered as continued if subscribers don’t explicitly cancel. Merchants must also send this as a reminder three to seven days before the trial ends.
  • All merchants must clearly specify how customers can cancel recurring payments online. This information needs to be visible and easily accessible, much like the unsubscribe button for an email newsletter.

What About Chargeback Prevention Updates on Other Card Networks?

Other popular card networks like Visa also intervened in the past to streamline the dispute-prone area of recurring payments. Visa’s last set of updates came around April 2020. 

The major credit card network’s updates mainly revolved around getting explicit customer consent for subscription payments. They also specified the need for merchants to send timely notifications to customers, including their consent details for enrollments and any transaction debit receipts. Visa also required its merchants to add specific statement descriptors for trial offer payments. Further, they added some expanded dispute rights for  “misrepresentation.”

Are These Updated Mastercard Subscription Rules Pro-merchant or Anti-merchant?

While these new and stricter card network rules imply greater investment in customer communications and customer service for subscription merchants, it’s likely to benefit them in the long run.

Based on the Justt customer survey on Customer Attitude Towards Chargebacks in 2022, 60 percent of the respondents in the U.K. and 55 percent of respondents in the U.S. said that they’re less likely to pursue chargebacks in the case of simple merchant refund policies. 

This means that if customers can cancel a subscription and quickly seek refunds from merchants, there should be a reduction in chargebacks filed. However,  these subscription rule updates do not in any way impact the chargeback representment process.

By following these updated rules around transparency, merchants should be able to lower their chargeback ratios and enhance consumer goodwill towards subscription businesses. A lower chargeback ratio means less chargeback fees paid, improving merchants’ bottom line, and less merchants losing their ability to process credit cards due to excessive chargebacks. Handling chargebacks can be a tiresome distraction for subscription merchants. It’s typically a manual process that requires expert knowledge of credit card network rules to ensure a high win rate. Focus on your core business operations and use a technology solution that leverages automation and AI to provide a hands-off experience with industry-leading win rates. To learn more about how to win chargebacks at scale download this whitepaper from Justt.

This guest post was written by Justt, a leading chargeback mitigation solution provider with vast experience in supporting businesses with a subscription-based payment model.