Mastercard to Scrutinize Health and Beauty Merchants – By Suresh Dakshina

by Sara Szado on April 16, 2019

This change was driven by a rising number of complaints from cardholders who felt they were misled by free trial programs featuring celebrities or offers that didn’t have clear terms and conditions of signing up for the free trial.

This was especially so for health and beauty products sold over the Internet.

Highlights of the MasterCard Mandates:

  1. Merchants need to inform cardholders the exact terms of sale, merchant name and the date of recurring charges prior to processing a sale.
  2. Instructions for cancellation need to be made clear and accessible to the cardholder, both on the website and in correspondence.
  3. When a cardholder cancels, the merchant must provide written confirmation of the cancellation so the cardholder knows their card will not be charged again.
  4. The free trial period must begin on the day the cardholder receives the product or service, not the day the payment clears or the day the cardholder registers for a user account.
  5. Companies that use negative option billing will be classified as high-risk merchants.
  6. Acquiring banks will be required to register negative option billing merchants through the MRP (Mastercard Registration Program) to ensure that they follow the new rules.
  7. Negative option billing merchants will be assigned merchant category code: 5968 Direct Marketing – Continuity/Subscription Merchants. These merchants must get cardholder authentication prior to processing their payment every time.
  8. Merchants cannot be involved in load balancing to offset high chargeback ratios or payment processing.
  9. Merchants can make up to four rebilling attempts only. If the card is still declined, the merchant must get written authorization from the cardholder prior to billing.

These new regulations don’t necessarily eliminate the benefits free-trial offer merchants provide to customers. Nutra merchants can take the following steps to continue their business model while remaining in compliance with the new Mastercard regulations.

  1. Bill cardholder upfront for the product they purchase and engage in continuity billing by offering shipping discount. This puts the merchant under category 5964, which doesn’t require merchants to get cardholder consent at the time of rebill.
  2. If a company continues to use free trials, they should introduce a “travel sized kit”, where cardholder can pay for the small sized version of the product upfront and provide shipping  discount  incentive  to  the  cardholder   to enroll in automatic recurring billing  where  merchants can sell regular size product at greater price.
  3. If a company still wants to continue with a full-blown free trial offer business model, they need to have a strong customer service program and stay in regular contact with their customers. One of the best ways is to use texting to notify customers at the time of rebill in addition to email communication.

Suresh is President of Chargeback Gurus and certified ecommerce fraud prevention specialist. This article appeared in issue 46 of FeedFront Magazine, which was published in April 2019. Visit here for the full edition.

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