Merchants, acquirers, processors, anti-fraud providers and others serving the card-not-present payments market met in Orlando, Fla. recently at the first annual CNP Expo. For our readers who were unable to attend the groundbreaking event, CardNotPresent.com will be offering glimpses of the important information covered in two-and-a-half days of panel discussions on a host of issues relevant to merchants that take card-not-present payments and the technology providers that serve them.
By D.J. Murphy, Editor-in-Chief
Subscription billing enables vendors to mitigate uncertainty and risk by assuring a predictable and constant revenue stream over a certain period. The business model was pioneered by magazines and newspapers, but, with the advent of e-commerce, it was applied to an ever-expanding range of products. At the CNP Expo, panelists weighed in on the different models leveraging subscription billing, how recurring payments are changing the nature of chargebacks and tactics merchants can use to make recurring billing more efficient.
While recurring billing was the exclusive domain of media companies until recently, the number of different products consumers can pay for using recurring payments and the number of different ways to structure those payments is mushrooming.
“You’re seeing some business models that are shifting things completely,” said Bill Rollinson, principal for CyberSource’s Managed Billing Services.
Rollinson cited a razor blade merchant that rode a monthly model and a quirky viral video to millions of signups and a California airline offering unlimited flights from San Francisco to Los Angeles if you pay a monthly subscription.
The ways you can pay have shifted as well, panelists agreed. But different payment models will result in different outcomes, so some experimentation will be required to determine which ones are right for your company, according to Mike Rodihan, treasury manager for language software merchant Rosetta Stone.
“We get significant lift by offering a five-pay program,” Rodihan said during the session. “So we treat that program different than we treat a subscription renewal. We get a higher chargeback rate on the installment plan than we get on our payment term immediate plan. It’s a cost of doing business and you have to pay attention to the math to make sure it’s still a good business decision.”
In regard to chargebacks, merchants in the recurring billing space need to be aware that changes by Visa and MasterCard now enable consumers to initiate multiple chargebacks on recurring payments with a single phone call, which wasn’t always the case, according to Scott Tivey, founder and president of consultancy CNP-Solutions.
“The rules have changed,” Tivey noted. “They have made it very easy for consumers to initiate chargebacks without having to fill out the forms and sign affidavits.”
But, rather than blaming consumers about elevated chargeback rates, Andre Malinowski, vendor service manager for ModusLink suggests companies look inward to solve the problem.
When chargeback rates increase significantly over a short period of time, Malinowski said, it’s “usually a refund problem. You have a problem with your customer service and not the shopper.”
One proven method for ensuring payment in a recurring billing model is for merchants to make sure they are using the account updater service offered by the card networks. Account updater enables merchants to make inquiries about declined accounts and automatically receive the new account information from the networks so they can continue billing the customer using their most recent account details.
“It’s the highest level of opportunity for [merchants] to elongate the recurring billing with the customer,” said Tivey.
While many merchants aren’t aware of the service, however, others that would like to use it can’t because the issuer doesn’t support it for that particular card, according to Robin Dupont, the former director of national account management for Chase Paymentech.
“Account updater for recurring billers is critical,” Dupont said. “The biggest challenge we have, especially in the U.S., is we don’t have full participation from either all Visa cards or all MasterCards.”
With all the different payment options available to e-commerce merchants and tactics to make recurring billing more efficient, the most important thing still is knowing your business and making an informed decision whether a recurring model is right for you, said Malinowski.
“Recurring payments are fantastic and really good to boost sales, but be very careful,” he warned. “Know your industry, know your product. No one can help you there.”
Stay tuned to CardNotPresent.com in the coming weeks as we present summaries and audio clips from the most exciting and relevant sessions at the 2012 CNP Expo. If you’re interested in being involved in next year’s event as a sponsor, exhibitor or attendee, contact Steve Casco at email@example.com.