If you are offering subscriptions on your website – it is essential to understand why your customers are reaching out to banks to claim their money back (chargeback).
Below you can find the most common chargeback reasons for recurring billing payments set by major card associations:
| Reason | Visa | MasterCard | AMEX | Discover |
| Cancel recurring payment | 41 | 4841 | 4544/C05 | 4541 |
| Credit not processed | 85 | 4860 | C10/C28 | AP |
| Transaction not recognized | 75 | 4837/4863 | 177/93 | 6021/7010 |
| Expired card | 73 | 4835 | F22 | EX |
| Fraudulent multiple transactions | 57 | 4840 | 176 |
So when does one of these chargebacks occur?
Cancel recurring payment
Cancel recurring payment happens when recurring transaction is being processed after the cardholder has requested termination, charge exceeded the predetermined amount, or merchant did not notify the cardholder 10 days before the upcoming charge.
Credit not processed
Merchant failed to credit the cardholder’s account after a return was made, merchant didn’t issue the cardholder’s credit or didn’t issue it in time for the credit to appear on the bank statement, or in case when merchant didn’t share the return policy with the cardholder at the time of purchase.
Transaction not recognized
The cardholder doesn’t recognize or remember the transaction, i.e. the cardholder did not recognize the merchant’s name or billing information on the card statement or the information listed on the cardholder’s statement was incorrect.
Expired card
A transaction was processed without authorization on an expired card, meaning that merchant have processed a transaction for a card that had been closed.
Fraudulent multiple transactions
The cardholder has made a purchase with you in the past, but this particular transaction wasn’t authorized (the cardholder was in possession of the card at the time) – merchant didn’t void multiple transactions or merchant tried to fraudulently process transactions.
Have in mind that by understanding why recurring billing disputes occur you could implement changes to your business in order to prevent similar disputes from happening in the future.
So how to prevent chargebacks from occurring?
Have multiple options to communicate with your clients
There are customers who, instead of instantly issuing a chargeback because they don’t recognize a charge, would first try to reach out to you. Therefore you should assure an easy way for these customers to contact you via email, chat or phone.
Additionally for recurring billing it is very important that you send notification before and on the day of billing to your customers. These notifications could be done via different methods among which the most common is via email. Implementing them reduces the number of customers who do not know when, why and for what they were billed for.
Use a recognizable company name
Another essential method to reduce receiving recurring billing chargebacks is by optimize your descriptor. Your credit card descriptor is the name that shows up on your customers’ credit card bills or online statements. Therefore is recommendable to list your legal name or your URL in order to avoid misunderstanding.
Subscription FAQ
Have in mind that as a subscription billing merchants you should have a part in your FAQ which should be dedicated to your subscription terms only. This FAQ should be frequently updated with the most recent changes in your terms and conditions and with the most frequently asked questions
Be flexible in offering your products
In order to avoid chargebacks caused by customers who did not use the service/product they paid for personalize your products according to your customer’s needs.
Display your subscription terms clearly
Another important thing is to display clearly in your terms and conditions all subscription billing terms on a visible for your customer or potential customer place. Additionally if you are offering a free trial provide your customer with an opt-in at the end of it.
Don’t hold onto your customers’ money
The longer that money is in your possession before your customers get what they paid for, the more time your customers have to issue a chargeback. Annual subscriptions and credit based billing models are examples that allow customers to deposit funds up front and then work off of those funds over time. These models tend to have a higher chargeback rate than those that bill customers per use at the end of the month. Billing after you’ve already provided your service reduces your chance for a chargeback.
Offer refunds
If customers are not happy with your product or service, they are going to get their money back one way or another, and the easiest way is by issuing a chargeback. Therefore in order to reduce their occurrence offer your customer easy options to receive they funds back specified in your refund policy.