Subscription Merchant Accounts Surge in Popularity, Remain High Risk

Subscription Merchant Accounts Surge in Popularity, Remain High Risk

Because we’ve long offered subscription merchant accounts, we’re excited for the possibilities of the subscription business model. It is undergoing a resurgence as of late, and it’s not just newspapers, magazines and health clubs anymore. Businesses have gotten creative with subscriptions and recurring billing schemes by offering products such as shaving kits, pet supplies and food, vitamins and supplements, detergent and many others.

While subscription business models are experiencing a renaissance, they remain categorized as high risk businesses by acquiring banks because of the model’s propensity for chargebacks.

Subscription and recurring billing merchants are urged to enroll in some form of payment decline management solution to buffer any potential losses and keep chargebacks and declines at a minimum.

The risk of loss can be substantial

According to a study by subscription management platform Recurly over eight industries, the risk of loss of subscription holders ranges from 8.3 percent (consumer services) to 5.6 percent (healthcare) per month – without some form of decline management protocol in place. Recurly also found similar levels of monthly loss in the industries of media/entertainment (7.6 percent) and SaaS (7.5 percent), educational (6.3 percent), business services (6.8 percent) and consumer goods (6.5 percent).

Subscription merchant accounts often come with volume minimums. In the course of one year, if a subscription or recurring billing model is not supported properly, losses can mount significantly, resulting in a subscription merchant account terminated.

Common reasons for credit card declines in subscription merchant accounts

The single most common reason for credit card declines in a subscription billing scheme is forgetfulness. Every 2-3 years, credit cards expire and consumers receive new cards that need to be activated. Consumers are human: They often forget to activate their new credit cards before the previous ones expire; and they always forget to update whatever subscription or recurring billing schemes in which they’re involved, resulting in declines and interruption of service.

Other reasons for credit card declines include:

  • Card limit reached: In such cases, merchants should immediately request an alternative form of payment, such as a second credit card, prior to terminating the subscription.
  • Invalid card number: Again, consumers are human, and instances of a mistakenly input credit card details such as the number, expiry date or CVV code are common.

Business models made for subscription merchant account services

We mentioned shaving kits, pet food and supplies and vitamins, and there are many, many more products and services for which merchants should opt for subscription merchant accounts and recurring payments. Toll payments and mass transit come to mind as do utility services such as electric, gas and heat, diapers and baby formula and drive-through coffee shops (which Starbucks has mastered).

By thinking outside the box, the use of a subscription model could be a revenue boon to nearly any business.

We’ve long preached merchant communication with subscription merchant accounts

Every now and then, when someone logs into their LinkedIn, Facebook or G-Mail accounts, a window will appear with that person’s mobile phone number, primary and secondary e-mail addresses and the option to update each. A similar offer would work for subscription merchants – an offer for their members to update their payment and contact details – to avoid declines. It could be a periodic window appearance when a customer logs into his/her account, as well as a periodic contact e-mail correspondence inviting the customer to update his/her information.

Pay attention to that expiration date

When a consumer opens a subscription and uses his/her credit card for the recurring payment, subscription merchants must take note of the card’s expiration date. A good practice is to set an alert 2-3 months in advance of the expiry date, and notify the consumer (more than once, if need be) of the approaching date with offers for renewal.

Consider account updater services

The four major credit card brands offer account update services, such as American Express’s Cardrefresher and MasterCard’s Automatic Billing Updater, which update the credit card billing of consumers automatically. For merchants who struggle with excessive declines, account update services are certainly worth exploring.

Subscription merchant accounts with Instabill

As an increasing number of merchants are turning to the subscription model for a myriad of products and services, Instabill has the acquiring banking partners in place that offer subscription merchant accounts and recurring billing merchant accounts. Even better, Instabill offers a free consultation and live support with our merchant account experts.

Our merchant account partnerships always begin with a conversation. Reach out to us at 1-800-530-2444 to get the process started.

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