Subscription Based Billing – How to Mitigate Your Credit Card Processing Risk

 In Building a Business, Chargeback, Chargebacks

In order to ramp up product sales and customer satisfaction, many businesses are now offering subscription-based models. This type of billing is being utilized within multiple industries including everything from nutraceuticals to cybersecurity. You may be asking yourself, “What does subscription billing have to do with my credit card processing account?” It just so happens, a lot. Not only do some banks refuse to grant credit card processing for subscription-based accounts, but they can also quote sky high rates. Read on to delve into what subscription-based billing is, how it affects your rates, and how you can mitigate your risk.

What is subscription-based billing and what are the benefits?

Subscription based billing can be a superpower for your business. A subscription billing model is when customers pay recurring fees for products or services. The customer can “set and forget” their account, and the business benefits from increased buyer retention. The billing generally occurs in weekly, monthly, or yearly increments, which allows your business to accurately predict streams of income.

With a subscription billing model, the consumer generally has the choice to cancel or renew their subscription after the initial subscription terms. The customer is charged on a recurring predetermined date for the services to be rendered or the product to be delivered. While subscriptions can provide added convenience to the customer, as well as help the merchant build stronger relationships with their buyers, there are some downfalls in addition to benefits when it comes to the credit card processing side of the subscription billing model.

Why subscription-based billing can be classified as “high-risk”

Most merchants are familiar with the concept of chargebacks. (if you aren’t, check out our article on chargebacks here). Having a high risk of chargebacks can hike up merchants’ credit card processing rates with scrutinizing banks. Although subscription billing models can result in a higher chargeback ratio, not all subscription billing is looked at in the same way. The subscription billing models that often presents the most challenges are those for “non-essential” services and products. These types of products present a higher risk of chargebacks for multiple reasons. Often subscribers either forget that they have signed up for the product, or fail to read the fine print, and don’t realize that they are signing up for recurring billing. It is imperative for the merchant to clearly present billing terms on their website, as well as cancellation policies specifically on the checkout page to minimize these occurrences.

Friendly fraud

The term friendly fraud may conjure images of Grandma Suzy stealing silverware from your kitchen. However, friendly fraud can put businesses at just as much risk as “traditional” fraud. What is friendly fraud you ask? Friendly fraud is tied to the chargeback world. When customers either forget that they have signed up for subscription services or are not happy with the services and then attempt to reverse the charge on their card, this is known as friendly fraud. Unlike fraud such as identity theft, consumers who conduct friendly fraud place their initial transaction legally, but then try to skirt the system by attempting to get a refund on products or services where the merchant held up their end of the bargain.  

Not all subscription models present the same level of risk. The longer the subscription, the longer the chargeback window. For example, if a customer signs up for a 12 month subscription, they have the ability to file a chargeback for up to 18 months after the initial product purchase.

Should your business offer subscription-based services?

Although banks will still generally classify subscription-based services as high-risk, there are a few tactics that you can put into place to increase your business’ protection and minimize risk. Below are some preliminary questions to ponder before you decide to take the leap into offering subscription-based services.

1. Does offering a subscription provide a noticeable benefit to your business?

Analyzing whether to offer subscription services for your business is a no brainer when deciding to provide this option. If you are selling products or services that customers need consistent access to such as CRM tools, website management, and content writing, subscription based billing may make sense. Or, if you are offering physical items that people will continually need such as household products (think paper towels), providing a subscription based service may provide more pros than cons.

2. What are your business goals for offering subscription-based services?

Is the purpose of offering a subscription-based service to increase your client base? To generate repeat customers? To increase sales of a product that has previously been lackluster? Determining what your business goals are up front will help you determine specifically what you are aiming for in offering subscription-based billing.

3. What type of pricing structure are you going to implement?

Your business’ pricing structure will be depend on the type of product you are selling as well as what your objectives are. Do you want to provide discount pricing for bulk subscriptions? How many pricing packages do you want? Will there be a la carte add-on options for customers’ individualized needs? As your subscription models mature, you will be able to glean data that indicates whether your subscription plans increase profit from your target market and sustain or improve customer satisfaction.

4. Where will you be listing your subscription-based services on your website?

As stated earlier in this article, subscription terms and conditions need to be forthright and easily accessible to the consumer in order to reduce your business’ risk of chargebacks. When the bank underwrites your merchant account, they will review the terms and conditions listed on your ecommerce platform to ensure transparency. For increased consumer satisfaction and retention, the subscription process should be laid out clearly and simply. Additionally, multiple calls to action should be displayed on the business website to lead the customer in the right direction when looking for subscription-based billing services.  

5. How are you going to mitigate your chargeback risk when offering subscription-based services?

Once again, one of the first steps in mitigating risk with your subscription-based services is to make your billing process transparent and navigable. Be sure to display a payment gateway on your website that is easily accessible to the customer. You may also want to reconsider using negative option billing.

What is negative option billing, you ask? This is when a business bypasses the process of notifying the customer that there will be a charge to their account. This often results in the customer forgetting that they have subscribed to services and the customer consequently filing a chargeback with the bank.  Also be sure to pay close attention to chargeback ratios. High ratios can result in a red flag to the banks, and closure of your merchant account. Utilizing chargeback mitigation programs can help prevent chargebacks, as well as help facilitate a close watch on your ratios.

How 365 Glacier Payments Can Help

365 Glacier Payments has a vast portfolio of clients who successfully offer subscription-based services with low processing rates. In order to help support these businesses, we offer a wide range of tools to monitor and prevent high chargeback ratios, which in turn, help to mitigate business’ risk and increase revenue. 365 Glacier Payments has over two decades of experience in providing subscription-based merchants with credit card processing solutions, enabling business owners to meet their financial goals. If you have additional questions or are ready for your free savings analysis, please schedule an appointment here. If you prefer, you can reach us at 866.857.8766 or email We look forward to hearing from you!

Recommended Posts