Subscription merchants are increasingly recognizing the value of consistent, ongoing revenue to fuel their business growth. This billing model provides companies with a secure and reliable customer base. However, passive financial transaction processing presents unique challenges.
Subscription or recurring payment structures are often not viewed as traditional categories by many banks. Due to the high volume of sales and increased risk of fraud, banks tend to limit and scrutinize subscription merchant accounts. Therefore, businesses and entrepreneurs employing this strategy need to partner with a top subscription merchant processor to ensure efficient and secure ongoing transactions.
What is Subscription Billing?
The Challenges of Subscription Merchant Accounts
The pricing models of subscription businesses pose risks for traditional banking systems. In this model, customers' credit cards are charged with recurring payments unless they cancel their subscriptions. Therefore, subscription merchants must clearly communicate charges to customers and keep them informed about ongoing transactions to prevent issues.
However, chargebacks remain a problem. Customers may win chargeback claims due to minor technicalities, and banks may lose money if many customers file chargebacks. Consequently, banks often view subscription merchants as high-risk.
Marketing Subscription Billing
Subscription merchants employ unique marketing strategies focused on maintaining customer awareness and demonstrating value every month. This approach ensures customers see the ongoing benefits, encouraging them to maintain their subscriptions. Offering single-month billing, free trials, or other non-recurring charges can also help mitigate automatic renewal concerns.
Mitigating Issues for Subscription Businesses
Subscription-based businesses should partner with reputable subscription merchants. Reliable merchant account providers understand the intricacies of this business model and can offer services that help maximize the benefits of subscription billing while reducing chargebacks.
Obtaining a Subscription Billing Merchant Account
To use subscription billing, a business must first secure a subscription merchant account that accepts credit cards. Without utilizing recurring payments, businesses can miss out on significant opportunities. However, acquiring such an account through standard means can be challenging due to the higher risk of chargebacks.
Chargebacks occur when customers request refunds. Although common in all businesses, subscription models tend to experience them more frequently. Typically, chargebacks should not exceed 2% of all transactions. Exceeding this limit can result in account closure due to the substantial resources chargebacks consume.
How Subscription Accounts Work
In subscription businesses, consumers are charged continuously until they opt out or unsubscribe. This model is suitable for businesses offering products or services that need regular replenishment, such as subscription boxes and software services. For these businesses, a recurring payment gateway is both efficient and convenient.
However, some merchant services exploit customer trust by hoping customers forget about their subscriptions, leading to automated payments after free trials or freebies. Such practices result in excessive chargebacks.
In Conclusion
The primary challenge for subscription businesses is the potential suspension of their merchant accounts, even when not at fault. Dependable merchant account providers like Structure Payments have established partnerships to help reduce the risk of chargebacks. This support allows subscription-based businesses to focus on growth rather than managing subscription billing issues.
