4 Payment Regulations For SaaS Recurring Transactions

Staying Compliant: Four Payment Regulations For Recurring Transactions


One of the key concepts in payments that has completely revolutionized the eCommerce market is the subscription business model.

Over the past decade, recurring payments, especially for streaming services, gym memberships, or magazine subscriptions, have made it clear that this is the model for the future. 

And let’s not forget that major corporations like Adobe or Microsoft are moving to the recurring automatic billing rather than relying on one-time purchases for their products.

Due to the appeal of recurring revenue streams along with the push from the COVID-19 global pandemic, the subscription economy is no longer a theoretical concept but an economic reality.

If you don’t believe us, take a look at the results, which speak for themselves.

The subscription economy is expected to reach $1.5 trillion by 2025

69% of households have at least one subscription to a video streaming service. 

The average subscription business is growing 30%–50% annually.

 

But along with the accelerated adoption of recurring payments came the need to regulate the new landscape to ensure proper operational standardization and security. 

So, how do you handle compliance effectively without losing your focus on what matters most, your product?

Well, here's a friendly suggestion: consider teaming up with a Merchant of Record

Once we explore the payment regulations your subscription business needs to follow, you'll quickly see why a partnership with an MOR makes all the difference:

The 4 Recurring Billing Regulations To Follow
Is The Merchant of Record a Solution?
How Can PayPro Global Help? 

4 Recurring Billing Regulations To Follow

One of the major problems subscription businesses face is the rise of chargebacks.  

Customers are issuing these disputes on their subscriptions for a number of reasons. While card schemes cannot directly influence consumer behavior, they can regulate the recurring billing landscape and set universal guidelines merchants must follow. 

These rules prioritize consumer protection, emphasize the need to directly manage disputes, and maintain clear documentation on recurring automatic payments, which is vital in order for merchants to win chargebacks

4 Recurring Billing Regulations To Follow

1. Visa Subscription Payments Regulations

Visa initially rolled out its guidelines in 2011, but key updates focused primarily on improving communication between businesses and customers came in 2020. 

Keep in mind that these rules affect merchants accepting Visa cards and practicing free trials, upselling, and negative option billing (the cardholder has the right to cancel a subscription upon a specific point, as mentioned in the agreement, and should they fail to do so, implies their agreement to be billed for the product or service). 

Now, let’s examine Visa’s regulations for subscription based services: 

Detailed Disclosures

The new Visa free trial billing rules require merchants to offer enhanced disclosures that ensure informed consent, which consequently leads to reduced chargeback rates.

Additionally, Visa regulations require that you offer: 

Merchant details: name, address, phone, website, and billing information

Customer information: payment data used to pay for the subscription service

Payment currency

Enhanced and accurate product description 

Trial period length, start, and end date 

End trial notice, clarifying and confirming in writing that the cardholder will be charged once the trial period ends.

Initial transaction date and amount 

Future payment dates and amounts 

Cancelation rules and any helpful links

Written notification of account changes for existing subscribers

Written notification of how stored customer data will be used 

 

Obtaining and storing informed consent from your customer is mandated for subscription businesses under Visa regulations. 

Simplified Cancellation

It is crucial to provide cardholders with a straightforward subscription cancellation process. 

This allows you to uphold the image of a legitimate operation, and cardholders will trust your services, thereby preventing chargebacks caused by suspicious merchant activity. 

Therefore, subscription businesses are encouraged to offer customers simple unsubscription methods, such as SMS or email, and cancellation links provided in all communications.

Transaction Receipts

Once the cardholder has agreed to your subscription’s terms and conditions, even before a charge has been made, you must send transaction receipts, which should be electronically signed and sent via SMS or email. 

The transaction receipts should contain the above-mentioned payment details, cancellation links, and instructions, as well as any changes or updates in the subscription terms.

Clearer Dispute Processes

In the Visa Claim Resolution Initiative released in 2018, the card scheme presented its list of chargeback reason codes. 

To limit chargebacks, however, Visa implemented the following rules for subscription businesses: 

In free trial recurring charges, merchants are required to use unique billing descriptions that allow the cardholder to distinguish the transaction correctly.

Once the trial ends, the merchant must use the phrasing “ongoing payment, recurring, or subscriptions” for clarification.  

Customers can file a chargeback if they have not been appropriately informed further billing will take place upon the trial's end.

Businesses can fight chargebacks by providing compelling evidence to support their claims. This includes the cardholder's signature on associated legal and payment agreements, as well as evidence that notification has been sent to the cardholder at least seven days before the trial’s end.

 

Visa’s Compelling Evidence 3.0 (or “CE3.0”) initiative was created to help merchants solve the chargeback issue. Thanks to this initiative, merchants have a specific evidence to present through streamlined protocols. 

Ongoing Monitoring

Visa will conduct ongoing monitoring to ensure compliance is achieved. 

The card scheme will analyze your recurring indicator and statement descriptor to keep fraud and chargeback levels low.

2.  Mastercard Recurring Billing Rules 

Mastercard has also updated its rules and regulations for subscription businesses, just as  Visa did, with features like free trials and negative option billing. But they also included several provisions regarding payment processing for subscription businesses as well. 

Mastercard Recurring Billing Rules

When creating new user accounts, Mastercard will apply specific recurring payment rules based on merchant classification. The existing groups are: 

MCC Classification
These are four-digit identifiers that specify the type of services a merchant offers. 

Another example is business models with the code 5968, which are Direct Marketing – Continuity/Subscription Merchants and include the selling of subscription products or services.

High-Risk Status

This category includes merchants that utilize the subscription business model but are considered risky, so this usually entails higher fees, regular account monitoring, and several processing restrictions. 

MRP Compliance 

This category includes merchants that use the negative option billing. Being categorized in this group means you are required to register your merchant credentials in the Mastercard Registration Program

When it comes to processing recurring payments, merchants need to be mindful of the following regulations: 

Subscription Term Disclosure

Provide the following information on the payment page: 

A valid description of your goods/services 

Subscription price and billing frequency

Clear cancellation and refund policies 

Your business details, including address, email, and phone number

Evidence of written confirmation 

 

In addition to the above requirements, you’ll need to do the following:

Make sure you obtain the cardholder's consent regarding your terms and conditions.

Should the transaction authorization fail, the cardholder will need to be notified.

In case a customer’s account credentials are used to process payments across multiple merchant accounts, the merchant will need to obtain the cardholder’s consent.

If you are employing the negative option billing, you will be required to offer information regarding your free trial offering, including existing initial charges, trial length, price, and billing frequency.

Completed Subscription  

Once the cardholder has completed their subscription, the merchant is obligated to send a notification to the cardholder containing the terms and conditions.

During the Subscription 

Once the payment is approved, the cardholder must receive a receipt containing clear instructions as to how the subscription can be canceled, accompanied by a valid link. 

For subscriptions with a billing cycle of less than 180 days, a payment reminder must be sent to the cardholder at least seven but no more than 30 days prior to the next billing date. 

The payment reminder must contain:

A clear subject line indicating the message is connected to their upcoming charges.

Subscription terms  

Straightforward subscription cancelation instructions

 

Additionally, should the merchant utilize the negative option model, the cardholder must receive a reminder no less than three days and no more than seven days prior to the end of the trial period, indicating that the subscription service will begin if it is not canceled. 

3.  Bank of India's Recurring Transaction Rules

In the context of global commerce, even local laws can affect merchants around the world. GDPR is a good example. And so are the recurring billing rules implemented by the Reserve Bank of India, which is their central government bank. 

In 2019, in the same spirit as Mastercard or Visa regulation, the financial institution further clarified and regulated subscription arrangements. 

The new security rules for recurring payments on India issued cards, as mandated by the Reserve Bank of India, amended in December 2020 and March 2021 are:

Banks must register cardholders and create an e-mandate through a single, one-time process, which include additional factor authentication like 3D Secure. 

Any charge will require a 24-hour prior notification via SMS or email, and it must include details on how to cancel the subscription. 

Recurring payments must have a fixed and predetermined value at different intervals in accordance with the fees established by the initial agreement. 

Customer cannot be charged automatically for transactions over 15,000 INR (or the equivalent in any other currency) and additional factor authorization must take place each time. 

Businesses are required to provide customers with detailed information regarding each fixed recurring payment, including the reason for the charge, date and time, and a reference number, as well as clear information regarding refunds and subscription cancellations.


Even though these rules are consumer-oriented, they received significant backlash from important corporations in the subscription industry, like Amazon and Netflix. 

Considering India’s market size, it is unlikely for subscription businesses to keep their distance. But this would imply developing systems to achieve compliance. 

Given the distinct and rigid nature of the regulations imposed by the Reserve Bank of India, implementing them across the entire company’s operation is not an easy route to take. Finding specific, region-targeted solutions, on the other hand, are more likely.

4. Recurring Billing Under PSD2

If you are selling B2B in Europe, surely you are well aware of the PSD2 regulation set from the second EU Payments Service Directive. One of the most significant changes that PSD2 brought forward is Strong Customer Authentication (SCA), which aims to boost online payment system security and reduce payment fraud. 

Unfortunately, since its implementation, there have been major concerns regarding the increased checkout friction and billing errors caused by SCA measures, leading to a decline in conversion rate. 

4 Ways PSD2 Has Effects on Your SaaS Business

Subscription models are affected by SCA implementation.

Specifically, here's what you need to know about each of them. 

SCA guidelines require stronger authentication for online payments that are above a certain threshold or are perceived as risky. Even though both you and your payment provider will need to allow for SCA, it is your customer’s bank that will be applying the process to the transaction. 

The payment method you choose to offer your customers matters in the application of SCA. While some methods, like bank transfers and credit or debit card payments, fall under the scope of SCA, others, like bank or direct debit, do not. This detail in the framework could help you improve your conversion rates in the SCA context.

SCA applies to recurring transactions when there is a change in the amount or billing frequency. Therefore, invoicing is affected by SCA as the charge amount varies. In the case of subscriptions, where the cardholder is charged the same amount at fixed intervals, SCA will only apply to the first transaction. 

 

It is also worth noting that transactions under €30 are exempt from SCA. Additionally, if your payment provider’s fraud rates are low, SCA might not be applied for transactions under €500. 

Is the Merchant Of Record the Right Solution? 

The short, straightforward answer is yes. 

Without a doubt, a Merchant of Record solution can be of great help when it comes to achieving global payment compliance for subscriptions.  And this is why: 

Extensive Local Expertise

Merchant of Record solutions have in-depth knowledge regarding regulatory compliance frameworks in different countries. Operating as a reseller, the Merchant of Record wil help your business meet local compliance standards while also keeping track of key business tasks. 

Moreover, by shifting the liability for tax and payment tasks to the MoR, you are considerably reducing exposure to potential fines or legal issues. 

Innovative Payment Technology 

MORs have complex payment infrastructures already in place that can handle different currencies and alternative recurring transaction payment methods to boost your international authorization rates, keeping customers happy and revenues higher. 

Additionally, their adaptive technology makes it easy to comply with subscription regulatory requirements in an efficient and simplified manner. Partnering with a Merchant of Record gives you access to their infrastructure, fast-tracking your business expansion. 

Resource Effectiveness

Achieving global compliance can be a costly headache for SaaS businesses. Having to manage different processes for each territory you wish to expand in, keeping up with changes and updates, and performing regular audits will take significant resources away from your business.  

With the help of a Merchant of Record, operational hurdles are efficiently handled by your partner, saving you time and resources and enabling your SaaS to operate successfully on a global scale. 

However, at the end of the day, what matters most isn’t having a Merchant of Record on your side but more about finding the right service provider

Because not all MORs are built the same, so make sure you choose the option that best suits your business’s requirements and needs. 

Meet PayPro Global.

The Merchant of Record that helps you grow

PayPro Global takes away the headache of selling your products worldwide. From local payment methods to simplified subscription handling and tax management, we give you the eCommerce tools you need to scale your business smoothly into the global market.

 

How Can PayPro Global Hep? 

With over 15 years in the payments industry, we know how challenging selling your SaaS and software products worldwide while focusing on product development in the absence of a robust infrastructure and a strategic partnership. 

That is why we created PayPro Global’s unique Merchant of Record model, which stands out due to its innovative technology and flexibility. 

Through our smart subscription billing mechanism, we help SaaS businesses achieve and maintain revenue streams in all regions they wish to expand. 

Accommodating specific billing requirements and subscription regulations, PayPro Global takes care of all operational hurdles and allows you to focus more on what matters to you, your product. 

From payment cycle customizations, foreign currency exposure management, upsells, and cross-sales to complete tax management and invoicing, we offer a comprehensive subscription engine you can rely on. 

As a PCI-DSS Level One Certified partner, we make sure the highest payment security standards are upheld, allowing your SaaS business to process payments with confidence and gain the trust of customers around the world. 

Additionally, having the knowledge and resources, PayPro Global's Merchant of Record ensures that all subscription regulations are respected, significantly reducing the risk of fines and penalties. Doing so, our MOR opens the door for you to capitalize on expansion opportunities and grow your SaaS business.

Find out more about our complete eCommerce solution and how you can gain access to a platform that can strategically scale your business in global markets.

Final Thoughts

Whether it’s taxes, accounting standards, or payment regulations, running a successful subscription business depends on your dedication to upholding all imposed standards. 

Why risk exposing your valued customers to potential payment risks and subject your business to substantial fines and penalties that could ultimately hinder its growth and darken your reputation?

Some of the world’s most successful subscription businesses got where they are because they didn’t try to tackle everything independently. 

They relied on strategic partnerships and reduced the operational overload for their core team. Working with a trustworthy Merchant of Record like PayPro Global will allow you to stay on top of regulatory compliance, boost customer retention, and continue to focus on what matters most: your product.

 

Frequently Asked Questions

What are the key regulations for Visa subscription payments for subscription businesses?

In the Visa framework, fixed and variable recurring payments are subject to specific regulations such as detailed disclosure of the service before the customer pays, simplified subscription cancelation processes, detailed transaction receipts, clearer dispute processes for billing errors, and continuous compliance monitoring.

What are the Mastercard recurring billing rules that subscription businesses should follow?

Mastercard’s rules for variable or fixed recurring payments refer to clearer subscription terms, obtaining user consent, failed transaction notifications, and payment reminders for billing cycles shorter than 180 days.

What are the Reserve Bank of India's rules for recurring transactions in subscription businesses?

The Reserve Bank of India's rules specifies fixed values for recurring transactions, two-factor authentication, 24-hour prior charge notification, and authorization for each transaction unless the cardholder requests to be automatically billed.

How does PSD2 affect subscription businesses in Europe, and what are the key points to consider?

PSD2 introduces Strong Customer Authentication (SCA) for online transactions and subscriptions when there is a change in the amount or types of recurring frequencies.

Why should subscription businesses consider partnering with a Merchant of Record (MoR)?

Companies that have selected the recurring revenue model for their product would benefit greatly from partnering with a Merchant of Record for multiple reasons. Joining forces with a service provider of this kind makes recurring transactions work because they offer SaaS businesses access to extensive local expertise, innovative payment technology, and resource effectiveness. These advantages allow SaaS merchants to achieve global payment compliance, reduce operational workload, and focus more on product development.

 
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Meir Amzallag

Co-founder and CEO of PayPro Global | Discover a collection of articles on B2B marketing, subscriptions, and e-commerce strategies

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Content Marketing Manager at PayPro Global | Discover a collection of articles on B2B marketing, subscriptions, and e-commerce strategies

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