Negative option billing is a sales method that is popular with eCommerce and MO/TO merchants.
This sales method provides customers with goods or services on a trial basis. Usually, the trial is free, but the customer must provide payment card details to initiate the trial. If the customer pays for the trial, the price is lower than normal or the customer has the option to return the merchandise at the end of the trial for a refund.
After the initial trial period ends, the customer will be provided with additional merchandise or services and the payment card provided during the trial period will be charged. This recurring payment plan will continue until the customer proactively cancels the subscription.
Pros and Cons of Negative Option Billing
There are several drawbacks of negative option billing.
Card brands strictly regulate merchants who use negative option billing to protect cardholders from deceptive merchant practices. These merchants are classified as high-risk, meaning they have additional processing restrictions and are susceptible to higher fees. Also, negative option billing often has higher chargeback rates.
However, if merchants abide by regulations and maintain open lines of communication with their customers, negative option billing can provide a steady stream of revenue and boost customer lifetime value.
Tips for Negative Option Billing Merchants
- Follow all regulations laid out by the card networks and the acquirer.
- Be open and honest with customers.
- Don’t hide important details in the fine print.
- Write a user-friendly cancellation policy and make it easy to find.
- Use dispute-resolution tools like prevention alerts and VMPI to help keep chargeback counts low.
- Respond to friendly fraud chargebacks and recover lost revenue to protect the bottom line.