What Are Recurring Transactions

A recurring transaction is when a consumer authorizes a merchant to charge their credit or debit card a specific amount on a regular basis. The transactions are often for regular services, memberships or subscriptions.  

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Payments 101: What Is A Recurring Transaction?

Sep 12, 2019

What Are Recurring Transactions

A recurring transaction is when a consumer authorizes a merchant to charge their credit or debit card a specific amount on a regular basis. The transactions are often for regular services, memberships or subscriptions.

The billing periods can vary, with monthly, quarterly and yearly being common options. Generally speaking, recurring transaction plans are set up for an indefinite period of time and the charges set forth between both parties will occur continually until the cardholder cancels the plan.

Several factors in a recurring payment plan make them vulnerable to customer disputes, and the resulting chargebacks are difficult on merchants. Since the aforementioned payments have been pre-determined and can continue to go on for months or years, it is easy for the customer to forget or lose track of them, or the customer credit card account may expire or be canceled.

There are several things that a merchant must do to prevent chargebacks, which often diminish the value of a merchant’s business in the eyes of credit card companies.

If merchants process recurring transactions and charge a cardholding member’s account periodically for recurring goods or services, the cardholding member shall complete and deliver a written request for such goods or services to be charged to their account and submit this to the merchant. The written request must at least specify the transaction amounts; the frequency of all recurring charges; and the duration of time that the cardholding member’s permission is granted. Of course, the merchant must retain this written request for the duration of the recurring goods sales or services provided.

If the recurring transaction is later renewed because of revised terms that arise or simply because a specific period of time has passed, the cardholding member will complete and deliver another written request for the continuation of such goods or services to be charged to the cardholding member’s account and submit this to the merchant again for their records.

Many cardholding members will in time cancel services. Merchants will then discontinue their service or sales actions after receiving a cancellation notice from the cardholding member or a response to an authorization request that the specific credit card is not to be honored for any of various reasons.

For the best consumer experience and in order to minimize merchant risks regularly associated with recurring payment plans, merchants should incorporate the following practices into their recurring payment plan procedures:

Keep the credit card’s expiration date and customer account information on file in a secure manner, and include it in all authorization requests. If a credit card is nearing its expiration date, make sure to contact the customer cardholder to obtain the new expiration date. Credit card security codes, however, should not be stored at all in order to reduce fraud.

Merchants should always employ the use of Address Verification Service (AVS).

In merchant records, it is best to clearly identify recurring transactions when they are processed. Merchant payment processing services providers largely take care of identifying recurring transactions.

Customers should always be notified before processing a recurring payment series. Notices should be sent as a hard copy or via e-mail to customers no less than ten days in advance. In this notification, merchants should summarize the card processing amount, the date on which it will be charged and the terms.

In the name of good customer service, it is best to promptly follow-up on customer complaints and reservations. Respond quickly to customer complaints and address their issues immediately. It is likely that a simple solution will lead to an extended contract that may otherwise have been terminated.

Upon receiving a cancellation request a merchant should immediately cancel the recurring plan and issue a credit, if at all applicable. Merchants should provide customers notification that their request has been fulfilled and the payment plan has been halted. In the event of a chargeback resulting from an unfulfilled cancellation request, the cardholder does not have to prove that this request was made. As such, it is always a good idea to record the cancellation as best as possible and provide documentation.

Interested in learning more about payments? Check out our other Payments 101 blogs, like our What is a CVV (Card Verification Value) Code post.

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