New guidelines and requirements for Nutraceutical Merchants

The Nutraceutical Industry has faced some increased scrutiny in the last couple years, and the card brands continue to implement new requirements for Acquirers and ISO’s providing processing services to such Merchants who…  

a) Collect cardholder information at the time of a trial;
b) Enroll customers for a subscription through a free trial offer;
c) Sell physical foods like health and beauty products.

Most recently, and to be enforced starting in April 2019,  Mastercard updated their High-Risk Negative Option Billing Merchant Requirements, and these new rules apply to Merchants who:

  • Mastercard will designate negative option billing merchants that provide a physical product as a high‐risk merchant category that must be registered by the acquirer through the Mastercard Registration Program (MRP)

  • Acquirers will code any transactions arising from a high‐risk negative option billing merchant with card acceptor business code (MCC) 5968 (Direct Marketing—Continuity/Subscription Merchants).

  • The trial period must begin on the date that the product is received by the cardholder.

  • After the trial period for a product has ended, but before any additional payments are made by the cardholder, merchant must provide the cardholder with the following information for which the cardholder’s authorization will be requested, and the merchant must obtain the cardholder’s explicit consent for the payment amount before initiating the authorization request:
    i. The payment transaction amount
    ii. The payment date
    iii. The merchant name as it will appear on the cardholder’s statement
    iv. Instructions for canceling the subscription at the cardholder’s discretion

  • Each time that the merchant attempts an authorization transaction, the merchant must send a receipt to the cardholder by email or other electronic means (such as a text message) that includes instructions on how to cancel the subscription service or recurring billing cycle. If a receipt is produced following an unsuccessful authorization transaction attempt, the receipt must indicate the reason for the decline response.

  • An e‐commerce high‐risk negative option billing merchant must provide a direct link to an online cancellation procedure for recurring payment transactions on the website where the cardholder made the initial purchase. In addition, the merchant’s website must display a customer service phone number on the website maintenance page for periods during which the website is offline (such as for software updates, scheduled maintenance, or technical difficulties).

  • The merchant must send written confirmation to the cardholder when the cardholder’s trial period and/or highrisk negative option billing plan has been canceled. In addition to these revised Standards provided, Mastercard is reminding Acquirers and ISOs that they can also leverage existing Mastercard Standards to mitigate these high‐risk merchants’ deceptive practices. These Standards include, but are not limited to, Chapter 3 and Chapter 5 of the Transaction Processing Rules manual, regarding the requirements for properly conducting acceptance procedures and card‐not‐present transactions, respectively.

Bottom line, Mastercard want to ensure that sellers involved in negative option billing are classified, registered, verified and monitored properly.  And in the end, many Merchants should already have most of these requirements in place. With the right risk management tools, we believe it is still possible for Merchants to offer a successful trial billing option, but it is getting hard to find a merchant service provider to accept them. Many Merchant are forced to resort to straight sale and regular monthly subscription billing.

Contact us to learn more about our processing solutions and how we can help.