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Mar 12, 2003
How To

Credit Card Processing Woes & Solutions for Online Subscription Sellers

SUMMARY: If you are selling online subscriptions (or ASP offers) and charging customers month-to-month, you have probably noticed that getting all your accounts charged properly is harder these days. Rising bounce rates, expiration dates, and security PINs. Argh!

This short article includes good news and some solutions for you.
By Paul Nastu

Recurring Payments Got You Down?

Many ContentBiz readers we have spoken to are concerned with the increase in bounce rates and the jump in the number of expired cards they see, as well as problems related to recurring billing and the security pins on the backs of cards.

One publisher we spoke to (who has monthly revenues in the high six figures) has seen bounce rates climb from 2-4% to 25-30%. Another says that in a recent batch of orders, 25% were turned down due to not having the 3 digit verification pin on the backs of cards. When a card is turned down for this reason, another publisher says, they go through the laborious process of calling each person up on the telephone.

Does this really need to be so difficult?

We talked with Armen Khachadourian, Senior Vice President of Merchant Sales and Integrated Solutions for Visa U.S.A., to get the lowdown on these troubling trends.

-> How CVV2 Security Affects You

CVV2 security was introduced to protect consumers from thieves who might steal account numbers from credit card receipts. The pin on the back of the card does not show up on receipts and the data can not be stored by online merchants. That last point is why many online merchants involved with recurring payments see CVV2 as a nasty thorn in their sides. It should not be.

“This isn’t even an issue for merchants that deal with recurring payments because it’s only set up for one-time charges,” Khachadourian says. He wondered if publishers having this problem were setting up the purchase as a one-time payment (where CVV2 comes into play), but putting the payment through as recurring.

“For recurring payments, all you need is a valid account number and an expiration date,” Khachadourian says.

This fix sounds a bit too easy, but Khachadourian says that any publisher having trouble with CVV2 technology and recurring payments should contact the financial institution that handles their account.

Tell the financial institution that you are running recurring payments and having trouble with CVV2, which should not be a factor.

-> Expiration dates and other recurring nightmares

Bank-issued cards always have expiration dates 2-3 years down the pike. A lot can happen in 2 years. People can forget what card they used or, if the card expired or was updated to gold or lost, they can have a new account number altogether.

Online recurring payments have a short history, making a card’s 2-3 year life span significant for another reason. Many sites that use recurring payments initiated them about 2-3 years ago, and now those early adopters’ cards are beginning to expire. As the industry ages, bounce rates rise.

Five years ago, Visa processed less than $10 billion in recurring payments per year. During the last fiscal year, that number was $37 billion. “We’re now seeing 29% growth a year,” Khachadourian says. “And as use goes up, authorizations and declines go up too.”

-> Visa readies Account Updater

Visa is introducing a payment system in April that it says will solve many of the problems associated with expiration dates and the issuing of new account numbers.

Here is how it will work: When a merchant tries to process a card payment with an expired or closed account number, its financial firm can use Account Updater to retrieve the new account number and use that for billing.

There will not be additional fees to use the system. (Yeah!) You should be able to sign up through your financial institution,which should be notifying accounts about the new program soon.

Account Updater has been piloted with 40 merchants and is slated to be available to all Visa member banks next month.

To use the system, proper disclosures will have to be in place on the merchant’s site that outline what Account Updater does and that, with the customer’s permission, it will be used for future billing problems.

Visa has not released any information on Account Updater yet, but says it will soon. The numbers on how the pilot altered bounce rates will be available after April.

Khachadourian is happy to speak with any ContentBiz reader who is having any of these problems. You can reach him at, or at 650/432-2902.

Oh yeah, we contacted a MasterCard spokesman about these issues too, but he said that, “Unfortunately, MasterCard cannot add anything on this topic at this point.”
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