Recurring payments and the problems with Pre-Paid cards


Payment collection is immensely important for subscription/recurring billing merchants. Unfortunately in today’s environment credit card decline rates present a massive challenge. Fraud, reissued cards, EMV cards as well lost and stolen cards present multiple problems for billers.

 

Some statistics*:

  • 15% of recurring credit card payments on average decline, with some industries exceeding 30%

  • 30% of all credit cards are reissued each year

  • 1.5 billion EMV chip cards issued in 2015-6

  • 5% likely success rates in obtaining new info from customer on 1st attempt after decline


*Information based on PLC | Visa | MasterCard

 

Every merchant faces these problems. Billing platform providers and the merchants themselves must look at all potential causes and look to mitigate the collective impact.

 

One area often overlooked is the issue with customers using prepaid cards. For any recurring or subscription billing business prepaid cards can be problematic. Especially those with trial-periods and that offer commission payments [eg affiliate programs] for customer acquisition.

 

A person subscribes for a recurring service membership costing $15 a month and uses a pre-paid card. The merchant is not aware that they are using a prepaid card.

 

It is important to understand that pre-paid cards operate like debit cards in that their is no credit extended. You would simply get a decline [NSF].  Consider a security alarm business that buys residential accounts from an independent sales team. They might pay out $750 or more to acquire that customer in hopes of billing them for 3 years or more. If the credit card they use turns out to be pre-paid and that customer simply throws the card out they may have paid significant money for a customer they were able to bill only once.

 

You also have many instances [eg NetFlix] where free trials begin by obtaining a valid credit card number. When the trials period ends billing kicks in. A person might sign up for free service by providing a valid card #. Unfortunately if that card is prepaid and balance has not been maintained the expected billing fails.

 

Both of these examples not only rob the merchant of revenue but now also create workflow issues. Efforts are made to contact the customer and save the sale. These efforts consume additional resources and cut into margin.

 

So how do you mitigate the damage accepting prepaid cards cause?

 

To begin you need to identify when these cards are being used.

One of the ways to avoid these problems is to use Bank Identification Numbers or BIN’s.

Credit card BIN’s

A BIN, or “bank identification number,” is a six digit number that identifies the card issuer. This number is part of what makes up the entire payment card number on a payment card, like a credit, debit, or gift card.

The BIN is the first part of the payment card number, usually sixteen digits in length.  The first four digits of this number are often printed on the card for additional security, just underneath where the number is embossed. The very first digit is called the MII or “Major Industry Identifier.” Here is a list of what the MII numbers mean:

1-2 Airlines (Diners Club enRoute)

3   Travel and entertainment from non-bank issuers like AMEX, Diner’s Club, JCB, and Carte Blanche

4     Banking and financial (Visa, Switch, and Electron)

5     Banking and financial (MasterCard and Bankcard)

6     Merchandising and finance (Discover, Laser, Solo, Switch, and China UnionPay)

7     Petroleum

8     Telecommunications

9     National assignment*

*If this is the MII, the next three digits of the card number are going to be a 3-digit country code.

Using the MII, we can further discern more about cards. For example, Visa always starts with a 4. MasterCard starts with a 5, but (as we’ve just revealed) they will begin starting with a 2 in October of 2016. Discover cards begin with 6011, 644, and 65. AMEX cards begin with 3 and 37. Diner’s Club and Carte Blanche cards start with 300, 305, 36, and 38.

The rest of the payment card number is assigned by the issuer, who selects a number up to twelve digits to identify the account. Additionally, the payment card number contains a final single check digit.

What is the BIN used for?

The BIN list helps validate card transactions. Conflicting information, such as a BIN that does not correspond to the same location as the billing address, can signal fraud. Merchants can also use BINs to help identify card types and issuers by looking numbers up in a BIN database. The BIN database may also include more detailed information about a card, including the credit limits and levels.

BINs can also be used to target certain offers and promotions to specific audiences. Those cardholders with BINs associated with cards that demand higher credit-worthiness may be identified during an online checkout process and targeted with costlier merchandise.

Remember, the new 2 series from MasterCard will not change processing of their cards and will be used just like the current 5 series. As the date draws nearer, MasterCard will release more information if it directly affects merchants.

Source: https://www.forte.net/blog/mastercard-bin-range-coming

You can use online BIN lookups eg https://binlist.net/ to identify a card is prepaid.

Your payment gateway partner should allow for programmatic blocking of prepaid cards as a payment acceptance vehicle. This allows for controlling the customer onboarding process. Eliminating costly commission payouts, non converting trials and workflow issues resulting from failed billings all help the end merchant be more profitable and efficient. If they are using your SAAS solution that helps payment collection they are a more satisfied, more likely to refer client.

This is simply one step of many you should be using for your business or billing platform.

Learn more about 7 Step BluePrint to Maximizing Approval Rate HERE

 

Recurring payments and the problems with Pre-Paid cards

One area often overlooked is the issue with customers using prepaid cards. For any recurring or subscription billing business, prepaid cards can be problematic. Especially those with trial-periods and that offer commission payments [e.g., affiliate programs] for customer acquisition.

 

It is important to understand that pre-paid cards operate like debit cards in that their is no credit extended. You would simply get a decline, funds not available.

 

So how do you mitigate the damage accepting prepaid cards cause? To begin you need to identify when these cards are being used. One method to identify the type of card is to lookup the BIN (bank identification number). To do so, simply go to binlist.net and enter card data.

 

Your payment gateway partner should allow for programmatic blocking of prepaid cards as a payment acceptance vehicle. This allows for controlling the customer onboarding process. Eliminating costly commission payouts, non converting trials and workflow issues resulting from failed billings all help the end merchant be more profitable and efficient.

This is simply one step of many you should be using for your business or billing platform.

 

Recurring payments and the problems with Pre-Paid cards

 

1-Pre-paid cards extend no credit [work like debit cards]

2-For businesses paying commissions for new customers it is important to ID if customer is providing a pre-paid card

2(a) Use https://binlist.net/  to check card # as pre-paid

2(b) Payment gateway partner should help ID

 

2(c)- Identifying pre-paid at point of sale reduces billing declines and helps retain customers