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Clarifying MasterCard’s New Rules & How They Impact Marketers

Marketers should know that MasterCard’s new rules are less complicated than they appear at first glance. Communication between merchant and consumer is required and stressed heavily. The purpose is to streamline a chargeback process that is fair and transparent for merchants and consumers.

Mastercard’s Best Practices
Card associations recommend a set of guidelines for merchants to follow.  The problem is there aren’t hard, clear rules and the guidelines often don’t go far enough. These new measures transform “guidelines” into enforceable policies and procedures.

The Problem
Many merchants don’t properly disclose continuity billing, hurting legitimate sellers, and causing consumers to be wary of negative option billing. An example of negative option billing is a program where a customer may start with a trial with negligible or no cost to the consumer. Then, as part of the quid pro quo for receiving the trial, additional product is shipped at regular intervals to that consumer, and charged at full price, until the consumer declines the shipment or cancels the program. The problem is, consumers may not always be clear that this is what they signed up for, causing confusion and anger. At worst, the free trial offer turns out to be a scam. In fact, a study in December 2018 by the Better Business Bureau showed financial losses from free trial offer scams cost consumers a reported $1.3 billion over a 10-year period with an average consumer loss of $186.  These kinds of cases are what MasterCard is attempting to clean up.

Who is Affected?
Offering a free trial or service doesn’t mean you are automatically subjected to these new rules.  New rules apply to those who collect cardholder information at the time of a free trial, enrolling customers in a subscription.  New Mastercard negative option billing rules apply to those who offer free trials using a negative option billing model in categories such as nutraceuticals, and subscription goods and services. The rules will not impact digital services like Netflix or Amazon Prime.

How the New Rules Work
Beginning of Trial Periods: The trial period now begins when the customer receives their product, whereas in the past it started upon the completion of a transaction. Using delivery tracking and confirmation technology will help decipher when the trial period legitimately starts, since such software can indicate at what point a product was delivered to a consumer’s address.

Informing Customers: You must contact your consumer and advise them of the date you will charge their card and the amount you intend to charge. Once a free trial period expires, you must obtain permission from your customer before charging their credit card. At the same time, you must include instructions for terminating service at any time.

New Selling Code: Selling using Mastercard negative option billing must be classified, registered, verified, and monitored properly. Merchants will be assigned merchant code 5968 (Direct Marketing Continuity Subscription Merchants) and assigned as a “high-risk” merchant. This means higher fees, costly account reviews, and other payment processing obstacles.  High-risk merchants are often required to submit extra paperwork to obtain credit card processing.  Often tax returns, vendor information, fulfillment agreements, and a utility bill are required.

Easy Cancellation: Your cancellation policy must be able to be easily found on your website and simple to understand. You need specific cancellation instructions after the free trial period ends, and before each additional transaction occurs. The new rules require you to provide customers a direct cancellation link on your website. The cancellation page needs to be on the same exact website where the customer initiated the trial.

Your consumer must be sent written confirmation once their subscription is successfully canceled.  Consumers will then know when they will stop being charged (or refunded if that is the case, which is intended to help avoid unnecessary chargebacks). The purpose of this rule is to prevent merchants from trying to create cancellation barriers by hiding the actual way to formally cancel.

 Negative Option Billing: Negative option billing is legal and defined as providing the customer a new service not previously utilized, and then billing customers who don’t opt out.  Such programs can create a win-win for both marketer and consumer. Negative option billing provides sellers with an ongoing revenue source and customers benefit because they don’t have to reorder or confirm the goods and services they genuinely desire.

However, under the new rules, all merchants using a negative option model are now considered high-risk.  As previously noted, high-risk merchants must now face obstacles such as higher fees and costly account reviews, in addition to the chargeback risks that are inherent in such programs.

Stored Payment Credential Mandate: This mandate stipulates that you must inform a customer’s issuing bank that their customer’s payment credentials are being stored. You need to use proper indicators for transactions using their stored credit card processing data. Hopefully, customers cancelling upfront will help avoid chargebacks down the road.

Similar measures have been taken in the past. Panic ensued, many merchants adjusted to remain successful, while others didn’t and failed.  Follow the new guidelines and the likely outcome will be more satisfied customers, while you avoid the vagaries of consumer complaints and chargebacks that can be avoided using such transparent business practices.

Curtis Kleinman

Curtis Kleinman is a payment processing specialist who provides multiple solutions for high risk, direct response, e-commerce and brick-and-mortar businesses.  A native of Brooklyn, Curtis is a hard-working, accessible, passionate, and well-connected, entrepreneur who works directly with his customer base. Since 1986 he has focused on helping business owners save money using a combination of expert consultation, outreach, and education. The author of over 40 published articles and e-books, Curtis is a noted industry speaker and was voted the inaugural DRMA Member of the Year. He is an avid animal lover and the father of three rescue dogs who keep him company in Pacific Palisades, California. Curtis can be reached at 310-573-9019 or via email at