Subscription boxes

Why Subscription boxes businesses are considered High-Risk?

Subscription boxes have become increasingly popular in recent years, providing customers with regular deliveries of various products. However, their business model presents significant risks for payment processors and financial institutions. The following are reasons why subscription boxes are classified as high risk merchants:

Recurring Billing

  • Subscription boxes rely on recurring billing, where customers provide their payment information to the service provider, who automatically charges them on a regular basis.
  • Recurring billing increases the risk of chargebacks and disputes if customers are dissatisfied with the product or service, leading to financial losses for the business.

Varied Product Offerings

  • Subscription boxes typically offer a variety of products from different suppliers.
  • The lack of control over the products being offered and the difficulty in verifying the legitimacy of each supplier can lead to reputational damage and financial losses.

 

Customer Complaints

  • Subscription boxes may have a higher likelihood of customer complaints due to the expectations set by their marketing efforts.
  • Customers may have high expectations for the quality and value of the products being offered, leading to dissatisfaction and increased chargebacks if those expectations are not met.
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Mitigation measures for Subscription boxes merchants to reduce risks when selling online

Subscription box merchants can take steps to reduce the risks associated with selling online. Here are some key strategies that can help:

  • Clear terms and conditions: Ensure that subscription terms, billing schedules, and cancellation policies are clearly outlined and easy to understand for customers to reduce the risk of chargebacks and disputes.

  • High-quality products and services: Prioritize offering high-quality products and services, sourcing products from reliable suppliers, and regularly testing products for quality to reduce the risk of customer complaints and chargebacks.

  • Regular communication with customers: Regularly communicate with customers about their subscription status, billing dates, and upcoming deliveries to reduce the risk of disputes and ensure customer satisfaction.

  • Payment processing security: Take steps to ensure the security of payment processing systems by using secure payment gateways, encrypting customer data, and monitoring for fraudulent activity.

  • Fraud detection and prevention: Adopt measures to detect and prevent fraudulent activity, such as using fraud detection software, monitoring for unusual transaction patterns, and verifying customer information.

Being a high-risk merchant vs. a regular merchant

  • Higher payment processing fees
  • Lengthier application process
  • Higher chargeback fees
  • Cash reserve requirments:
    • Capped reserve
    • Rolling reserve
    • Upfrom reserve
  • Volume caps
  • Additional technical requirements
  • Being on the TMF / MATCH list

 

Check out our knowledge hub to learn more about what processing fees, application process, chargebacks and cash reserve requirements or TMF / MATCH list mean. 

Other risk factors?

There may be other risk factors as to why you as a Subscription boxes merchant are classified as a high-risk merchant, such as:

  • Accepting subscription-style payments

  • Being on the Member Alert to Control High-Risk Merchants, or MATCH list — a list managed by Mastercard that monitors merchant behavior, like chargeback history

  • High average transaction sizes

  • High sales volumes

  • Highly regulated industries

  • International sales

  • Large number of card-not-present transactions

  • Little to no business experience

  • Long fulfillment time frames

  • New or poor credit scores

  • Past fraud or illegal activity

As high-risk Subscription boxes merchant how to find a payment provider?

It takes effort for businesses to secure a payment processing partner when they are considered high-risk but it is definetly possible to find the right payment solution if you focus on:

  • Maintaining healthy cash levels. Most processors would like to see a healthy cash level in your business bank account. 
  • Try to reduce chargebacks. There could be a number of factors behind the soaring number of chargebacks in your business. Whatever the reasons may be, you can always analyze them and try to reduce your chargebacks.
  • Be transparent. Disclose all materials and relevant information during the application process. Payment processors may ask you for very detailed information about your business and finances. Be open, honest, and transparent.
  • Keep your documents ready. This could mean having six months of bank statements and a few years of tax returns. That said, each processor has its own set of requirements so make sure to check them.
  • Follow the guidelines of your payment processor. When you apply for a high-risk payment solution, besides your business needs, the risk the payment solutions provider takes also matters. So, be flexible and see if there are things you can do to reduce your risk by discussing with them and following their recommendations.

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