This upcoming change will dramatically increase online merchant’s revenues
MasterCard introduces changes for subscription and card on file transactions that will help to significantly increase online merchant’s revenues
Recurring (subscription) and returning (card on file) transactions are a growing part of online merchant revenue streams.
Customers returning to an e-commerce site are expected to make up more than 48% of all sessions. For some industries and merchants this figure can reach in the 80+%. (Source Monetate).
These returning customers spend more than new customers, sometimes almost double what new shoppers spend. Returning customers are twice as likely (15%) to place an item in their shopping cart compared to new customers (7.5%).
Returning customers also have lower bounce rates (leaving a site after visiting just one page). Returning customers have bounce rates in the mid 20% whereas new customers tend to have bounce rates approaching the 40% mark.
Returning customers have higher conversion rates at 5%, almost double the conversion rates of new customers at 2.6%.
Subscription models are increasingly on the rise with subscription company websites seeing an increase of 800% in visitors over three years (Source Forbes – http://bit.ly/2HLQcnG).
Most online merchants manage returning and subscription customer payments through tokenization and card on file technologies.
However these card on file transactions are subject to higher decline rates by issuers and card schemes because they don’t carry the CVV code (the 4 digit code on the back of the card). This code is private to the card holder and according to PCI DSS rules cannot not be stored with the other card details when a customer first makes a transaction.
From June 2018 MasterCard will bring in a change that will help to ensure that recurring and card on file transactions do not suffer from higher decline rates.
Mastercard will introduce new data values that will be passed through to the card issuer with other card details to clearly identify the transaction as recurring and/or card on file. This is important information for the issuer who is then able to make a more informed decision on whether to accept or reject the transaction given the absence of the CVV code.
These new data values will be called the ‘credential on file’ indicators. The credential on file indicator will allow a merchant to identify a pre-existing relationship with the card holder to the issuer.
Examples of credential-on-file transactions according to MasterCard definitions will be:
Card-not-present transactions for which the cardholder authorizes the merchant to use the credential-on-file for payment
Card-not-present transactions originating from a merchant’s brick-and-mortar location for which the cardholder authorizes the merchant to use the Credential on File
If you are an online merchant using a subscription or card on file model than your payment service provider should already have informed you of these upcoming changes. There will need to be some technical / development work in your integration with your payment service provider for you to be able to send the credential on file indicators to them.
This change is expected to decrease the decline rates on recurring and card on file transactions substantially. Given the rise and popularity of these models this is going to mean a substantial increase in merchant revenues.
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