Setting Up Recurring Payments with Credit Cards

Businesses that operate on a subscription basis rely on recurring payments to automatize the charges. Recurring payments are automatic billings that take place regularly, according to a pre-defined time interval, such as monthly or annually. Different types of businesses can benefit from offering recurring payments to their consumers: from SaaS (Software as a Service) and digital services such as audio and video streaming, online media, online courses and subscription boxes to more traditional services like insurances and healthcare plans.

 

Brazilians are heavy users of subscription services, especially from the entertainment industry. For instance, nearly 30% of households have pay-TV and Netflix, Net and Sky have 18.6 million paid users combined.

 

Despite the popularity of subscription-based businesses in the country, merchants might face challenges setting up a recurring billing system. The main reasons are:

 

  • Direct debit, often the most common way of carrying out recurring billings in many countries, is not an easy option in Brazil. Currently, Brazilian banks try and limit the direct debit only for utilities.
  • Boleto bancário is still the most utilized option in B2B segment and often the only alternative for unbanked Brazilians. However, boletos cannot generate an automatic charge as it requires the user to either pay it electronically or in cash at authorized entities.
  • Credit cards are the main B2C option for recurring payments. It can be automatically charged on a regular basis with the proper authorization from the cardholder, but it is also an open door to chargeback requests.

 

 

How do Recurring Payments with Credit Cards Work?

 

As stated above, a recurring billing can only be carried out with the authorization of the cardholder and this is usually done with the first payment. At this moment, the payment processing service will save the card details and tokenize them. Merchants will have access to the token, which can then be used to charge the consumer regularly. The cycle of the recurring payments will not be interrupted until the cardholder decides to cancel the subscription service with automatic billing.

 

Among the broad set of payment methods offered by PagBrasil, merchants can choose recurring payments with credit cards. Their system simply needs to submit the transaction via API with a specific parameter that will tell our platform that the payment information needs to be securely stored on our PCI DSS compliant servers for future charges.

 

 

Tips to Keep Refund and Chargeback Rates Under Control

 

Although recurring payments with credit cards have lower non-payment risk and are convenient for buyers, they have the downside of exposing merchants to higher refunds and chargebacks requests. Above all, merchants must make it easy for consumers to cancel a subscription and stop the automatic billing at any time. Each payment processor can define its own requirements in order to enable recurring payments for an online business. However, merchants who want to keep refund and chargeback rates under control, should do the following:

 

  • Clearly identify each recurring transaction to the buyer.
  • Send e-mail notifications to customers before each billing, preferably including information about the sum to be charged.
  • Provide clear information about the billing arrangements as well as any charges related to the delivery of goods and services.
  • Provide easily accessible contact information for customer service.
  • Give subscribers an easy option to cancel the recurring charges.
  • Provide a clear statement of the cancellation policy on the website.
  • Stop the automatic billing immediately after buyers’ request.

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