If your business has tried to collect payments from your customers using authorized monthly charges to their credit cards, you may have found that it's a lot more difficult than you expected.
Consumers' credit-card accounts are changing more rapidly than ever, due to the reissuance of card numbers to combat identity theft, heavy promotion of no-fee balance transfers from one card to another, and bank mergers that result in new account numbers being issued.
More than 55 percent of Visa cards changed their account details in 2003, according to Visa USA. The card numbers of these accounts became invalid for all of the above reasons, plus the normal rollover of the cards' expiration dates. Even if your business does manage to gain authorization from your customers to automatically charge their credit cards, the majority of your customers' cards will cease to be auto-billable only one year later.
Credit-card issuers in the U.S. have recently come up with a novel solution, however. Almost any business that asks for it can now learn a consumer's new credit-card account number -- whenever it may have changed.
The Great Database in the Sky
I reported last week that U.S. credit-card issuers had pioneered a "recurring flag" for credit-card transaction data. This flag, which is actually a byte of information, eliminates the need for participating businesses to provide a card's expiration month and year when submitting a charge. The use of this flag, which is new enough that it's still unknown to most businesses, can produce an enormous revenue boost for companies that depend on monthly credit-card auto-billing.
The ability of businesses to discover changes in credit-card numbers is an equally important new custom. Instead of merely omitting a card's expiration date, businesses can now virtually ignore the actual account numbers of all that plastic out there. Recurring fees can continue to be collected as though the consumers' numbers had never changed.
Some U.S. credit-card issuers began relaying new credit-card numbers to businesses as long as two to three years ago, while others are just now beginning to match these procedures. Because of the gradual rollout -- and the obscure nature of these financial minutiae -- most companies, not to mention consumers, are unaware of the practice.
Different credit-card issuers use different names for their change-of-number policies. Visa USA calls its program "Account Updater." It's no secret -- a page about the procedure is posted on Visa's Web site. But that fact doesn't mean people who might be affected by the policy have heard of it.
In an interview, Visa USA's vice president of merchant relations, Jim Eitler, told me that more businesses are becoming aware that they can track consumers' credit-card numbers as they change. "The cost/benefit is very good," he said, compared with the procedure most businesses use: manually contacting customers to ask for their new credit-card information.
Eitler confirmed that large Internet service providers and other corporations that depend on monthly subscriptions had pushed for the new policy over the last couple of years. "The AOLs of the world were ahead of the rest of the world on Visa Account Updater," he said. American Express and other large credit-card issuers also provide new-number data. The policy isn't widely followed in Europe and seems to be prevalent only in the U.S., at this point.
Industry Has Rules That Are Flexible
Some experts on the credit-card industry, such as Paul Larsen, a consultant based in Fishkill, N.Y., say both the sharing of new account numbers and the ignoring of expiration dates are new enough that they aren't yet reflected in formal, written rules.
Eitler says many of the recent changes are covered under the issuers' original contract language. "The Account Updater service was written with the card-not-present [Web transaction] rules in mind," he explains. "The actual execution of the contract falls under the same rules as they always have. As the world of auto-pay has evolved over the years, the rules have been modified."
Don't consumers, I asked, complain that recurring charges on their cards are continuing even after their card numbers have been changed? "No, I have not heard about that," Eitler says. Customers who trust a business enough to authorize recurring charges in the first place seem to like the fact that changing a card number doesn't force them to re-establish all their auto-pay arrangements.
For those who do wish to wipe the slate clean by getting a new card number, Eitler says, "We have the Visa Cancellation Service, where the consumer can cancel some or all auto-payments."
Getting New Card Numbers for Your Business
Getting the updated information on consumers so that your business can take advantage of it seems to depend on the bank that processes your credit-card transactions. "Any merchant is eligible to use it [Account Updater]," Eitler says. "It's a judgment call by the billers" -- in other words, each business's bank.
Once your business is accepted into the program by your bank, you use the bank's software to electronically submit the credit-card numbers of customers whose auto-pay transactions are coming up. The credit-card issuers then provide the new account information, via your bank's software, if a consumer's credit-card details have changed. The new numbers allow your business to continue the auto-pay relationship without interruption.
Eitler couldn't estimate the costs of the service, since each participating bank sets its own fees. But sources indicate that the charges are as little as 15 U.S. cents per changed credit card. That's a fraction of the cost of the alternative -- contacting customers offline every year or two to request their new information, inevitably losing many authorizations as a result.
There's no doubt that the use of credit cards in the U.S. to pay businesses automatically will increase in popularity. In Europe, auto-payment is much more common than in the U.S., but the method usually involves a transfer from a consumer's checking account rather than a credit-card account.
The account-update methods developed by Visa and other credit-card issuers make auto-payment more profitable for U.S. businesses and arguably more convenient for consumers. As long as everyone is getting some benefit from the relationship, it can only grow stronger.