By Gabe McGloin, Head of International Merchant Sales & Business Development, Verifi

The experience of lockdown has turned many consumers into a captive but willing audience for streaming entertainment and subscription services. Stuck at home with children or friends and relatives to entertain, consumers may have taken advantage of the large number of free trials on offer throughout the lockdown. These services provided households with ‘free’ on-demand entertainment, education, and company.

However, what happens when a consumer forgets about their free trial and unwittingly converts into a paid subscriber? As economic hardship continues, some may likely attempt to dispute their payments. Merchants will find themselves walking a delicate tightrope, balancing the need to defend their revenue while maintaining a positive customer relationship.

Nothing’s free forever

Free trials can be an effective marketing strategy for any subscription-based business, including video services, gyms, and online gaming. They’ve helped many businesses successfully pivot into the digital world, encouraging new and existing customers to enter into a positive and profitable long-term relationship.

From Netflix, Amazon Prime and Disney+, to smaller online service providers, there’s a huge number of free trials available, with wildly differing durations. Personally, I tend to avoid the allure of most free trials, being cautious of loopholes that make cancelling the service difficult, or simply forgetting about it. But 2020 could be the year many give in; facing the mundanity of quarantine, introductory trials provided free and convenient relief, at least initially. Research from Deloitte found during the pandemic, nearly half (47%) of US consumers cited using at least one free ad-supported streaming video service.

However, when a free trial suddenly lapses into a paid subscription, that’s where trouble can emerge. A customer can easily feel cheated when they see an unfamiliar charge on their billing statement and realise they failed to cancel their free trial in time. Chargebacks may also come into play, when customers discover they have fallen victim to ‘friendly fraud’, which is when a household member – often a child – uses a credit card to try out a service without their knowledge. The feeling of being cheated and looking for quick ways to recoup funds has the potential to be exacerbated when the customer is struggling financially and needs to cut discretionary spending. When these circumstances combine, merchants face a perfect storm of payment disputes and chargebacks.

Communication is key

Fortunately, there’s a solution that can help keep all parties satisfied: clear communication before, during, and after a chargeback is requested. It’s important for the merchant to communicate with their customers throughout the duration of the trial. They should provide identifiable billing descriptors, clear terms and conditions, and instructions on how to cancel before the trial ends, along with a reminder right before the end of the trial.

Clear but not invasive communication pre-empts disputes and assuages the problems escalation brings. Indeed, both Visa and Mastercard have recently implemented communication mandates for merchants who offer free trials and introductory offers (also known as negative billing options) as part of their marketing programme.

When customers want to dispute a payment, they will do this in one of two ways. They either bypass the merchant and call the issuer directly to request a chargeback, which happens in 76% of cases. Alternatively, and less frequently, they contact the merchant directly, which is the best outcome in most cases but can feel like a harder route for the customer. The merchant then has a valuable opportunity to find a mutually acceptable resolution to prevent a dispute, while maintaining a personal customer relationship.

In any case, if there is clear and transparent communication all parties should have the vital information before any agreement is entered. This provides an easy reference for purchase rights should a customer contact the merchant for a pre-dispute discussion. Additionally, should the customer initiate a chargeback, all the advanced due diligence has already been taken care of. This is a vital part of building a compelling case for the merchant to fight a chargeback.

You can’t win every battle

Disputes aren’t just costly, they’re time-consuming. This creates another major challenge for merchants: not having the necessary personnel to manage increased dispute volumes. Over the course of the pandemic, stress on resources has been magnified due to staff stuck working from home without access to systems, along with furloughs.

Businesses can never avoid disputes entirely, but the best defence is clear: transparent communication throughout the transaction. A dispute also needn’t be the end of the relationship. In a world of choices, 96% of customers say customer service and experience is important in their choice to remain loyal to a brand. This includes providing a customer a credit or refund when warranted, which will also help keep a merchant’s dispute ratio in check when executed early enough in the dispute process.

The impact of the pandemic has varied vastly across industries, with some – like video streaming services – have managed to thrive in a challenging market. However, it is safe to assume that increased sales are more than likely to be followed by an upsurge in disputes. It’s crucial that merchants stay prepared, taking the extra steps needed to protect themselves while providing a positive experience. This can flatten the spike of escalating disputes and reassure the customer that free trial merchants aren’t out to prey on their forgetfulness.