October 16, 2015
On Thursday Netflix blamed card processing issues for disappointing subscriber growth. Netflix said the move by U.S. banks to replace hundreds of millions of credit and debit cards with new EMV chip-enabled cards this year has led to involuntary service cancellations as subscibers cards did not automatically renew when the new cards were issued. It is estimated that 575 million new EMV chip cards are being issued to consumers in 2015*. Many of these new cards require updated account information to be collected by subscription or recurring businesses servicing the affected cardholders. Although the cardholder’s account number may not change with the new card, the CVV and expiration date of the card most likely will change.
Do subscription type businesses that use Card-On-File need to be concerned they will also see increased declines?
Recurring and subscription billing merchants should be using Account Updater Services (as Netflix does) for updating new payment credentials. Over the past decade, the major card brands have introduced Account Updater services that allow merchants, via their processors, to submit card data on file to the networks for updating and correcting stale information. By utilizing these services merchants retain more customers and their customers enjoy uninterrupted service. Many payment platforms are now supporting this feature as a managed service to reduce the burden on the merchant of transmitting Card on file information to the processor.
Reoccurring billing and subscription services will most likely see a small increase in ‘Declines’ due to the glut of new cards issued. Account Updater Services will catch the vast majority of cards being reissued and will help reduce the amount of manual card on file updates a merchant will have to make, but it will not catch every reissue by every brand. Some issuers do not participate in the program and some card numbers are bound not to make it into the Account Updater file. As a secondary measure, businesses with card-on-file information should gently remind consumers that if they receive new chip cards in the mail to verify their information on their account profile. Overall, this should not be the sole reason a company does not meet its earnings expectations, but it is something subscription services merchants should be aware of and actively managing over the next six to twelve months to ensure they do not inadvertenly lose subscribers.
*Business Wire 2014. 575 Million US Payment Cards Feature Chip. http://wwww.businesswire.com/news/home20140813005329/en/575-Million-U.S.-Payment-Cards-Feature-Chip#.VEAmUhDVot1