Merchant account options for free trial offers still exist – but are not advised

Negative option billing, trial, free trial, “free to pay” offers – these are all terms for a method of marketing that has come under fire – and for a good reason. 

Many businesses use the trial model, but it is most prominent in the dietary supplement, skin care, and software industries. For most businesses – a free trial is a bad idea.

The model of a free trial has too many risks. We feel it is too hard for merchants to monitor the satisfaction of their customers and ensure that everyone who provides their credit card information is fully aware of what they are signing up for.

Not all free trials are as high-risk as others

Marketing a weight loss supplement for “free” then automatically billing customers after 15-30 days is called a negative option. That is a bad idea.

For software companies and for “pay shipping only” tangible product companies with no automatic recurring billing there are still many places to process. If you sell the same weight loss product mentioned in the paragraph above, but merely send out free trials, with no automatic billing, then we can often find you processing to sell the “solicited” reorders on pretty quickly- depending on your ingredients and financials. (This is all determined by the processor, we are simply a refferal source for the folks we work with.)

Trial merchant accounts are limited to credit card processors that:

1. Want and understand the business model and therefore can, and are willing to, mitigate their risks.
2. Do not already have so many free trial accounts on board already that the risk profile of their portfolio is out of balance. This can mean, at times placement is challenging. At other times, finding a trial-friendly processor can be much more straightforward. If you would like to run a trial offer, please reach out to us anytime for help.
3. Have the staff in place to manage the risk of fraud and monitor merchants for compliance with all applicable rules and regulations.

What is a “free to pay trial” in terms of e-commerce?

Our primary definition of negative option billing is “any billing practice where the merchant offers a product or service at a discounted rate or “free” and gathers credit card data at the time to automatically bill the customer should they not call to cancel or return the product.” A perpetual automatic recurring billing program generally accompanies this. These models are not recommended. 

Here is an example: a website sells a skin care cream consisting of monthly automatic shipments. To get you to “try out” their monthly service, they offer the first month’s product for only $5. If you like the service, you “simply do nothing, and you will be automatically billed the following month” the full cost of the service, say $60.

This is where the term “negative option” comes in. Customers get billed (the option to purchase) not by taking a positive action like choosing to purchase the full price product the next month, but instead, they get billed for not acting/not actively canceling (negative option). This practice is common in the nutra, or nutritional supplement world, where the first month is offered as “a free trial”, or “pay shipping and handling only” and unless you call to cancel within a short window of time you are billed automatically. After initial billing, customers are charged the following month for a new shipment and each month after that unless they cancel.

This practice can result in real harm to consumers looking for a supplement because often they are not 100% aware of how they will be billed. Software companies selling customer information managers, online backups, and hosting often do a better job making sure all their clients fully understand how the trial works.

Bad practices by some have made it hard for all

Many websites have used this model to take advantage of consumers, poorly disclose terms, gather payment information, and the automatically bill customers who were not expecting future charges. Compounding the ethical issue is the fact that some merchants do a terrible job of answering customer service calls, canceling orders, or even providing a quality product in the first place.

It does not take a stretch of the imagination to realize that this marketing model should be very clearly disclosed, all the legal ramifications should be researched with an attorney, and the cancellation and billing process should be clear, organized, accessible, and efficient to avoid major problems. Processors are now more than ever concerned with the chargebacks and risk associated with this model, and those that still allow this practice, therefore, are extremely cautious of which merchant accounts they place.