Coming up with the optimal pricing structure for a product or service is tough. Beyond factors such as competitor pricing and target market price point analysis, merchants need to consider the limitations that accompany collecting money via a credit card.
The reason behind the limitation: financial risk. Merchant account providers are on the hook for the money their customers process. For example, if a company accepts 1,000 annual subscriptions at $129 and then declares bankruptcy two months later, the merchant account provider is responsible for paying back the full $129,000 to cardholders when they file chargebacks.
Some merchant account providers will maintain a hardline for anything greater than 30 day recurring billing cycles while others with a bigger appetite for risk may allow quarterly, semi-annual or annual billing from the start. This becomes less of an issue if a company has a demonstrated track record and financial strength.
Whatever billing strategy a company pursues, it's a good idea to make sure that all billing intentions and practices are fully disclosed upfront to avoid future problems.
Related:
Jason Fried of 37signals has a good post about their experience with this.
Last month Visa announced that they are moving to alert customers of suspected credit card fraud via mobile phone. This week they announced more ambitious plans to build online payment applications with Nokia for Google’s Android.
The goal is to allow users to make remote and contactless payments as well as transfer money. Remote payments should be marked user convenience and transferring money is a big move for Visa into a space they've not been before. The biggest barrier to contactless payments will be the required point of sale upgrades to allow for Near-Field Communications (NFC) where users just wave their phone a few inches from the device.
Digital Transactions reports today that in 2009, in an effort to reduce credit card fraud, Visa will provide cardholders the ability to be instantly notified via email or text message of any usage of their debit, credit or ATM card. The service is in beta with a number of U.S. and Canadian banks.
The system will allow users to set transaction amount notification thresholds. If a transaction is suspicious users can immediately call a 800 number to report it. Today it takes 98 days on average to detect identify theft and 72 days for bank card fraud (Javelin Research).
This type of notification service has the potential to dramatically reduce that. So in short, Visa is shifting fraud screening and prevention costs to cardholders. Nice work Visa.
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