Customers fight surprise charges as online subscription surge

When Jolene Stewart placed an order online for lingerie from Rihanna’s line, Fenty X Savage, this year, she unwittingly signed up for a subscription that charged her bank account every month in exchange for credits to buy more bras and underwear.

“It was part of a deal, and I guess I didn’t read the fine print close enough,” said Stewart, 22, a recent college graduate.

As soon as Stewart realized that she had been charged, she canceled the subscription and opted to use the credits she had already paid for. Three months later, Stewart discovered that Fenty X Savage had been charging her $49.95 a month for a subscription she was sure she had canceled — the company restarted her subscription when she used the credits, she said, sharing screenshots of the three payments with NBC News.

When Stewart asked that her card be refunded and that her subscription be canceled, the company refunded her for only one month, she said. The ordeal cost her close to $150 that she had never intended to spend.

“I love Rihanna and her products,” she said. “So I was really surprised and was like I guess won’t be shopping there anymore.”

Savage X Fenty, which declined to comment, is far from the only company drawing in new customers with online subscription programs. As online retailers look for new revenue sources, more companies are introducing subscription models to lock in customers. The subscription-based services automatically deduct money from customers’ accounts without consumers realizing they’ve made the purchases.

“Everything’s become a subscription these days,” said Patrick Campbell, the CEO of ProfitWell, which makes software for merchants to manage online subscriptions and tracks over 23,000 subscription e-commerce companies. “Anyone under the sun has realized the subscription-based models are a better revenue stream.”

But customers are catching on and complaining more volubly that they’re being charged for things they say they never meant to buy. Because of the prevalence of fraud in online shopping, banks and credit card companies have long had customer-friendly policies that make it relatively easy to contest suspicious or unwanted charges and get refunds. The cost of the refunds traditionally has fallen on merchants.

So merchants are pushing back and making it even more difficult for customers to get their money back. Online retailers have even created a special advocacy group within the Merchant Risk Council, an e-commerce industry association, to focus on ways to protect merchants from taking more financial hits from customers who dispute subscription charges.

An estimated 75 percent of all returned payments for merchants in the online subscription space can be chalked up to customers who paid for services but then claimed that they hadn’t intended to and contested the charges, according to a study by the research company Aite, which was sponsored by a Mastercard company.

Friendly fraud

Subscription services have been on a roller coaster through the pandemic as more shoppers have ordered goods online and then realized that they were paying for things they didn’t want.

Online merchants that sell goods and services that require recurring payments grew by 70 percent in June and then quickly dropped by about 40 percent in October. That means the industry’s monthly recurring revenue grew by only 30 percent, according to data from ProfitWell. People simply decided that they didn’t want or use the services they’d signed up for or, in some cases, didn’t realize that they had signed up for subscriptions at all, prompting them to contest the charges on their accounts as fraudulent, Campbell said.

The practice of canceling unwanted subscriptions has become so common that e-commerce analysts call it “friendly fraud,” because it’s a customer saying the charge was unintentional and therefore incorrect, even if the customer signed up for the service but forgot to cancel. Banks have streamlined contesting charges even more in recent years by adding simple ways to dispute unwanted recurring payments within their mobile apps, which customers have been taking advantage of, according to the study by Aite. It also found that dispute volumes double with every new method for customers to challenge unwanted charges.

The disputes cost e-commerce companies billions of dollars a year in returned revenue, in addition to the cost of customer support and bank fees for undoing the transactions, said Julie Fergerson, the CEO of the Merchant Risk Council. For online subscription services, 60 percent to 80 percent of fraud claims by customers can be chalked up to customers’ contesting charges for services, Fergerson said.

“It’s been increasing every year, and it’s gotten out of control. Everyone’s been trained to just call their bank and that the bank will take care of you. It comes from the whole zero-liability model from card issuers that gave people the confidence to buy online years ago,” Fergerson said.

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