How the new recurring payment rules for Mastercard will affect charities

Chargebacks and litigation led Mastercard to change the rules for recurring payments. Here’s what your charity needs to know.

Over the past few weeks, you may have become aware of the proposed new rules for Mastercard recurring payments; rules that could have a significant impact on regular nonprofit giving. In short, fundraisers will be obligated (among other requirements) to alert their regular donors to their cancellation option after each recurring payment. We take a closer look at the rationale and what the changes will mean for charities.

Why did Mastercard make these changes?

The financial services provider announced its new requirements for merchants using a subscription-based billing model or a negative option model, or both.

While subscriptions offer many of us the convenient option of setting up ongoing payments, they have also resulted in a growing number of consumers feeling cheated or misled. This is especially true with negative option billing which is based on a free trial/sample model where the consumer provides their credit card details at sign up and is then charged on a continues if it does not proactively cancel. Many merchants have not been clear about these potential charges and as a result, “chargeback” disputes against Mastercard continue to grow rapidly (a chargeback occurs when the cardholder, or their bank/financial institution, raises a dispute in connection with a card transaction).

In response, Mastercard wants to see more transparency for merchants from the point of payment.

What announcements did Mastercard make?

Mastercard released two sets of rule updates in 2022, which will result in a revised regulatory standard for recurring payments. This revised standard was due to be implemented on September 22, 2022, but has now been pushed back to March 21, 2023 while organizations such as Fundraising Institute Australia (FIA), Fundraising Institute of New Zealand (FINZ), Public Fundraising Regulatory Association (PFRA) and a number of fundraising bodies and institutes across the world unite to lobby Mastercard to allow exemptions for charitable donations.

Why do we need an exemption? How does this affect the nonprofit sector?

The discourse surrounding Mastercard’s changes relates to the organisation’s definition that recurring donations to charities are “subscription services” (see point 8) and therefore charities receiving recurring donations must comply with the new rules. .

What are the new rules?

the rules may change but, as it stands, the following will apply from March 21, 2023 (as noted by FINZ in its September 6 email communication):

  1. Upon receipt of a first payment (regardless of the method of registration – face to face, website, etc.), you must send the donor an electronic confirmation of receipt of payment which includes the date of receipt, the amount of the donation, terms and conditions, frequency of payment and “withdrawal” options and contact details.
  2. After each transaction, Mastercard users should receive notification of the date of the transaction and the amount received (this does not need to be a formal receipt). You can offer donors the option to stop receiving these notifications after each transaction. You don’t have to follow this step if you don’t have an email address for your donor.
  3. Each transaction acknowledgment should include a reference to how a donor can cancel, whether it’s a link or a simple “to change/cancel your donation, please call” message, etc.
  4. You can choose to send official donation receipts after each transaction or send an annualized donation receipt.
  5. If you’re unsure how these changes will impact your charity, contact your payment gateway and/or CRM provider (Blackbaud, Salesforce, etc.) for guidance.

If your charity’s regular giving is facilitated by third-party platforms, their processes can help bring you into compliance – read this blog post from Raisely as an example.

Why is this a problem?

In short, it’s going to be a lot of extra administration.

Other concerns include:

  • Many nonprofits lack the staff and/or technology to manage these changes.
  • Recurring donations are not a significant source of chargebacks and therefore should not be tainted with this brush.
  • The new administrative processes will change the donor experience – from something that feels like a gift to something that feels transactional.
  • Donor confusion following the receipt of a series of new communications that they may not want or expect.
What do we hope to change before March 2023?

It is hoped that charities will be exempt from these new rules, as will recurring payments for utilities (e.g. gas, electricity, sewerage, fuel oil, water), telecommunications, insurance policies or existing debts. (for example, car loan or mortgage). payments) are (see points 5 and 7).

Organizations such as the FIA, FINZ and The Nonprofit Alliance (TNPA) lobbied for this exemption and it was these voices that influenced the delay in implementation from September 2022 to March 2023.

And then ?

For now, we should assume that the charitable sector must comply with the new Mastercard rules from March 21, 2023 and must be prepared to do so.

Those of us fundraising in Australia and New Zealand should closely monitor updates from the FIA ​​and FINZ as they work towards a more desirable outcome for the sector.

To read the full Revised Mastercard Standards for Subscription/Recurring Payments and Negative Option Billing Merchants, click here.

To read the letter from the (US-based) Nonprofit Alliance community to Mastercard, click here.

To watch Blackbaud’s “How to Ensure Compliance with Mastercard’s Revised Standards for Recurring Payments” webinar, click here.

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