Real talk on cancelling subscriptions – A guide for modern businesses

In the realm of B2C services, every company is looking to take advantage of the hype surrounding subscription-based programmes, from major streaming services like Netflix, Hulu, and Amazon Prime, to large retailers like Target and Walmart. Even your local car wash has a membership programme that you can opt into for a monthly fee. P.F. Chang’s, Best Buy, Adobe; all of these companies have incorporated some sort of loyalty programme for their customers.

While popular, subscriptions don’t last forever and when they end, many times it’s accompanied by a chargeback initiated by the customer through their issuing bank. In fact, according to our 2024 Cardholder Dispute Index, this is exactly the method in which consumers want to cancel subscriptions. 90% of surveyed consumers would like to be able to cancel recurring payments through their bank without contacting the retailer. This is a problem for companies that offer subscriptions, as not only will this inundate their business with unnecessary chargeback fees and related penalties, but they also won’t be able to offer incentives to continue subscribing or conduct exit surveys to see why they are losing subscribers.

In this article, we will look at the cancellation options available for businesses offering subscriptions, and how they can balance the needs of customers with their own commercial goals.

The rise of subscription businesses

Subscription businesses grew their customer base by 31% in 2021 alone, and although there was likely a post-pandemic spike in subscriptions for things like food boxes and streaming services, this increase is holding steady today.

Subscriptions have existed for a long time. The first was likely to have been a fire insurance policy established in the UK in 1638, working much like a modern insurance policy that a customer pays for over time, though of course the 17th-century policyholders would pay in cash. Having paper or milk delivered each morning so that you don’t have to go to a general store each day is as much a subscription as Netflix, starting in the 1860s. Later, magazine subscriptions became a way for niche publications that wouldn’t work on newsstands to flourish.

Throughout the 20th century, various subscription services for goods like records and books emerged. But while subscriptions have been relevant for centuries, they saw a categorical upswing with the rise of the internet and eCommerce. Today, instead of replying to an advert in a magazine, calling a hotline, or visiting a brick-and-mortar store, consumers are now able to sign up for—and cancel—subscriptions instantly.

The convenience of subscriptions is such that three-quarters of people believe that they have subscriptions that they have forgotten about—raising the question of just how many subscriptions are made in haste, error, or are just outright fraudulent. It has never been easier to set up a subscription, especially when using mobile apps and digital wallets, which can make it as easy as pressing a few buttons.

The subscription model has made its way into areas that would have previously been based on single sales. Computer software is a prime example: two decades ago the only way to get a piece of software like Adobe Photoshop would have been to buy an (often very expensive) CD-ROM or DVD, which in later years would entitle you to some free security and bug-fix patches, but not to upgrade to the new versions of the software that were released yearly and had new functionality. This essentially created a subscription model through the back door—professionals would need to upgrade every year to keep up to date. Instead, Adobe adopted a software-as-a-service model in which users paid a monthly fee for unlimited updates to the software.

Cancelling cancellations

There is an issue with this however, one that exposes a key challenge to subscription businesses. Unlike low-value subscriptions like Netflix that can offer free cancellations, the high-cost subscriptions to Adobe Suite and other professional-level SaaS products are uneconomical to offer on such a customer-friendly basis. Customers must cancel within two weeks of buying a subscription to receive a full refund or receive a penalty, and this has caused friction with the FTC.

Faced with losing a significant sum of money because of these terms, it’s no surprise that a percentage of users initiate chargebacks. The SaaS industry suffers a higher-than-average level of chargebacks, with 0.66% of transactions being disputed. The chargeback system is skewed in favour of consumers, and this means that of that 0.66% many are likely to get all of their money back.

What is needed then isn’t a tighter grip on subscribers—if terms and conditions are made more restrictive then a greater percentage of users will use the chargeback system, causing greater financial harm than more customer-centric policies. If a company’s policies are weighted too heavily in favour of customers then they can circumvent them (20% of subscribers do so because they ‘only signed up to benefit from an introductory discount’ for example).

Instead of going down either route, subscription companies need to build cancellation policies that are customer friendly, but which are backstopped by strong chargeback remediation systems. Some companies with low-cost products may be able to offer fully customer-centric policies, with no-quibbles refunds, generous introductory discounts and discounts to entice cancelling customers back, but many with more costly subscriptions won’t find it economical to do so. In this case, only constant experimentation with policies to find what works, plus machine-learning-based chargeback remediation, will be able to maximise the value of subscriptions.

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Roger Alexander is a key advisor to Chargebacks911’s Advisory Board and CEO, Monica Eaton. He assists with the company’s expansion, particularly the launch of its dispute resolution solution for APP fraud claims. With over 36 years in payments, Alexander has held leadership roles at Barclays, Switch (UK’s Debit Card), and Elavon Merchant Services Europe. He currently advises Tarci and Pennies and has held NED positions with ACI Worldwide, Caxton, and Valitor.

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