Type A event: cancellation of the customer’s payment method

The first fact we need to learn about this type of event is that it can happen at any given moment. Cancellation of the customer’s payment method does not depend on the agreed payment date. We distinguish two types of cancellations:

• Cancellation by the customer.
• Cancellation by the bank or by the customer’s credit company.

Cancellation by the customer.

A customer will cancel his payment method in the following cases:

• if he loses his credit card
• if the credit card is stolen
• If he closes his bank account and moves to another bank, or transfers his salary to another account
• If he changes credit card. That is, changing the type of card at the same credit company or switching from one credit company to another.

In each of the above cases, the customer should immediately notify his service provider of the cancellation of the payment method and provide details of an alternative payment method. In reality, some people behave this way, and the majority are satisfied with cancelling the payment method without notifying the organization.

The important message here is that the customer is not a real payment delinquent. Mostly, he behaves negligently towards the service provider. But for sure the customer will be very hurt if the service provider suddenly starts behaving unnecessarily aggressively towards him (threatened letters about immediate termination of service, actual disconnection, etc.). Therefore, in such a case, we must adjust the collection process to the reality on the ground, that is, providing a solution to a problem that seems only technical to the customer.

Replacing a credit card with the same card due to the expiration of the card might not constitute an event for the service provider (depending on if there a renewal automated process that assures continuity of use to the merchant).

UK solutions for merchants to replace expired credit cards with a new card

In the UK, when a customer’s credit card expires, merchants typically rely on a combination of automated update services provided by card networks, customer notification, and integrated payment systems to ensure a smooth transition to the new card. Here’s a brief overview of the common solutions:

1. Automated Card Update Services: Services like Visa’s Account Updater and Mastercard’s Automatic Billing Updater allow merchants to receive updated card information automatically. These services work by providing merchants with new card details when a customer’s card is reissued due to expiry or loss. This is especially useful for recurring payments.
2. Customer Notifications: Merchants often encourage customers to update their card details manually. This is common for services where a customer has an account or profile, such as online shopping platforms or subscription services.
3. Integrated Payment Systems: Modern payment systems often integrate with card databases to automatically query for updated card information. This seamless integration reduces the need for manual updates.
4. Direct Communication with Customers: For high-value clients or specific business sectors, direct communication to remind customers to update their card details can be effective.
5. Fallback Procedures: In case an expired card is charged, merchants usually have procedures in place to contact the customer for updated information or to attempt the charge at a later date.
6. Security and Compliance: It’s essential for merchants to stay compliant with the Payment Card Industry Data Security Standard (PCI DSS) when handling card updates to ensure customer data is secure.

These solutions help minimize disruptions in payments and maintain customer convenience. However, the specific methods may vary based on the merchant’s size, the nature of the transactions, and the payment processors they use.

US solutions for merchants to replace expired credit cards with a new card

In the United States, merchants have several options to handle the replacement of expired credit cards, ensuring continuous service and payment processing. These solutions are designed to minimize inconvenience for both the merchant and the customer:

1. Automated Updater Services: Like in the UK, major credit card networks in the U.S., such as Visa, Mastercard, and American Express, offer card updater services. These services automatically provide merchants with updated card information (including new expiration dates and card numbers) when a customer’s card gets renewed or replaced. Visa’s Account Updater (VAU) and Mastercard’s Automatic Billing Updater (ABU) are examples of such services.
2. Customer Notifications: Merchants often prompt customers to update their card details manually, especially in cases where automated updater services are not available or applicable. This is common with online accounts, subscriptions, and recurring billing services.
3. Integrated Payment Systems: Many modern payment gateways and processors in the U.S. have features that integrate with card updater services. These systems can automatically check and update card information, reducing the need for manual intervention.
4. Direct Communication Strategies: For some businesses, especially those with high-value transactions or subscription models, directly contacting customers to update their expired cards can be effective. This can be done via email, phone, or text reminders.
5. Retry Logic and Dunning Management: Some payment systems have built-in retry logic that attempts to charge an expired card periodically, under the assumption that the card might be updated soon. Dunning management tools are also used to follow up with customers whose payments have failed due to card expiry.
6. PCI Compliance and Security: As with any handling of credit card information, it’s crucial for U.S. merchants to adhere to PCI DSS guidelines to ensure the security and privacy of cardholder data.
7. Tokenization: Some systems use tokenization, where a unique token represents the customer’s card. When the card is updated, the token automatically maps to the new card information, ensuring uninterrupted payments.

These solutions are widely adopted in the U.S. to manage the transition to new cards upon expiration, loss, or theft, thus helping to maintain seamless transaction experiences for both customers and merchants. The choice of solution depends on the merchant’s specific needs, the nature of their business, and their payment processing arrangements.

Cancellation by the bank or by the customer’s credit company.

This case is completely different from the previous one. Although it can happen at any given moment, this is where the imagination ends. The cancellation of the payment method by the customer’s bank or his credit company indicates the cessation of credit services on their part, and in most cases, this causes immediate damage to the customer’s solvency and warns that the organization’s relationship with the customer must be changed.

In such a case, you must act immediately and get an alternative payment method from the customer, and if the customer does not provide it, you must end the contract with him without delay. Also, even in cases where the customer provides an alternative means of payment, the relationship with the customer must be re-examined from the aspect of credit control and demand for collateral, depending on the nature of the transaction and the amount of the current debt.

When it comes to monthly payments for products or monthly payments for services worth £10 or $10 per month and the customer provides a new standing order, there is no obstacle to continuing the activity with the customer. But a monthly charge of £5,000 or $5,000 per month will require a re-examination of the customer’s credit status and it will be necessary to consider obtaining additional collateral to ensure the continuation of the service.

NEXT: Type B event: non-respect of the customer’s standing order