Could Easier Cancellations Build Customer Loyalty?

Initiating a subscription is easy. Visit a merchant’s site, click a few buttons, and now you’re enrolled.

Perhaps that’s why subscriptions are so popular. New data shows that Americans subscribe to an average of 4.5 services and spend $924 a year maintaining them. Additional data points pulled from Renub Research suggest that the global eCommerce subscription market could expand to USD 2.4 trillion by 2028.

There’s a catch, though. Some subscription services are notoriously difficult to cancel, causing frustrated consumers to resort to chargebacks. In fact, 27.1% of merchants surveyed in the newly released 2024 Chargeback Field Report name subscription billing as their leading chargeback risk factor. Sellers who employ complicated interfaces that make cancellation options less visible, enforce convoluted cancellation terms, or implement policies that automatically renew subscriptions by default are particularly susceptible to subscription-related disputes. However, things could soon change on this front.

Following a deluge of public complaints about predatory subscription practices, the Federal Trade Commission (FTC) recently announced the final version of its new “click-to-cancel” rule. This move would “make it as easy for consumers to cancel their enrollment as it was to sign up.”

Related: A Guide To the FTC’s New Subscription Provision

What does the new rule entail?

Arguably, the most significant change would be that merchants would be barred from making services a pleasure to subscribe to and a pain to cancel. In practice, this means that fitness centers and newspapers can’t force consumers to mail a letter or wait on hold for hours to get rid of a subscription. Instead, the cancelation process must be as simple and frictionless as the initial checkout flow.

The new rule, which becomes effective 180 days from the day of its publication in the Federal Register, will directly affect merchants engaged in negative-option billing. This means any arrangement by which consumers are automatically charged for subscriptions they don’t actively cancel or decline. The rule will “prohibit sellers from misrepresenting any material facts while using negative option marketing.”

The click-to-cancel rule also mandates that merchants post clear cancellation disclosures and obtain cardholders’ informed consent before billing them. The FTC warns that merchants who fail to abide by the new rule could face heavy civil fines or penalties.

Click-to-cancel: A benefit for merchants?

Frankly, it’s easy to see why businesses would be opposed… at least at first.

Making it easy for consumers to cancel, opponents say, would encourage cancellations and defeat the point of a recurring billing model. Merchants that want to comply with the new rule also face challenges. Investing in technology and overhauling legacy cancellation interfaces both cost money, and in the face of greater customer churn and penalties for non-compliance, these outlays could be onerous. All this has led the US Chamber of Commerce to deride the move as a “power grab” by an FTC bent on “micromanag[ing] business decisions.”

Still, my contrarian view is that the benefits to merchants will outweigh the harms, with the most impactful positive being a reduction in chargebacks. The logic here is that cardholders stuck with difficult-to-cancel subscriptions will file chargebacks in response. Merchants who embrace the FTC’s new rule could indeed see more cancellations. But that’s in lieu of receiving chargebacks from customers who feel “trapped” in unwanted subscriptions.

Customer churn could also be an overblown worry; for select merchants, the FTC’s new rule may make their customers even stickier. Those who feel empowered to opt out of a recurring service of their own volition are more likely to feel important and valued. In turn, they may perceive a brand more positively and could be less inclined to cancel a subscription in the first place.

To put it succinctly, merchants who make it easy for customers to stay are likely to come out ahead of those who make it difficult for them to leave.

What else needs to be done?

To be clear, the click-to-cancel rule is not a cure-all for subscription chargebacks. Robust prevention measures are multifaceted, so merchants should also:

Embrace constructive feedback: If possible, perform “exit interviews” and solicit feedback from customers who cancel. Evaluate the feedback received and work to combat grievances aired by buyers who churn.

Issue retention offers: Roll out tailored offers that upsell consumers, convince them to renew, or persuade them to downgrade rather than cancel entirely. Merchants can also reward long-term customers with discounts or coupons to boost loyalty and satisfaction, which could encourage them to address issues with merchants directly instead of filing chargebacks.

Enhance customer support: Minimize response times and ensure that customer service personnel are reachable through multiple platforms. Train and empower customer support teams to address and resolve customer complaints.

Communicate transparently: Use plain language to inform customers about subscription terms, cancellation policies and billing arrangements. Ensure that both the procedure and mechanism for canceling a subscription are clearly accessible online.

Be updated on the latest regulations: Subscribing to regulatory newspapers, attending industry workshops, seeking legal advice and conducting regular compliance audits can help merchants stay in compliance and mitigate the risks of future penalties.

There are abundant opportunities to keep subscribers engaged, even after they cancel. Merchants who take steps to encourage retention through a better customer experience — rather than baffles designed to make cancellations impossible — will ultimately benefit.