Customer experience is king in our increasingly digital world. For merchants offering subscription-based digital services, such as streaming platforms and software providers, customer experience now starts before the first purchase. Digital merchants are turning to the free trial to set themselves apart from the competition. In fact, recent studies show that 97% of Software as a Service (SaaS) companies are now offering a free trial. However, this is opening the door for fraudsters and good customers alike to abuse the system and many retailers may not be prepared to stop this abusive behavior.
How free trials work and why they attract abusive behavior
“Sign up today and watch free for 30 days! Cancel anytime!”
These are the taglines businesses use to attract new customers. The longer the free trial or the higher the number of downloads available during the trial period, the more likely you are to set yourself apart from the competition, right?
Obtaining one of these trials does generally require that the prospective customer set up an entire account – turning over all the same information they would for the full purchase, such as email address, phone number, billing address, and credit card information. However, the credit card is usually not charged or even validated until the trial ends and the first full subscription period begins. Customers can choose to either cancel their subscription before the trial ends or allow it to auto-renew and charge the provided card.
Why does this attract abuse?
Quite simply, everyone loves something free. Professional and amateur fraudsters alike are attracted to the idea that they can get a service or product without paying for it. Free trials often lead to what is known as “email tumbling” in an effort to get multiple free trials.
Email tumbling occurs when someone creates multiple email addresses that point back to the same inbox in order to create new accounts. For example, John signs up for a month of free television streaming with his primary email address email@example.com. While he sees the value in the service and has used it regularly, he doesn’t want to pay for it once the trial is complete. In order to keep the good times rolling, he creates several new email addresses – firstname.lastname@example.org, email@example.com, and firstname.lastname@example.org. John cancels his subscription the day his trial is scheduled to end and then uses his “new” email addresses to create new accounts, each of which is now entitled to a free month of service.
This negatively affects the service provider in a number of ways. First and foremost, someone is using their service without paying for it which causes a loss of expected revenue from sign-ups. Secondly, this abuse increases marketing and infrastructure overhead costs because these services are still in use and must be paid for. Lastly, each cancellation has a negative impact on customer churn metrics, making it appear as though the service isn’t valuable because customers are not staying on past the trial.
Stopping the abuse
There are easy steps providers can take to stop abusive behavior. Instead of offering free trials, companies can move to discounted or extended-term offers. For example, instead of offering 2 weeks of free services before charging a customer’s card, providers can offer 6 weeks for the price of 4. This ensures customers are still getting the same amount of time for the first month’s price. However, this method may add friction to the customer journey as consumers have become increasingly accustomed to free trial periods not requiring an upfront purchase. This option could potentially lead to increased chargebacks from otherwise good customers, known as friendly fraud.
Alternatively, for providers looking to stop abusive behavior without increasing customer friction, there are holistic fraud prevention methods. By utilizing fraud management tools such as the Email Risk Score, providers can stop customers from using email tumbling to create new accounts. Fraud prevention solutions analyze the email address used for each free trial or account creation against other provided data points (such as physical address and phone number) against a network of globally sourced fraud data. Customers who have created multiple email addresses with the same name and physical address would be flagged as risky and can be stopped from getting new free trials.
While free trial abuse may not be seen as a traditional fraud method, unchecked it can have a negative impact on multiple levels of an organization. Stopping trial and account set-up abuse will lead to more paying customers and decreased overhead costs for your services, making it an important part of any holistic fraud prevention strategy.
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