Subscription fraud can cause havoc for businesses that utilize a subscription model if not carefully handled.
Preventing payment fraud is essential, but minimizing false positives is just as critical to avoid blocking trusted customers, losing revenue, and damaging trust. Businesses can lose an estimated 10% of their revenue from false positives, and a report from Forbes shows that declined transactions resulting from false positives saw 40% of declined users claim they would never use that merchant again. This statistic is made even more alarming by the fact that a study from Javelin Strategy & Research found that 15% of customers were declined at least once from suspected fraud, regardless of their intent.
Further studies show that other factors related to subscription fraud make it very difficult to counter. Subscription exploitation, or the use of multiple accounts to take advantage of free trials and joining bonuses, is incredibly difficult to detect, and attempting to do so haphazardly can impact your organization’s reputation. Suspicious transactions can even start to affect your business through acquirers and banks, which a report by PYMNTS.com showed more than 80% struggle to discover the cause of these failed payments.
The writing is on the wall: subscription fraud is effective for bad actors, difficult for businesses to detect, and current approaches are likely to lead to customer dissatisfaction. The best option for countering this type of fraud in today’s marketplace include fraud monitoring platforms like Sift, but it’s best to understand the issue fully. Let’s dive in.
Understanding the Threat: What is Subscription Fraud?
Subscription fraud refers to deceptive tactics used by fraudsters to take advantage of businesses operating on a subscription model that can result in payment fraud. While legitimate users sign up for streaming services to enjoy content, malicious actors exploit free trials and introductory offers with the intent to bypass payments, which can lead to financial losses for the business and loss of customer trust from increased scrutiny.
Fraudsters may use multiple fake accounts to exploit free trial periods or take advantage of special offers. The ease with which this can be done makes it a growing concern for streaming platforms and other subscription-based services.
Fraudsters can set up numerous email addresses or fake identities, sign up for trials, and cancel before the first payment is due. VPNs also present a problem for detection, as fraud detection algorithms used by most major subscription service providers look for location to detect unusual behavior. Many streaming services may not have mechanisms to verify the legitimacy of accounts before offering free trials, which only makes the fraud cycle harder to break.
Detection and prevention require proactive fraud monitoring, advanced detection systems, and constant adaptation to the evolving tactics of fraudsters.
Common Types of Subscription Scams in 2025
Fraudsters are constantly finding new ways to exploit free trials and other subscription offers, often leaving businesses with revenue loss and customer dissatisfaction. Here are the most common types in 2025.
Fake Free Trials
Fraudsters create multiple accounts using fake information to repeatedly exploit free trial offers. This tactic is simple, requiring only new email addresses, and often goes unnoticed by streaming services until fraudulent activity becomes widespread.
VPN and Proxy Masking
Fraudsters use VPNs or proxies to disguise their true identity and location, making it hard for businesses to track repeated fraud attempts. This method significantly complicates the detection process, as users appear to be legitimate customers at first glance.
How Subscription Fraud Affects Businesses and Consumers
Subscription fraud can have wide-reaching consequences, impacting both businesses and consumers in significant ways.
Financial Loss and Consumer Frustration: Subscription fraud leads to financial losses for businesses as fraudsters exploit free trials or use fake accounts to bypass payments. Consumers face frustration when billed for services they didn’t intend to use, leading to complaints and dissatisfaction.
Loss of Trust in Online Merchants and SaaS Platforms: Fraud erodes consumer trust. Once customers are affected by fraud or feel misled, they lose confidence in merchants, particularly SaaS platforms, making it harder for businesses to retain customers.
Increased Chargeback Rates and Regulatory Fines for Businesses: Fraud often results in chargebacks, which incur fees and damage a business’s reputation. Regulatory bodies are cracking down on deceptive subscription practices, leading to potential fines for businesses not compliant with consumer protection laws.
Spam Subscription Campaigns: A New Layer of Risk
Spam subscription campaigns are an emerging layer of risk for businesses, with fraudsters using automated methods to sign up large numbers of email addresses to unwanted subscription services. Bot farms are often employed to carry out mass sign-ups, bypassing manual verification checks and making it difficult for businesses to detect fraudulent activity until significant damage is done.
Additionally, fraudsters use spam traps to target users who click “unsubscribe” from email lists, often masking the fraudulent nature of the subscriptions. This not only affects consumers but also poses a risk to businesses, as their domain may become associated with spam campaigns. Such associations can damage a brand’s reputation, erode consumer trust, and even invite legal scrutiny, adding further complexity to the issue of subscription fraud.
How Sift can Detect and Prevent Subscription Fraud
Businesses can benefit from using fraud detection technologies to monitor unusual activity, but clear and transparent terms (as well as one-click cancellation options) can help reduce the chances of subscription traps, ensuring customers are fully aware of the terms before committing. Notification alerts before renewals are another important step, allowing customers to avoid unexpected charges.
It’s essential for businesses to create user-friendly experiences that don’t rely on tricks that may seem effective in the short term but harm the business in the long run. By implementing fraud prevention systems like Sift, businesses can bolster their defenses, minimize fraud, and protect both their revenue and reputation.
Sift is unique in the industry of fraud prevention because our countermeasures can actually spur growth while identifying and stopping subscription fraud.
Through the Sift Global Data Network, our AI-powered solution uses more than 16,000 signals and 1 trillion events gathered globally and across all industries to determine if a user’s behavior is trusted or suspicious. This can help track stolen credit card information or compromised accounts before spam subscription campaigns can damage your bottom line through multiple angles of detection.
Through Clearbox Decisioning, Sift subscribers can tailor workflows and flagging parameters to match their industry. Sift shows exactly why a user is flagged, so you can determine if the potential fraud is one your business can absorb. An example of this would be a person using a music streaming service while traveling around Europe: their IP address may change frequently, but because it’s a service often used on the go, the company would likely not view this as suspicious behavior.
This increased level of control and knowledge typically leads to increased growth with your users. You can detect suspicious behavior with unprecedented accuracy while providing a near-frictionless experience for your legitimate customers.
Real Examples of Subscription Scams
Subscription fraud can have a significant impact on businesses, both financially and reputationally. Here are a few examples:
Netflix: Netflix has been a target of subscription fraud, particularly with the use of stolen credit card and personal information to access free trials. Fraudsters exploit these trials and then cancel before the first payment is due.
Spotify: Spotify has also faced subscription fraud, with users exploiting loopholes in the free trial system to create multiple accounts with fake email addresses. Fraudsters take advantage of special offers and sign up for free trials multiple times.
Apple: Apple’s App Store has seen a rise in subscription fraud involving fake apps that trick users into signing up for unwanted subscriptions. These apps are designed to look legitimate but charge users unexpectedly after free trials.
Adobe: Adobe faced challenges with fraudulent account sign-ups using stolen, fake information to exploit free trials. Fraudsters would use multiple accounts to access Adobe’s premium software without paying.
Subscription Service Regulations and Industry Guidelines
Various regulatory bodies and industry standards have developed guidelines for subscription services to protect consumers.
FTC’s Rules on Negative Option Billing
The Federal Trade Commission (FTC) in the U.S. has implemented strict rules on negative option billing, which refers to automatic renewal of subscriptions unless the consumer actively opts out. Under these rules, businesses must clearly disclose the terms and conditions of the subscription and must obtain explicit consent from customers before charging them. Companies must also provide easy ways for customers to cancel subscriptions.
Mastercard and Visa Mandates
Mastercard and Visa have mandated certain practices for merchants offering subscription-based services. These include clear disclosure of trial terms, including the duration and cost, and ensuring that cancellation policies are straightforward. Failure to comply with these mandates can result in fines, chargebacks, and loss of merchant services. Businesses must ensure that users are fully aware of their obligations before committing to subscriptions.
EU Consumer Protection Laws
In the European Union, consumer protection laws require that all subscription services provide clear and transparent information about pricing, cancellation, and renewal terms. The European Union’s Directive on Consumer Rights has specific rules on subscription-based services, mandating that businesses offer easy-to-find cancellation options and require confirmation for auto-renewals. These rules help prevent subscription traps and provide more accountability for businesses involved in subscription-based services.
How Businesses Can Stay Ahead of Subscription Fraud in 2025
With subscription fraud, businesses must be proactive and adaptive to safeguard their revenue and maintain customer trust. Here are key strategies businesses can implement to stay ahead of subscription fraud in 2025.
Invest in AI and Dynamic Risk Scoring
Utilizing AI-driven fraud detection systems like Sift is essential for businesses to stay ahead of subscription fraud. Sift analyzes user behavior patterns to accurately identify suspicious activities such as multiple sign-ups from the same user or unusually high usage of free trials. Transparency with risk scoring allows businesses to adjust fraud detection mechanisms based on new threats so fraud prevention is always in sync with evolving fraud tactics.
Educate Users on How to Identify Scams
Educating users about how to identify common subscription scams like fake free trials increases trust and empowers them to make informed decisions. Businesses can share resources, run campaigns, or incorporate educational content into their subscription sign-up process to ensure that users are aware of potential risks.
Develop Cancellation-Compliant Subscriptions
One of the easiest ways to reduce subscription fraud is by simplifying the cancellation process. Fraudsters often exploit subscription services that make it difficult for users to cancel their accounts, which leads to unwanted charges. Clear and accessible cancellation options can prevent refund fraud, reduce customer frustration, and minimize chargebacks related to fraud.
Fighting Subscription Scams with Transparency and Tech
In 2025, combating subscription scams requires a combination of transparency with customers and the use of advanced technology. Businesses that adopt these strategies reduce their exposure to fraud and build long-term trust with consumers, enhancing both their reputation and bottom line.
By implementing clear, user-friendly subscription models that emphasize transparency, such as easy-to-understand terms and straightforward cancellation options, businesses can reduce the likelihood of fraudulent activity. Consumers are more likely to trust and remain loyal to companies that openly communicate their subscription terms and offer hassle-free management of their accounts.
Trust is at the heart of any successful business, and in the subscription economy, it’s how to maintain customer retention and long-term revenue. Businesses that are transparent about their subscription offerings, pricing, and renewal policies create a sense of reliability with consumers that helps create satisfied customers that are more likely to renew their subscriptions, recommend the service to others, and engage more deeply with the brand.
Sift’s Global Data Network analyzes more than 1 trillion annual events, providing businesses with a comprehensive view of user behavior and potential fraud patterns. Businesses can identify and prevent fraud with industry-leading accuracy, ensuring legitimate users have a smooth experience while minimizing false positives.
Sift’s fraud prevention solutions are adaptable, enabling businesses to customize workflows and risk thresholds based on their specific needs. This level of flexibility not only improves fraud detection, but also enhances the overall customer experience, allowing businesses to balance security with seamless interactions.
By embracing transparency in subscription offerings and integrating nuanced fraud prevention technologies, businesses can effectively reduce the risks of subscription scams and enhance consumer trust, ultimately driving growth and fostering loyalty in the competitive digital marketplace.
Subscription Fraud Primer
See how Sift’s payment protection platform handles subscription fraud.
