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  5. PayPal Reference Transactions for Subscriptions FAQ

PayPal Reference Transactions for Subscriptions FAQ

WooCommerce Subscriptions comes with built-in support for PayPal payment methods, but requires Vaulting to be enabled and, for certain advanced features, Reference Transactions too.

While previously Subscriptions defaulted to PayPal Standard, it is no longer the case. PayPal Standard will be hidden on newly installed Stores, and an alternative PayPal option should be used.

Reference Transactions is not a standard product and approval is subject to a fully underwritten application. This can include reviewing your business model and finances to determine your suitability.

This FAQ answers common questions about getting your PayPal account approved for Reference Transactions, and how PayPal Reference Transactions work with WooCommerce Subscriptions.

How do I get Reference Transactions Enabled with PayPal? ↑ Back to top

To request that PayPal turn on Reference Transactions, call your local PayPal Support Help Center. Log into your PayPal account then find your dialing instructions here.

Tell PayPal that you are specifically calling so a PayPal Specialist can enable Reference Transactions on your account. They may try to help you set up recurring payments with a button — that is not what you want. They need to transfer you to a specialist who will ask you for your PayPal account information (email address), and then tell you that they filed a ticket, and you will hear back from PayPal via email on whether Reference Transactions have been enabled or not.

Will My Account Qualify for Reference Transactions? ↑ Back to top

PayPal does have a set of requirements that need to be met before they enable support for Reference Transactions on your account.

Unfortunately, PayPal does not publish these requirements and based on anecdotes from customers, the requirements can be different for different businesses.

Some things that store owners have mentioned PayPal require are:

  • High personal credit (FICO) score for US based PayPal Business accounts
  • Business plan
  • Average transaction price
  • Number of repeat customers
  • Number of Reference Transactions per customer
  • Revenue forecast and/or projected total revenue volume from Reference Transactions
  • Demonstrate a clear business rationale behind the request
  • Show the signup flow for customers in regards to Reference Transactions.
  • Proof that you will show clear terms and conditions for customers in regards to Reference Transactions and how to cancel once they sign up.
  • Written statement as to why you need Reference Transactions and how you will use it for your business.

In terms of revenue forecasts, we have had reports that UK-based PayPal accounts may require a minimum forecast of £6,000 monthly or more revenue.

How do I Enable Reference Transactions in Subscriptions? ↑ Back to top

WooCommerce Subscriptions takes advantage of Reference Transactions when possible.

If your PayPal account does not have Reference Transactions enabled, Subscriptions automatically checks with PayPal once a week when loading the WooCommerce > Settings > Payments screen to see if support has since been enabled.

If you wish to run the check manually:

  1. Go to WooCommerce > Settings > Payments > PayPal.
  2. Ensure PayPal is enabled and your credentials are set.
  3. Select Check PayPal Account when the Reference Transaction notice appears.
Reference Transactions Notice on PayPal Settings Screen

Will Existing Subscriptions use Reference Transactions? ↑ Back to top

No. PayPal Reference Transactions are only used for future subscriptions. This means that advanced subscription management features, such as recurring amount changes, are only possible on newly purchased subscriptions, not existing ones.

However, enabling Reference Transactions makes it possible to upgrade or downgrade existing subscriptions.

The only way to have existing subscriptions changed to use PayPal Reference Transactions is to have customers sign-up again with PayPal by changing the payment method on their subscription(s).

Why are billing agreements not cancelled at PayPal when a subscription is cancelled in WooCommerce? ↑ Back to top

When a PayPal Standard Subscription is canceled or suspended in your WooCommerce store, the status of the corresponding subscription at PayPal is also changed.

However, when a subscription created using PayPal Reference Transactions is canceled or suspended in your WooCommerce store, the corresponding Billing Agreement at PayPal does not have its status changed. It remains active.

This is normal behavior because Billing Agreements are fundamentally different to PayPal Standard subscriptions.

A PayPal Standard Subscription needs to be suspended or canceled because future payments would be processed on that subscription if it were to remain active. For a Billing Agreement, this is not the case. Once a subscription purchased using Reference Transactions has been canceled in your WooCommerce store, no future payments are processed against that billing agreement because Subscriptions no longer request any payments.

The Billing Agreement is left active at PayPal because:

  • Billing Agreements are per store not per subscription. Meaning if your customer has purchased multiple different subscriptions with your store, the same Billing Agreement ID is shared between all of those subscriptions. If it were to be canceled when one subscription is canceled, all other subscriptions would be unable to continue.
  • Billing Agreements can be manually added to a manually created subscription or even used to undo cancellation of a canceled subscription (impossible to do with PayPal Standard Subscriptions), but only if the billing agreement remains active in PayPal.

For these reasons, it is recommended that you do not cancel Billing Agreements manually at PayPal. If your customer chooses to cancel their Billing Agreement at PayPal, Subscriptions handles that and cancels all subscriptions in your store using that Billing Agreement. But to give you the maximum flexibility in working with customers, it is recommended you do not cancel the Billing Agreement.

Why has the initial payment changed in Subscriptions v2.0.10? ↑ Back to top

PayPal provide two options for charging an initial payment when creating a billing agreement with reference transactions:

  • Charge the initial payment alongside the request to create the billing agreement.
  • Charge the initial payment against the billing agreement after it has been created in a separate request.

There is little difference in terms of when the customer pays or the store receives the payment between these options. Both result in a payment almost immediately. However, there are many differences in terms of how PayPal presents and stores details of the payment.

Prior to WooCommerce Subscriptions version 2.0.10, the second of these methods was used. This meant, regardless of whether the initial order was for $0 or more, no initial payment was charged alongside transaction details the customer agrees to at PayPal. This method has the following downsides:

  • No details about the initial payment are displayed to the customer when agreeing to the transaction at PayPal. Instead a billing agreement description would be displayed, and PayPal only allow one 127-character string to be used to describe the billing agreement (this description is also used on all future payments against that agreement, including for new subscription purchases and recurring payments, so it needs to be generic to avoid confusion).
  • No line item details — individual product, tax and shipping costs — about initial payment are included in emails sent from PayPal to the customer and store owner, only total of payment.
  • No line item details for recurring payments are included in the PayPal side of the transaction, so they are not displayed in the PayPal interface or emails sent to the customer or store owners.

A number of store owners complained about this behavior. As a result, Subscriptions version 2.0.10 switched to the alternative method of charging an initial payment in the same request that creates the billing agreement. This helps ensure that line items are displayed to the customer when agreeing to the transaction at PayPal and alongside the transaction at PayPal.

But this method also has a downside: PayPal appears to treat this initial payment as a separate transaction to the billing agreement, even though they are processed in the same transaction. So the amount charged for any initial payment is no longer included in the recurring total for a billing agreement in the PayPal dashboard.

PayPal does not provide a way to ensure that both the initial payment information is presented to the customer on checkout and that initial payment on subscriptions products is accounted for in the total amount charged for a billing agreement/recurring amount at PayPal. There is no way to get the best of both options.

Because better information is provided to the customer on PayPal Checkout with the new method, this was chosen as the best method to use in WooCommerce Subscriptions.

Is Guest Checkout Possible with PayPal Reference Transactions? ↑ Back to top

No, PayPal provides no way for customers to check out without a PayPal account when using PayPal Reference Transactions.

If you wish to allow your customers to check out without a PayPal account, there are many other payment gateways that support automatic recurring payments. Stripe or Braintree are good options.

Are Payment Authorizations Supported when using PayPal Reference Transactions with Subscriptions? ↑ Back to top

No. WooCommerce Subscriptions always captures payment immediately for subscription transactions. That includes both the initial and recurring payments. If you would like authorization then capture to be supported in a future version, please submit it as a feature request on the Ideas board.


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