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The payment is the moment of truth in the customer relationship, where the costs of customer acquisition are converted into revenue. Yet, up to a few years ago, payments were widely regarded as a commodity - something that businesses would plug in when they needed, and look for ways to drive down costs in order to save money.
But with the rise of subscription as a business model, spearheaded by global household names such as Netflix and Spotify, something interesting is happening. Rather than seeing payments as a commodity, these businesses are treating it as a strategic advantage.
The results are twofold. On the one hand, this approach is improving the customer experience as signup is easier and fewer transactions fail without warning. On the other hand, card approval rates have increased, leading to (up to) millions in additional revenue.
A laser focus on the payment flow
Let’s put this into context: On a global level, up to 10% of all payment transactions fail. That’s a huge figure, leading to the loss of many potential customers. And in the long term, it can seriously damage the sustainability of your business.
To combat this, successful subscription and recurring businesses employ tools and techniques to increase customer retention, and reduce these failed transactions from 10%, down to 1-2%.
Payments provider Adyen, which supports subscription payments for Spotify and Netflix, has published new research into how subscription businesses can improve the signup process, manage recurring payments, and maintain customers for the long haul.
So what are the key takeaways?
Make signing up as easy as possible
Signing up to a service should be quick and easy. Here are two main areas where businesses can improve.
Offer local and prepaid payment methods
Popular payment methods around the world vary hugely, but not all of them are enabled for subscription payments. However, some popular payment methods that do support subscription payments include Alipay in China, QIWI in Russia, and SEPA Direct Debit in Europe. Businesses will increase conversions significantly if they cater to the needs of each market.
Also, while the “one payment for one month of product” approach is often preferred, it does not work for all businesses, or customers. For example, some customers prefer to pay for a full year of service, while others prefer to part-pay throughout the month.
Adopt a smart approach to fraud
The traditional approach to fraud is to stop suspicious transactions. But simply blocking all suspicious-looking transactions means you will also block some genuine transactions, leading to a negative customer experience and decreased conversion. This should not be underestimated. According to BI Intelligence, last year in the U.S. alone risk checks prevented an estimated $6.5 billion in fraud, while simultaneously blocking legitimate transactions worth $8.6 billion.
Increase customer retention with payments
Once the initial payment has been made, subsequent transactions can fail for a wide variety of reasons, such as expired cards, technical issues, lack of funds, and more. By making use of data-driven tools businesses can significantly reduce the failure rate, increasing customer retention and ensuring fewer interruptions.
Adyen identified three key areas that businesses need to fine-tune to prevent these interruptions.
Keep credit card details up to date
In any given month, a number of cards expire, or are changed for unforeseen reasons. And this is one of the main causes of interruption. Fortunately, there are tools to help. The card schemes offer services – Account Updater for Visa, Automatic Billing Updater for Mastercard, and Card Refresher for Amex – that enable you to maintain an uninterrupted service by updating card-on-file account information. With these services, card update requests are sent to the card networks, which gather relevant updates from participating issuing banks, so you can keep your customer cards up to date without requiring any additional action from them.
Retry transactions strategically
Transactions may fail owing to technical and non-technical (such as insufficient funds) reasons. Immediately retrying all failed transactions may improve success rates a little, but the success or failure of a retry also depends on the reason it was refused. For example, if the transaction is refused for lack of funds, immediately retrying it will not likely result in success, but retrying over the longer term may. So businesses need to take a data-driven approach to how they retry transactions.
Optimize billing intervals
Billing every customer on the same date every month across every market may not work. In some countries, it’s more common for people to get paid bi-weekly rather than monthly. And other countries have specific restrictions; Mexican banks, for example, typically don’t process payments overnight. So businesses need to analyse each market and optimise billing intervals accordingly.
“If you’re looking for one key metric to base your rebill strategy around,” explains Alastair Morris, payments product manager at Jagex, “country is definitely the most important and where you’ll find the most consistent trends in behaviour.”
Download now: 5 Payments Insights for the Subscription Economy