How eBay reduces fraud and risk with a global payment partner
Most of my purchases used to be one-offs. From the quiet suburbs of Harare where I spent my youth trading bricks of grubby Zimbabwean dollars with street hawkers for the latest blockbuster DVD, to London life in my twenties where I experimented with DVD delivery from Lovefilm. It’s a far cry from life today. Now, most of my purchases are automated and the service uninterrupted. My music comes from Spotify, films from one of three streaming services, and groceries from Hello Fresh. I don’t even own my bicycle (essential for life in Amsterdam), I pay for its rental and service from Swapfiets.
As someone who is so reliant on subscriptions in my day-to-day life, it's one of the joys of my job that I get to spend the vast majority of my time helping businesses to keep the revenue rolling in.
No other trend has changed how we shop more than the subscription economy. Once the preserve of magazine aficionados and milk guzzlers, subscriptions are now available for everything from scuba gear to sunglasses, software to shaving kits. The subscription economy has grown more than 300% in the last seven years alone. 2019 was the first year where more Americans actually streamed more online content than they watched traditional TV. The coronavirus has accelerated this growth, with 18% of companies seeing their subscription growth rate accelerate.
Subscriptions are affordable because they assume a long customer lifetime. If customers decide to cancel, merchants find themselves running an unprofitable business. Speak with any subscription merchant and they'll tell you failed subscription renewals are the bane of their existence. Transactions fail for a range of reasons but the number one reason is insufficient funds. In fact, 72% of declined transactions are due to insufficient funds or ‘do not honor’ codes. Remember, renewal of your product or service isn’t the only payment coming out of your customer's bank account each month. On top of their numerous subscriptions, they may have rent or a mortgage to pay, as well as direct debits for utilities.
Innovation doesn’t happen in isolation, it takes a village to optimize payments systems. When developing new features we work with some of our key merchants to better understand their issues and what we can do to address them. As co-chair and co-founder of the Women in Payments and Fraud chapter of the Merchant Risk Council, I work to support, promote, educate, and inspire other women to pursue careers in payments and fraud. One of the big advantages of this role is that it has introduced me to an incredible community of payments experts who I can rely on for everything from career advice to sound boarding new product features in development.
While we were building a new feature to address the challenge of failed subscription renewals, I reached out to three of my fellow members of this community:
Their feedback helped define what needed to be considered to build a successful retry logic that could solve insufficient fund declines on subscriptions renewals.
The more data you have about your transactions, the more you can learn from the patterns they form. For example, understanding why your renewals fail is the first step to creating a process to ensure that the frequency of their occurrence is reduced. A blanket approach to retry logic, i.e. the same day every month, is the easiest option but has limited effectiveness. Using your data to formulate a more targeted approach will take more time but will also increase recovery rates.
Using your own data is useful, but benefitting from ours is better. We analyze millions of transactions every day, meaning our merchants can benefit from our learnings from transaction patterns of thousands of companies.
At Pinterest we know how important it is to factor in payday into our retry logic. Using data that helps us take a country by country approach to determine when to bill our users is really important in reducing customer churn.
Approaching, analyzing, and acting upon the patterns you see in your data can be a daunting, labor intensive task. Take dunning for example, one of the ways to solve for involuntary churn. Dunning is the process of creating a methodical means of communicating with customers to ensure payment. This could be in the form of a text message or email to remind them to have funds in their account ahead of your attempt to authorize a payment. If 10% of transactions fail, a sophisticated dunning approach may save up to half of these failures.
However, dunning is an unsophisticated method that can involve a lot of labor-hours to implement. For many growing businesses, it comes down to making a strategic decision about how they want to allocate their precious resources. Outsourcing the complexity involved with retry logic can save you time and money and allow your team to concentrate on other business objectives.
When it came to the collection of our monthly subscription fees, our biggest challenge was the resource to remind customers when their subscription was due. We’re a young company and have tried hard to keep our operation lean.
Taking a targeted approach to retry logic, doesn’t need to be rocket science but there are some considerations to take into account:
A. Factoring in decline reasons and then experimenting with rules such as:
B. Splitting logic by market - Factors such as the time of day and day of the month can have a significant impact on transaction success rates. In the US for example, many customers are paid every two weeks, typically on a Friday, with an uplift of successful payments at the beginning and middle of each month. In the UK, people tend to be paid monthly, with one spike towards the end of the month.
If you treat every decline differently, you’ll need fewer retries which means lower costs as well as compliance with scheme rules. Visa, for example, currently mandates four retries over a 16 day period, without sacrificing lost orders. By leveraging our data and knowledge you’ll never again have to worry about decisions such as the best day to take payment, no matter what country your customers are in.
Retries need to be invisible and if your retry logic isn’t extremely accurate it can reduce the chances of authorization and also lead to increased fees from the card networks.
I know how much effort you ideally need to invest to make retry logic really effective.
We developed Auto Rescue, a new feature of Revenue Accelerate, based on feedback from our customers, to take care of all of this heavy lifting for you. Auto Rescue automatically retries declined shopper-not-present transactions such as subscription renewals and also solves for all of the focus areas mentioned above.
The results, monitored during the pilot period and since launch have been impressive:
If you’d like to join Babbel, GoHenry, and Pinterest in reducing your churn and optimizing revenue, contact us.
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