Whether it’s music, movie streaming, clothing, or shaving kits, companies built around recurring and subscription payments have sent a disruptive ripple through countless industries.
But, as some of the best recurring and subscription businesses (like Spotify, Uber, and LinkedIn) know, the success hinges on a smooth and uninterrupted payment flow.
The payment is what transforms a freemium user into a subscriber. It’s also what sits behind a streamlined experience like Uber. Get it right and your customers won’t notice it. Get it wrong and you’ll hear about it.
This guide will walk you through some best practices for recurring and subscription payments. You’ll learn:
Recurring card payments are linked to a customer who’s previously granted permission to a business to keep their card details on file. The difference between a recurring and subscription payment is that subscription payments are taken automatically at an agreed date (for example a monthly Netflix subscription). Whereas recurring payments are triggered by the customer (for example when renting an e-bike).
Recurring payments are typically managed by a subscription payment service, or subscription payment gateway (like Adyen). During the initial payment, the customer is invited to save their payment details for future purchases. The card details are then tokenized meaning they’re replaced by a unique token which is then used for subsequent purchases. This ensures that the customer’s details remain secure since, if the token is stolen, it can’t be linked to the card data and is therefore useless. The next time a payment is due, the card is charged and payment authenticated with little or no input from the customer.
Recurring businesses are particularly susceptible to two types of fraud: Card testing and reseller fraud.
In card testing, fraudsters test stolen card details to see if they can be used to buy physical goods online. Criminals know that recurring and subscription businesses tend to offer easy signups and low transaction values, making it easy to set up servers and scripts for high-volume card testing.
You can identify card testers by the following characteristics:
With reseller fraud, criminals sign up for trial periods and then sell them on to unsuspecting consumers for small amounts of money. This delivers a negative customer experience and damages brand perception.
The traditional approach to minimising fraud is stopping suspicious transactions. But blocking all suspicious transactions is a mistake, since you will also block legitimate customers. A smart, data-driven risk system will help you find the perfect balance between protecting your business without damaging your conversions.
Once reserved only for advanced fraudsters, automated account creation is now easier for amateurs thanks to readily available software. Creating thousands of emails and user accounts also makes card testing easier since each attempt will come from a unique account and email, plus a seemingly separate IP address.
Many risk mitigation platforms work under the assumption that a transaction exists in isolation, and therefore can’t identify this kind of fraud. More advanced risk management systems cluster transactions based on the user’s login credentials or credit card number.
RevenueProtect is Adyen’s built-in risk management toolkit, created to handle the high-velocity, automated fraud common among recurring and subscription businesses.
RevenueProtect uses a range of risk rules such as velocity, referral, and other transactional checks. It combines these with advanced features such as, relationship mapping logic, Dynamic 3D Secure, and built-in Case Management.
By using linkable attributes that are difficult for criminals to refresh, such as delivery addresses, RevenueProtect is able to track fraudsters even as they change devices, networks, and identities. RevenueProtect uses data from the entire Adyen platform to determine if your first-time shopper is genuine. So you can spot and stop a fraudster, even if you’re seeing them for the first time.
Once your customer is signed up and validated, your goal is to deliver an uninterrupted service for as long as possible. To do this, you need to minimise payment failures.
On average, across industries and geographies, approximately 10% of transactions fail for reasons ranging from insufficient funds, to lost or stolen cards, or technical failures. But of that 10%, 8% can be saved with the right techniques and tools.
The first problem is involuntary churn, where a customer payment fails inadvertently cancelling their subscription. One technique to help prevent churn is called dunning. This means sending an alert to the customer to ensure payment collection. In fact, if 10% of your transactions fail, a sophisticated approach to dunning may save up to half.
Each month, more than 6% of your cards-on-file will expire, be lost, or stolen. This can trigger a decline in the next payment, often without you or your customer realising it.
A few years ago, card networks launched Account Updater services to combat these disruptions. Initially, they were done in batches and would take days to receive. But today, things are much faster. Card networks now offer a real-time service, refreshing a customer’s details at the time of the transaction.
Some card networks have even embraced the next generation of account updating technology: Network tokenization. These tokens are a new type of secure card token designed specifically for ecommerce. They are trusted more by issuers, have real-time account updater built in, and aren’t considered PCI-sensitive data. They’re designed to be used in conjunction with other account updater services and global issuer support is growing dramatically.
Adyen has partnered with the card networks to be the first payment service provider to offer network token technology. Network Token Optimisation, a feature of Adyen’s optimisation suite RevenueAccelerate, relies on machine learning to ensure that network tokens are only used when they improve authorisation performance. The feature requires no integration effort and, with greater issuer trust and real-time updates, boosts authorisation rates by 2-6%.
Adyen also comes with an Account Updater built in to make sure cards are always updated. By using the card networks' database, Account Updater works in real-time or in batches, depending on your needs. This powerful tool has been shown to recover more than 10% of invalid card declines.
Payments often fail because of an outage or downtime in the patchwork of legacy systems that make up the traditional payment flow. To limit the impact, it’s worth retrying payments that fail because of technical reasons.
Here’s an example
HelloFresh was experiencing a high rate of refusal due to technical issues. Adyen identified when and why the transaction had failed, and retried it immediately again via a different acquiring route.
Note: If a transaction fails for non-technical reasons, such as insufficient funds, it may be better to wait and retry after pay-day.
The below list outlines key reasons why transactions fail, and how to approach your retry strategy.
Do not honor
Retry on short and long term
Around 5–7% success rate when retried immediately
|Retry on long term||
Time your strategy according to pay cycles in the market
Prompt customers for correct information
Zero success without prompting for correct details
|Use Account Updater||
A simple x to save lost revenue
Up to 70% success rate on retry
Repeatedly retrying failed transactions can lead to issues with the card networks. While you may make incremental gains by retrying over long periods of time, the success rate inevitably decreases. A smart approach is to see what you can save while staying compliant with the card networks, and continuously fine-tune. For most businesses, successful retries occur in the first few attempts.
To help you identify which declined payments will benefit from a retry, we created auto rescue. It uses smart logic and data from Adyen’s whole platform to decide which payments have a chance of success when retried later and when the optimal time might be.
If you’re a subscription business, you may be tempted to bill your customer at regular intervals after the initial sign up. But it may cost you in conversions. Factors such as market, time of day, day of week, and day of month can have a significant impact on transaction success rates.
In the US for example, most customers are paid bi-weekly, with an uplift of successful payments at the beginning and middle of each month. Whereas in the UK, people tend to be paid monthly, with one spike at the beginning of the month. By analysing transaction success rates across individual markets, you can make data-driven decisions about optimal times to bill subscribers. You might also want to consider asking customers what intervals and times they prefer to be billed.
You don’t have to be a payment whiz to turn declined card payments into approvals. And you don’t have to spend time worrying about fluctuating interchange fees. We’ll do it for you. Our smart data tools will detect downtime and spot irregularities in banking systems. We then use this information to adjust payment requests in real-time, maximising the chance of approval. We’ll keep you informed about any changes to interchange rates that will affect you, and our team monitors rates and regulations to ensure you get the best deal.
The payment is a moment of truth in the customer relationship, where the costs of customer acquisition are converted into revenue. Until a few years ago, payments were widely regarded as a commodity — something businesses would plug in when they needed, looking for ways to drive down all costs associated with payments.
But Adyen turns payments into a competitive advantage. With a combination of conversion-boosting payment methods and smart data tools to optimise the process, we’ll help you streamline the sign-up process and keep recurring friction to a minimum.
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