The subscription economy has shifted the way we buy. Whether in music, movies, clothing or shaving kits, companies built around recurring and subscription payments have sent a disruptive ripple through countless industries.
The world’s best-known recurring and subscription businesses — Spotify, LinkedIn among them — know that they have to get payments right. Doing so means improving the customer experience, making signups easier with fewer failed transactions.
Getting payments right also brings business benefits, with better approval rates leading to millions in additional revenue. This guide is a selection of insights from some of these businesses, combined with data and insights from Adyen, to help you both improve customer experience and grow your revenue.
The momentum behind subscription businesses shows no signs of slowing. Since 2012, sales in subscription businesses have grown an estimated eight times faster than sales of companies in the S&P 500, according to the 2017 Zuora Subscription Economy Index.
In this new world, the customer relationship is king, and payments play a big part in two key areas:
Optimize the signup. Leading businesses maximize success at checkout by removing all possible points of failure in the signup process, not just through checkout design, but also through a number of back-end tools.
Deliver uninterrupted access. The goal is to do this for as long as your customer wishes, ensuring that there are no disruptions for reasons related to payments, technical or otherwise.
Subscription-based 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 subscription businesses often offer easy signups and low transaction values, making it easy to set up servers and scripts for a high-volume approach to card testing.
Identify card testers by the following characteristics:
In 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 minimizing fraud is stopping suspicious transactions. But blocking all suspicious transactions is a grave mistake, since you will also block legitimate customers. In the US alone, risk checks prevent an estimated $4 billion in fraud, while simultaneously blocking legitimate transactions worth $8.6 billion.
Once the handiwork of 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, as 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.
But fraudsters know how to circumvent these clusters, usually by using new compromised credit card numbers and changing devices and login identities.
What Adyen offers: RevenueProtect
RevenueProtect is Adyen’s built-in risk management system, created to handle the high-velocity, automated fraud common among subscription businesses.
Designed to maintain the optimal balance between fraud defense and conversions, RevenueProtect employs a range of standard tools such as velocity, referral and other transactional fraud checks, combined with advanced features such as device fingerprinting, relationship mapping logic, behavioral analytics, geolocational heuristics, Dynamic 3D Secure, and built-in Case Management.
By using linkable attributes difficult for criminals to refresh, such as device fingerprinting and delivery addresses, RevenueProtect is able to track fraudsters even as they change devices, networks, and identities.
Once your customer is signed up and validated, your goal is to deliver uninterrupted service for as long as possible. Minimizing payment failure is key to this effort.
On average across industries and geographies, approximately 10 percent of transactions fail for reasons ranging from insufficient funds to lost or stolen cards or technical failure. But of that 10 percent, 8-9 percent can be saved with the right techniques and tools.
The first problem: involuntary churn, where a customer’s subscription is unintentionally canceled due to payment failure.
One technique to help prevent churn: dunning, which means sending an alert of some kind to a customer to ensure payment collection. In fact, if 10 percent of transactions fail, a sophisticated approach to dunning may save up to half these failures.
A key cause of subscription payment failure is when cards expire, are lost, or change for other unforeseen reasons. This can trigger a decline in the next payment, often without the business or customer realizing it.
Fortunately, there are tools to help. Card networks offer services – Account Updater for Visa, Automatic Billing Updater for Mastercard, and Card Refresher for Amex – which automatically update card-on-file account information. Card networks gather relevant updates from participating issuers daily.
Normally when an on-file card stops working, you will need to reach out to the cardholder for card information. Account Updater services decrease costs associated with customer service. Of the 10 percent average, implementing Account Updater can reduce involuntary churn by 2-3 percent.
Issuers are not always consistent in their implementations of Visa and Mastercard programs, and businesses should take steps to protect themselves against inconsistency. For instance, when a card number is changed, you should continue to use the previous card number until you begin to see declines.
Adyen offers this service in Canada, the UK, Ireland, Italy, Greece and the US. This includes several integration options such as single and bulk update requests triggered by the merchant. We also offer lightweight integration with automated update logic based on lifecycle events, such as payment refusal, upcoming card expiry date, and so on.
In addition to card expiration, transactions fail for a number of technical and non-technical reasons that will not be picked up by Account Updater. For these situations, a percentage can be saved by retrying the transaction.
You should approach a retry according to the reason for the failure. For example, if a transaction fails due to technical reasons, Adyen data shows that the best practice is to retry immediately.
But if a transaction fails for non-technical reasons, such as insufficient funds, it may be better to retry over a longer-term period – or better yet, to look at pay cycles of the market and retry immediately after a date when people generally receive their salary.
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.
Billing your subscriber at regular intervals after the day of signup may be tempting, as it is the easiest thing to do — but it will cost you in conversion.
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.
In the UK, people tend to be paid monthly, with one spike at the beginning of the month. By analyzing transaction success rates across individual markets, you can make data-driven decisions about optimal times to bill subscribers.
Consider asking customers what intervals and times they prefer to be billed.
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 now, something interesting is happening. Leading subscription companies are taking a granular approach to improving the payment flow, using data to make decisions around areas like checkout design and retrying failed transactions.
Partnering in many cases with Adyen, the world’s most innovative companies have begun to rethink payments as a strategic driver of improved customer experience and increased revenue.