Maintaining customer engagement and minimizing churn is paramount in the rapidly evolving digital subscription landscape, where services range from meal kits to online gaming.
While customer attrition is a natural part of any subscription-based business, a particularly insidious form of churn, known as involuntary or accidental churn, poses a unique challenge. Accidental churn occurs when customers unintentionally lose access to a service due to payment failures rather than out of a desire to cancel their subscription.
As the leader of a company that helps recapture revenue lost to accidental payment declines, I’ve seen how failed payments can lead to immediate revenue loss that can negatively affect transaction costs, customer value and overall business growth.
The Silent Impact Of Payment Failures
From my point of view, failed payments are not just a minor inconvenience but a substantial revenue leak demanding attention. False declines, as reported by Cardinal Commerce, result in over $400 billion in lost revenue. Despite efforts by companies to tackle underlying issues, the problem persists. I’ve witnessed businesses losing out on 10% to 20% of revenue for this one reason.
Smart Solutions With AI
Artificial intelligence and machine learning have revolutionized the payments industry, offering a way to sift through the noise and identify which payment issues can be fixed.
This isn’t about guessing but using technology to focus efforts where they’re most likely to succeed, turning potential losses into recoveries. AI can act as a decoder, pinpointing exactly why a payment didn’t go through and suggesting the best way to retry it. It can automatically optimize payment processing by considering and adjusting for complex factors such as payment method, origin, card issuer and transaction amount.
Modern transformations in business approaches are all about moving from a one-size-fits-all strategy to a tailored, intelligent approach.
Tackling payment failures
I believe that subscription companies need to recognize the importance of focusing on payment recovery to grow their top-line revenue. Whether that is an internal team or finding an external partner, this function is essential for navigating the intricate challenges of failed transactions, ensuring revenue protection and enhancing customer retention.
By considering these best practices, business leaders can help drive operational efficiency, enhance customer relationships and secure revenue streams.
1. Timing Is Everything
The timing of payment processing is crucial for the success of transactions. For example, attempting payments without considering the customer’s local time and banking patterns can lead to flags for potential fraud.
Retrying a transaction for a customer using the State Bank of India at 11:50 p.m. Pacific Standard Time, which translates to 1:20 a.m. in India, will raise red flags due to the customer’s banking hours. In this way, make sure that your failed payments are using a strategic approach.
2. Use Data-Driven Strategies
When a payment fails, the intuitive response might be to retry the transaction immediately and repeatedly, hoping that one of the attempts will succeed. But paradoxically, this “woodpeckering” approach diminishes the likelihood of success and has negative implications for future payment processing—impacting authorization scores and more.
Instead, I urge you to harness the power of ML to sift through your company’s transaction history and pinpoint precisely where things tend to go awry and what actions have previously worked. Past the route collection of data, you want to ensure you are using it for actionable insights that can guide more practical approaches to handling payment issues and to ensure your efforts are targeted.
Beyond Recovery: Enhancing Payment Health
The world of digital payments is complex, with a maze of codes and signals that can baffle even the savviest teams. Customers may be unwilling to exert significant effort to rectify problems themselves and usually feel aggravated if payment failures result from undisclosed processing issues. In subscriptions, frictionless experiences matter, which is all the more reason to learn about and leverage dynamic recovery strategies.
Adopting these strategies can help you develop a proactive approach that leads to fewer failed payments in the future and, ultimately, happier customers who stick around longer.
