Voice of the Industry

Recurring transactions: what can merchants do to protect themselves against payment churn?

Thursday 5 August 2021 08:53 CET | Editor: Claudia Pincovski | Voice of the industry

Rene Siegl, Founder and Executive Chairman of the IXOLIT Group, explains what involuntary and voluntary churn and explains what companies can do to reduce them. 

Recurring transactions are great for businesses as they provide a steady stream of income, but what can merchants do to protect them? Our clients have told us that one of the biggest issues they face with recurring payments is payment churn. There are two types of churn, voluntary and involuntary. Voluntary is when the customer cancels their subscription (more on that later) and involuntary churn can happen because of: 
  • Technical issues/network errors;

  • Out of date billing information, and/or expired credit card;

  • Lost or stolen cards;

  • A customer has exceeded their credit limit.

Even if the customer is loyal and your biggest champion, involuntary churn can still rear its profit-eating head and unintentionally interrupt a payment, causing issues for both you — such as lost revenue — and your customer. These problems account for approximately 20-40% of payment churn. This may not seem like a tremendous amount; however, it is a persistent problem that nibbles away at your profit margin.

What can companies do about it?

If a company is taking recurring payments via card (CoF or Card on File transaction), this data will need to be tokenized and stored in a vault. So, when the time comes for the next installment, the merchant can debit the card without asking for any more data as because of the sign-up, the customer has given the merchant permission to do so. Payment data must be stored in a PCI DSS compliant vault. Best practice is to make sure that the vault is with a third-party provider and not directly with the payment service provider. As if the acquirer were to stop working with the merchant, payment data will be lost and difficult to retrieve, meaning that there would be a delay to payments which would cause significant issues for the merchant. In fact, lots of our clients have come to us for this reason. By storing data with a payment orchestration platform and in a third-party vault, the merchant can push the transactions to another acquirer, causing no disruption or delay to the process.

To make sure your revenue stream is protected, it makes sense to work with a platform/service that uses a card updater such as VAU by Visa or ABU by Mastercard. Account updaters automatically update the information of cards that have expired or been replaced. This reduces failed transactions and any fines that they may incur. Another way to reduce involuntary churn is to use alternative payment methods. For example, if instead of cards you process your recurring transactions via bank debit (known as ACH in the US, Direct Debit in the UK, and SEPA across Europe) you bypass the filling in of information that needs to be kept up to date. Eliminating the danger of trying to process credit cards that are no longer valid.

There is not too much a merchant can do when it comes to the customer not having enough funds in their account or having exceeded their credit limit. With recurring payments there is always a retry option that allows the merchant to attempt to collect the funds at a later date, if they were at first unsuccessful. However, what we have seen work for some of our clients is that they let their customers choose the billing frequency. They provide options such as weekly, monthly, or annually and allow them to pay on the date that suits them best. This increases the chance of them having the correct funds available.

This brings us to voluntary, also known as active churn. Which is when the customer chooses to end their subscription. There are many reasons they may do this, and businesses spend a lot of time and money convincing them not to and with good reason. Voluntary churn amounts to between 60-80% of subscription payment loss. From our discussions with our clients and from our own experiences, the below are some of the best ways merchants can reduce your voluntary churn:

Communication - To gain a loyal customer, you need to build trust. Be proactive and get in touch with your customers. Let them know what is happening in the industry, and offer exclusive deals. Lots of companies offer the best deals to new subscribers, but don’t forget those who have already signed up.

Feedback - Feedback without action is useless. Subscription-based businesses need to be innovative in order to survive. By working with your customers to create a better consumer experience, you will improve retention.

The Free trial - this is a tactic used by many businesses. They offer three months or so for free but require the customer to provide billing information, so that when the first month of payment rolls around they don’t have to reach out and ask for it. This is fine, but a staggering number of chargebacks occur in the first month a customer has to pay. So let them know you will debit their account, this is also a requirement of most card schemes. Make it clear when and how it will happen, so consumers can opt-out if that is what they want. By doing this, you are giving your customer every chance to end the payment, which will reduce the number of chargebacks you will receive and leave you with a loyal client base.

Payment churn has an enormous impact on businesses and while voluntary depends on the product or service, involuntary can be reduced or avoided by updating your payment stack and using an independent payment orchestration platform.

About Rene Siegl

Rene is the Founder and Executive Chairman of the IXOLIT Group, which was founded in 2001. Since 2014 Rene has been leading the development of the IXOPAY Payment Orchestration Platform, which addresses the global payment scaling needs of online merchants and licensed payment institutions.

 

 

About IXOPAY

IXOPAY is a scalable and PCI-certified payment orchestration platform for white label clients and enterprise merchants. The modern, easily extendable architecture enables the orchestration of payments, provides intelligent routing and cascading functions as well as state-of-the-art risk management, automated reconciliation, and settlements along with plugin-based integration of acquirers and PSPs.

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Keywords: transactions , IXOPAY, recurring payments, data, tokenization
Categories: Payments & Commerce | Online Payments
Countries: World
This article is part of category

Payments & Commerce