2) Make upgrades effortless
Freemium to premium is the pricing strategy of choice for subscription businesses. Users are drawn in with a free trial, for which they provide their card details upon sign up. These can be validated using a zero or one dollar authorization. With the stored card data, you can begin charging once the free trial ends.
Zero-dollar authorizations are preferred to one dollar because they’re compliant with the card networks, more widely accepted, and not suspicious on customers’ bank statements. They are turned on by default for all merchants. Some legacy issuers still only support one dollar authorizations despite their being noncompliant and leading to customer confusion. If a validation fails, it can spell the end of the relationship between you and your potential new subscriber.
3) Keep accounts up to date
Credit and debit cards expire. They can be lost. They can be stolen. Each month, more than 6% of the cards you’ve saved fall victim to these cruel fates. For subscription businesses, this can trigger a decline in the next payment, often without the business or customer realizing it.
To avoid service interruptions, card networks previously offered an old school batch account update service where old card details are updated and used to renew subscriptions. However, these batch updates take days to receive, and are only effective for subscriptions with lengthy or predictable billing schedules.
Today’s flexible subscription services require updates to keep up with customers that might return every hour, every day, or every other year. For this, the card networks also offer a real-time service, refreshing card details at the time of a customer’s transaction, enabling a new generation of subscription businesses to recover invalid card declines. Both batch and real-time account updater have varying geographic coverage and need to be used together to ensure their full effectiveness.
Some card networks have embraced the next generation of account updating technology: network tokenization. Developed by EMVCo, the industry consortium that manages and maintains global card standards, network tokens are a new type of secure card token designed specifically for ecommerce.
These tokens are trusted more by issuers, have real-time account updater built in so they are always up to date, and not considered PCI-sensitive data.5 With network tokens, you’ll never experience another expired or invalid card decline, and you’ll suffer far fewer generic declines.
They are designed to be used in conjunction with other account updater services and global issuer support is growing dramatically.
4) Adjust your billing intervals
The easiest approach to billing is a blanket one, using the same rule for each subscriber. It’s tempting to do but it will cost you in conversion.
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, most customers are paid biweekly, 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 toward the end 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.
5) Data-driven retries
In addition to cards expiring, transactions fail for a number of reasons. If you understand the reason for failure, you can adapt a more strategic approach to improving recovery rates through retries.
When a transaction fails for technical reasons, data shows that best practice is to retry immediately. If a transaction fails for nontechnical reasons, such as insufficient funds, it may be better to retry over a longer-term period to allow time for the cardholder’s payday to come around.
6) Make subscriptions unstoppable
Once your new subscriber is signed up and validated, your goal is to deliver an uninterrupted service. Minimizing payment failure is key to this effort. On average across industries and geographies, approximately 10% of transactions fail for reasons ranging from insufficient funds to lost cards or technical failure.
The first problem: involuntary churn, where a customer’s subscription is unintentionally canceled due to payment failure. Dunning is one way to solve this. 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.
Repeatedly retrying failed transactions can lead to issues with the card networks. Furthermore, 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.
7) Stay ahead of advanced fraud
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 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.
Subscription-based businesses are susceptible to two types of payment fraud: card testing and reseller fraud, both of which have never been easier due to automated account creation:
In card testing, fraudsters rapidly test unique stolen card details to see if they can be used to buy physical goods online. If left unchecked, it can result in high chargebacks and wasted user acquisition costs. Criminals know that subscription businesses often offer easy sign ups and low transaction values, making it both easy and attractive to commit card testing fraud.
With reseller fraud, criminals sign up for trial periods and then sell the accounts on to unsuspecting consumers for small amounts of money. This can be doubly damaging — it delivers a negative customer experience and can deal a serious blow to your brand’s reputation.
8) Be mindful with blocking
The traditional approach to minimizing fraud is to stop all suspicious transactions. However, this blanket approach ignores the intricacies of a successful payment authorization and can also block legitimate customers. The global impact of this approach is huge, with around $331 billion of genuine transactions blocked each year.
One way of reducing blocks on genuine subscribers is to focus on identifying which transactions are most likely to be legitimate. Higher chargeback rates are typically associated with the initial subscription setups and, as the subscription ages, the chance of a recurring transaction turning into a chargeback diminishes. Most chargebacks will come through within six months of the subscription being set up. Therefore, it makes sense to whitelist recurring transactions where the subscription age is greater than six months so that you can treat the payer as a loyal shopper.
More than just a payments platform
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 perfunctory service, something businesses would plug in when they needed, looking for ways to drive down payments-related costs. But now, something interesting is happening. Companies are viewing payments differently, and their results reflect it.
Adyen is partnering with the world’s most innovative subscription companies, including Spotify and LinkedIn. They’re taking a granular approach to improving the payment flow, using data to make decisions around areas like checkout design and retrying failed transactions. In the end, they’re seeing payments as a strategic driver of improved customer experience and a source of increased revenue.
“At Spotify, we have moved away from a standard view of payments as a cost-base only. In fact, payments sit within the growth and conversion team, as we see it as a key driver of Customer Lifetime Value.” —Federico Pezzotti, Former Payments Fraud Manager, Spotify
Adyen is the payments platform of choice for many of the world’s leading companies, providing a modern end-to-end infrastructure connecting directly to Visa, Mastercard, and consumers’ globally preferred payment methods. Adyen delivers frictionless payments across online, mobile, and in-store channels. With offices across the world, Adyen serves customers including Facebook, Uber, Spotify, H&M, Casper, Bonobos, and L’Oréal. https://www.adyen.com/contact/sales