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From Freemium to Premium: Boosting Conversion with the Right Payments Strategy

Andrew Monroe & John Phillips,
Head of Media & Gaming & General Manager EMEA, Worldline Digital Commerce & Zuora

Freemium offers — whether time-limited, feature-limited, or capacity-limited — can do a great job of helping your business to acquire customers, and can be an essential tool for scaling. Each freemium model has its own benefits, but there is one thing they all have in common: for the business to be sustainable, a sufficient number of freemium users must ultimately convert to paying customers.

By the time a subscriber is ready to convert, you’ve already invested a lot of time and money, to create a freemium (or free trial) model to give customers a taste of what they would be buying, and making it as appealing as possible.

The decision point — where the consumer makes a commitment and enters the payment page — is critical. If they don’t click now, everything you’ve invested in the customer up until this point goes to waste.

So how can you get free users to convert to paid subscribers? One overlooked tool is your payment experience. Here are 3 things you should consider to optimize conversion.

#1: Streamline the Checkout Experience

One of the most challenging steps for businesses is the checkout experience. Just like the general subscriber experience of your service, the checkout process needs to be fast, simple, and frictionless.

A vital element of a streamlined checkout experience is giving consumers their choice of payment methods. Consumers want to pay via their preferred payment methods, so it is critical to provide a mix and match of traditional and alternative payment methods that support recurring transactions.

The key to offering the right payment methods is to really know your customers — specifically, understanding customer demographics, local geographies, and the dynamics of your industry. This means having a read on preferred currency payment methods for customers for your industry.

The more information you know about your customers, the more laser-accurate you can be in offering the right payment methods. And sometimes the key to converting free to paid is as simple as a frictionless payment experience.

Sometimes the key to converting free to paid is as simple as a frictionless payment experience.

Andrew Monroe, Head of Media & Gaming at Worldline Digital Commerce

#2: Dynamic Security and Fraud Protection

There are several strategies and emerging technologies you can implement as part of your efforts to effectively detect and prevent fraud. What’s perhaps not so obvious is that, when used effectively, some of these technologies can actually help you improve conversion performance.

Let’s take the example of 3D Secure (3DS), an authentication protocol that improves the security of online card payments and prevents payment fraud. By using 3DS dynamically, businesses can make improvements to their conversion rates. A low conversion rate could turn out to be caused by a handful of issuing banks which decline every transaction that is sent to them, because they expect 3DS. By enacting 3DS on transactions sent to these particular banks, companies can see a massive increase in conversions.

3DS requirements can be set not only at country levels, but also at the issuing bank level. It is therefore important to analyze not only your country performance, but also your performance per issuing bank — preferably even at the BIN (Banking Identification Number) level.

You’ll want to find out how dynamically and how flexibly you can implement key fraud protection measures — and then take action only where it makes sense.

#3: Optimize Payment Performance

It may be an obvious statement, but free users can’t convert to paid subscribers if they don’t have the funds available at the right time to start payments.

Why are certain transactions rejected, and how do you react to those rejections? Understanding rejections is an important step towards proactively preventing them and ensuring that you’re giving your customers the clearest path to conversion.

There are a host of different reasons why transactions may be declined, but let’s focus on two of the most common: expired cards and low funds.
On average, 5% of recurring transactions are rejected because the card is expired. It might seem like a small number, but if you’re processing $100 million, you’re leaving $5 million on the table. This loss can be almost completely avoided by implementing an automated account updater service.

As for low funds, it is simple in theory and complex in practice. The takeaway: adapt your billing to when your consumers have money. Depending on the country, the majority of consumers may be paid monthly or biweekly, at the beginning of the month or the end of the month. If you are billing your subscribers at a time when many of them are out of money, you have a higher risk of low funds declines. Model your subscriptions so that you start billing your customers when they are most likely to have access to cash.

The Common Denominator: Analyze Your Data

The one thing all these optimization strategies have in common is data. Having access to detailed data, and using the data to your advantage, is ultimately what will allow you to convert at the level you need.

To streamline the checkout experience and offer the payment methods that your future subscribers want, you need to know as much as possible about your customer demographic and the payment preferences in your industry.

To balance the need for fraud protection with the need for frictionless payment, you must know how dynamic and flexible your security measures can be.

And to cut unnecessary losses from declined transactions, you need to access your rejection data, rigorously analyze it, and implement the solutions that will maximize authorization and performance.

And then? You’ve set your customers on a clear path from freemium consumers of your services to paid subscribers.

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