At a time when merchants are embracing an array of payment options to reduce friction and meet customers where they want to be, when it comes to managing monthly billing collections, having too much of a good thing can work against you.
According to Trace Galloway, global vice president, solution specialist at Vindicia, a subscription management and retention solutions company, while payment method choice may drive customer adoption and acquisition, when it comes to retention, three options are typically ideal.
“You’re opening the aperture to try to capture as many customers as you can and give them the ability to pay in the format they’re most comfortable with,” Galloway said in a recent chat with PYMNTS. “But you don’t want to have too many payment method options on your checkout page or your commerce storefront, because that’ll just confuse people. Three is generally the max that you would want to offer.”
And when it comes to slowing down the churn rate, or the number of subscribers who have either passively or actively stopped paying for a service, offering multiple payment choices may not bring the expected result.
“[Payment choice] doesn’t really demonstrably lessen churn,” Galloway said, pointing out that whether people use Apple Pay, Google Pay, PayPal or some other digital wallet, they all have an underlying funding instrument that in most cases is either a credit card or a debit card. “So from a churn perspective, if the underlying funding instrument fails, it fails,” he said.
In fact, he noted, offering digital wallet options in the U.S. can actually limit a merchant’s ability to “retry” an account or do other things to retain a customer after the initial attempt fails. That said, the situation is different outside the U.S., where credit card use is less popular. However, no matter where a business is domiciled or selling, demographic considerations are important.
“If everybody I’m going after is in a younger demographic and most of them use Venmo, then I’d better accept Venmo as a payment method,” Galloway said.
Fish On Vs. Fish In The Boat
Of course, all of this activity is happening during what Galloway said has been a “very, very busy year for the subscription business” — more broadly, marked by an increase in card-not-present transactions given the stay-at-home impacts of the pandemic. And as much as online activity has gone up, Galloway says the percentage rate of card-related payment failures has not risen.
“We’ve absolutely seen volumes go up, and card-not-present volume transaction volumes have increased,” he said. “Along with that, we’ve seen a pretty steady rate of failure as a percentage [of transactions], as opposed to the volume.”
It’s all part of Vindicia’s service offerings, which include a billing platform, an automated retry engine and a retention service.
“You’ve seen more and more merchants this year adopting and implementing the stored credential mandate, which, maybe not by itself, is starting to help improve the initial authorization rates and long term success rates,” Galloway explained.
In fact, in addition to the stored credential mandate, further improvements will be made in the coming months, in the form of improved “four-phase reason codes,” which will more accurately describe the problem when a transaction is declined.
“I think companies can then build more intelligent logic from a retry perspective, to drive what will be a higher final success rate,” he said, measured by the final debit and credit success rate at the end of the month.
“Vindicia is a huge advocate for intelligent retry,” Galloway said, noting that it’s not just about the number of retries, but rather, the result of those retries. That’s an area where the company has invested heavily over the years to drive the highest retention outcomes, via the use of “additional intelligence and retry services that apply machine learning (ML) and artificial intelligence (AI).”
At the same time, Vindicia has learned that the best strategy for addressing passive churn, such as when a customer’s card on file has expired, is to start the process with a gesture of good faith.
“Don’t disentitle your customer while your automated retries are happening. Allow them to continue enjoying the service,” he said. “Passive churn is all about a customer who doesn’t want to leave. They are not actively telling you they want to stop using your service. That is something [Vindicia] strongly advocates.”
As a billing service provider, Galloway also noted the importance of determining a client’s current payment status: If they’ve paid and are in good standing, they can use the service. If they haven’t, then decisions need to be made as to how best to go forward.
“So the biller really becomes that single source of truth that determines eligibility and entitlement to use the service,” he explained.
Price Points And Professionals
While subscription pricing varies from industry to industry, Galloway said the typical subscription is about $100 a year, or $12 to $15 per month, with monthly pay options far outstripping the savings offered if the customer pays for the full year in advance. Of course, this varies and can also be impacted by the total amount or longer terms, but generally speaking, the tipping point on this basic payment decision is quite low.
“The delta between paying annually and paying monthly varies widely,” Galloway noted. “Every consumer is doing a cost/benefit analysis when they compare your various termed offerings.”
It’s just one of the nuances of the subscription business that Galloway said underscores the need to switch to a professional-grade management system. Even so, he added, that doesn’t mean clients should stop what they’re doing and outsource the whole process.
“In fact, we tell all the merchants we work with to keep doing what they’re doing. There’s no one silver bullet that will solve the vast majority of their retention problems,” he said, noting that a layering of different techniques is the best way to go.
“So keep doing what you’re doing, and after you’re done, you’ll still have some number of payment-related failures that you can’t resolve on your side,” he said. “Send them to me and let me use the intelligence that we’ve built into the Vindicia Retain solution to drive even more successes for you.”