Half of Subscription Cancellations Are Due to Failed Card Payments

Failed payments have an impact on customer churn in the subscription business industry.

Among all possible causes, declined card payments account for 50% of all customer churn, per market research, suggesting these customers would have remained subscribed if their payments had not been declined.

The study “Adopting Subscription Companies’ Top-Performing Payment Recovery Strategies,” a PYMNTS Intelligence and FlexPay collaboration, surveyed 200 executives to examine the relationship between failed subscription payments, customer churn and financial performance. The findings showed why not all subscription businesses track failed payments, as well as the impact of these failures on customer retention.

The study emphasized the link between recovering failed subscription payments and increasing customer lifetime value (LTV). Subscription providers that minimize revenue losses from failed payments tend to manage customer LTV more effectively. More than two-thirds of top-performing subscription businesses specifically monitor failed payments, and those that track LTV after recovering failed payments recover, on average, 24% more revenue than those that do not track this metric. As a result of this practice, these providers recovered an estimated $141 billion in failed payments revenue.

“If you’re tracking lifetime value, it’s because you’re focused on optimizing your business,” FlexPay CEO Darryl Hicks said. “You are making sure that your acquisition costs as a ratio of lifetime value is dialed in properly, and you are focused on minimizing all sources of churn.”

Nevertheless, not all failed payments can be attributed to the customer’s error. One in four failed payments is a direct result of the customer’s actions. The rest occur due to friction in the payment process, leading to providers declining legitimate transactions.

Top reasons subscrtion businesses experience failed payments

To combat high churn, companies are focusing on enhancing the quality and responsiveness of customer support services and putting the technology in place. Businesses are now investing more in tools, systems and retention initiatives to gain a better understanding of consumer behaviors and make more intelligent business decisions. This reflects a shift from the pre-pandemic “growth at all costs” era, where retention was not given as much importance.

“It’s really important to think beyond just the basic subscription management and recurring billing to consider the holistic ecosystem that revolves around” the payment experience,” Thomas Marks, senior vice president of sticky.io, told PYMNTS in an interview posted in August.

Having the technological capabilities to ensure success is crucial, he added.

Understanding the relationship between failed payments, customer churn and financial performance is crucial for subscription businesses to minimize revenue loss and increase customer retention. By adopting payment recovery strategies and focusing on optimizing LTV, subscription providers can improve their overall performance.