Top-Performing Subscription Merchants Recover 60% of Failed Payments

Subscription companies lose an average of 9% of sales to failed payments.

However, the top-performing merchants recover 60% of failed payments, saving ones that would have otherwise been lost, according to “The State of Subscription Business: Best Practices and Business Performance Drivers,” a PYMNTS and FlexPay collaboration.

“One of the things that we saw in the study is that the companies that treat failed payments as a collections issue or as a customer service issue tended to be among the lowest performers,” Darryl Hicks, CEO at FlexPay, told PYMNTS in an interview posted in August.

“Whereas the ones who understood, ‘No, there’s actually something else going on in here that’s actually driving this failed payment rate, and if I can fix it, it’s going to reduce my churn and give me outsized performance on lifetime value,’ they were the ones that were the best performers,” Hicks said.

In the report, PYMNTS Intelligence found that failed payments are a leading cause of involuntary customer churn and that adopting methods to measure and analyze this metric can reduce a company’s churn rate, improve customer lifetime value (LTV) and boost revenues.

Top performers follow four best practices to minimize the impact of failed payments on revenue, according to the report. These include tracking customer LTV, tracking failed payments, using third-party payment recovery software, and using multiple tools to track and recover failed payments.

False declines carry significant risks as they cause merchants and issuers to lose money, cause them quite a bit of reputational damage and create an unpleasant digital journey for their customer, Elizabeth Graham, product manager at Entersekt, told PYMNTS in an interview posted in April.

“As eCommerce booms, the increasingly sophisticated online consumer will choose to spend their time transacting with retailers that offer seamless digital experiences with — of course — a high level of security,” Graham said.

Merchants need to have the technical flexibility to retry a payment or update credit card numbers in advance of a card expiring, Thomas Marks, senior vice president of growth at sticky.io, told PYMNTS in an interview posted in August.

“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],” Marks said.

Solving failed payments can not only increase recovery but also keep the customers for many months into the future, Hicks said during the August interview.

“You can get massive, outsized, sometimes even unexpected gains — second order and third order benefits — from focusing on this and really understanding how much this payments problem, what seems like a transactional problem, is actually really significantly tied to the financial performance of your business,” Hicks said.