Credit Card Decline Management: A Massive Threat to All Recurring Revenue Businesses
Imagine you are a business owner with 500 customers that you bill $100 per month on a recurring basis. Your business runs and plans based on $50,000 per month coming in the door on a regular basis. It took a long time and a lot of work to get to the point where your business generates that amount of reliable predictable income. You pay salaries, rent, plan development, and manage marketing campaigns ALL around that recurring revenue.
Now imagine that 15% of that revenue, or $7,500 per month, goes uncollected — and not because your clients don’t want to pay you.
What’s the problem? Credit card billing declines
Credit card decline rates are increasingly becoming a massive challenge for subscription/recurring billing merchants. Fraud, reissued cards, EMV (chipped) cards and lost or stolen cards all contribute to declines on recurring payments. You have likely been a victim of credit card hacking at Target, Home Depot or potentially many other businesses.
- On average, 15% of recurring credit card payments are declined (with some industries exceeding 30% decline rates)
- 30% of all credit cards are re-issued each year
- 1.5 billion EMV chip cards were issued in 2015 and 2016
- As of fall 2017 only 55% of payments were made via chip cards leaving many more to be issued
- There is an approximate 5% success rates in obtaining new information from customers on the first attempt after a card is declined
(*Information based on Visa | MasterCard publications and PLC)
Recurring monthly revenue based businesses have been around for many years. Alarm/security companies, cable, phone, and gyms are just some of those that depend on recurring or subscription billing.
The appeal of reliable, predictable income is immense, and many new subscription-based businesses have emerged in recent years. Netflix, Dollar Shave Club, and Birchbox are just a handful of the newer companies leveraging this business model. Fueled by venture capital, these businesses all based on the premise of providing a product or service for which customers will continue pay on a monthly basis. Coupled with new, more sophisticated and targeted advertising mediums, it’s never been easier for these subscription-based businesses to acquire new customers.
Likewise, retaining these customers and ensuring these businesses can count on the revenue they generate has, in turn, led to another new industry — subscription billing management..
Subscription billing management is big business as companies demand the ability to provide multiple payment options to retain clients and maximize profitability. Prorating, metered billing, trial periods, anniversary billing and other options all contribute to the demand for subscription billing management businesses like yours.
As these businesses themselves are subscription based services generating monthly recurring revenue stream there has also been an explosion of billing platform providers. There are many options from which businesses can choose to manage recurring customer payments: Zuora, Vindicia, Avangate, Recurly, Chargify, ChargeBee, FuseBill and more. All those options mean that if one platform falls short, business owners have plenty of alternatives from which to choose.
Most of these platforms will offer some of the strategies we outline below with some using one while others may use a combination. If you are exploring a subscription billing management platform you will want to look into how your provider mitigates the issue of credit card declines.
So what can be done to reduce credit card decline rates?
Fifteen percent of a business’ monthly revenue going uncollected is a big problem. Especially when coupled with the effort required to acquire new information that will allow that business to again bill their client. On top of that, these business owners are losing a percentage of clients every month that they now must replace. Client acquisition costs are a massive expense for any business — losing customers simply because you can’t bill them only adds insult to injury.
If you are a SaaS platform either offering a billing component or subscription management your customers are relying on you to help them mitigate these issues. So how can you help them address this problem and ensure your customers stick with your platform rather than a competitor’s?
If you are a business owner facing these issues what can you do as well? You may be using a software to manage your business or even a Virtual Terminal to collect recurring payments. If that software also includes a billing component you want to be aware of what can be done and what is being done. Credit Card Decline Management can be a part of their service offerings.