Credit Card Declines: 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, handle 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.
- On average, 15% of recurring credit card payments are declined (with some industries exceeding 30% decline rates)
- 30% of all credit cards are reissued each year
- 1.5 billion EMV chip cards were issued in 2015 and 2016
- There is just a 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 pay model. Fueled by venture capital, these businesses were all based on the premise of providing a product or service for which customers will pay monthly. 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. That’s where you come in.
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.
And as a provider in this space, you know 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.
Address their problem
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.
As a billing platform provider, 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?
Here are a few strategies:
- Use the Recurring Indicator when sending transactions. Use of this indicator can improve decline rates and even reduce processing rates in certain locations
- Use Updater programs from MasterCard and Visa, which allow for the automated updating of expired and reissued cards
- Proactive customer outreach reach out to users whose card is approaching expiration rather than waiting until it’s already expired
- Reactive outreach for clients whose card has expired. Send a series of email with clear instructions on how to update info AND the benefits they stand to lose by not being able to leverage your product or service
- Strategically resubmit declined cards due to soft decline codes such as NSF
- For expiration date related declines, resubmit the card with strategic expiration date logic
- Consider adding an ACH Payment option — which will significantly reduce decline rates
- Last chance logic for “given up on” transactions. Depending on your payments partner you may be able to use this service to capture potentially lost income [and customer]
Subscription and recurring payment based businesses are facing a challenge that can’t be solved simply by using an updater program. Business owners need and are demanding a comprehensive solution.
Integrating the steps above into your subscription billing management platform will give you a competitive advantage by helping you limit or eliminate that 15 percent revenue cut. And satisfied customers are more likely to refer other businesses. Educating your current users and prospects will also help you to win more business and achieve better retention rates.
If you would like more information get our 7 Step BluePrint to Maximizing Approval Rates HERE