Failed Payment Recovery: Reduce Churn Instantly Like a Pro

What could you do if your company’s income was 10% higher?

This question isn’t just a thought experiment. Subscription businesses lose, on average, 9% of their revenue to failed payments. And as the risk factors for failed payments become more prevalent, that percentage will only increase.

Ecommerce merchants deal with higher rates of payment failures due to authentication failures and suspected payment fraud. Card issuer or mobile wallet policies may also result in legitimate payments being blocked. Companies that focus on online sales must be prepared to address these issues when they arise.

Creating a process for failed payment recovery will help your business increase its income. Subscription merchants will see even stronger effects than other ecommerce merchants because each recovered payment will also reduce churn. Arm yourself with the facts so you can create a strategy to increase your payment success rates and improve your revenue numbers.

Who Needs a Failed Payment Recovery Strategy?

Every business owner should care about reducing revenue loss and maintaining a positive customer experience. These issues are especially important for subscription merchants. That’s because subscription businesses, unlike those that rely on one-off sales, are built on relationships. Failed payments interrupt your rapport with your customers.

To understand why, consider that a failed payment is not one problem. There are multiple levels of loss linked to each transaction a customer can’t complete.

The first level is revenue loss. When a customer’s $55 payment fails, that’s $55 your business won’t be getting. It’s an immediate loss to your company.

The second level is subscriber loss, or churn. A failed subscription payment doesn’t cancel one transaction; it cancels an entire subscriber relationship. Worse, the customer isn’t there to fix the problem and may not even know it’s happened.

The third level is reputation loss. Customers sign up for subscriptions because they want recurring access to your company’s goods or services. When they don’t receive the product they subscribed to, they’ll be upset or disappointed and likely blame you (even if the payment failure wasn’t your fault).

Not all companies have to deal with all three types of loss. There’s no way to lose subscribers if you don’t have them, after all. The more levels of loss a failed payment can cause for your company, the more important it is to create a robust strategy to address this problem.

Common Causes of Failed Payments (and How To Solve Them)

There’s no way to predict when a specific transaction from a specific customer will fail, but the reasons transactions are declined don’t change. Increase your company’s resilience by implementing solutions that address the most common causes of transaction failure.

Stay Ahead of Credit Card Expiration With Account Updater

Most credit cards expire between three and five years after being issued, which means you’ll certainly have customers whose cards are replaced midway through their relationship with you. You could simply monitor credit card decline codes to spot expired cards in your system and then automate dunning emails to those customers. Some customers will log in right away to correct their credit card information when prompted. Others will forget and fall off your subscriber logs.

Account Updater allows you to be proactive (and avoid bothering your customers) by searching your system for expired and canceled cards, as well as those that have been reported as lost or stolen. It communicates securely with card issuers and automatically updates your records, so you can avoid trying cards that are no longer valid. Over 70% of the updated cards bill correctly the first time. While you may still have to email the other 30% of your customers, you’re leaving far less revenue to chance.

Sidestep Insufficient Funds Alerts With a Rebill Program

A credit card that’s reached its limits or an account with insufficient funds might not work the first time you try a charge, but that’s no reason to believe the customer is forever out of your reach. If you retry the transaction at the right time — for example, after the customer’s paycheck has been deposited in their account or after they make their credit card payment — it may go through.

The challenge is finding the right time to retry the failed payment. Most subscription businesses use either Decline Manager or Smart Dunning to increase their chances of rebill success.

Decline Manager allows you to set rules to govern your rebill strategy and then automates payment retries for you. You can set a schedule and cap the number of retries per payment. Most companies use a trial-and-error system to find a ruleset that results in the highest percentage of eventual successes.

Smart Dunning is a more technologically advanced solution. Rather than asking you to set rules, sticky.io’s Smart Dunning tool uses machine learning to determine the best time to retry a transaction. The system ingests multiple data points from each failed payment and learns from each rebill attempt. This allows it to create a unique retry strategy for each transaction. As with Decline Manager, you can cap the number of retries. The data-driven approach of Smart Dunning tends to result in a higher number of recovered transactions overall and a lower number of retries. That means more income and fewer rebill fees for you to pay.

Resolve Issuer or Processor Complications With Payment Cascading

Some transactions fail because a card issuer or payment processor blocks the payment from going through. The block may be purposeful (like a credit card issuer’s fraud flag) or not (like a payment processor outage). Either way, payment cascading will help you make sure legitimate transactions go through so your customers aren’t disappointed.

Before setting up payment cascading, it’s important that you set up your own anti-fraud measures to make sure you’re not helping scammers evade card issuers’ legitimate concerns. You should only start cascading payments once you’ve created a secure payment environment.

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To create your cascade, you’ll need multiple payment processors and merchant IDs (MIDs). Then, you’ll set up a sequence for in-the-moment transaction retries. A payment will first be routed through Gateway A, that’s linked with MID 1; if it fails, it will go to Gateway B, that’s linked with MID 2, and so on. Cascades help you avoid tech-based failures by setting up fail-safes that use different tools. They help you convince a card issuer of a transaction’s legitimacy by reattempting a transaction using a location that’s closer to the purchaser’s home or a MID that has a more similar profile to companies they typically buy from.

Not every payment processor supports payment cascading, and it takes time to create and optimize your cascades. For high-risk merchants, though, they’re an excellent tool for retaining more revenue and preventing subscriber churn.

Allow Customers To Complete Declined Transactions With Machine Learning

Because payment declines lead to an 80% chance of a deserted cart, a tool that steps in to complete a transaction can greatly boost your revenue. Next-generation financial services providers are using machine learning to conduct risk analysis in real time to find more payment recovery opportunities. These companies step in when credit card companies make the wrong call on an attempted purchase.

Our exclusive partnership with FlexCharge gives sticky.io merchants the opportunity to approve more transactions without requiring customers to re-enter payment details or switch payment methods. The moment a payment fails, FlexCharge analyzes the transaction and the customer’s profile to provide instant underwriting. The service approves and settles eligible transactions at the time of purchase. FlexCharge then recoups payment from the customer later at no additional cost to them.

All FlexCharge payments are processed through the company’s MIDs to protect you from the risks of chargebacks or fraud. Subscription sellers can also integrate this tool into their payment flow for merchant-initiated charges, like those made for recurring transactions.

Top Merchants Automate Failed Payment Recovery

Failed payments are part of the online payment system. Attempting to handle each individual failure as its own problem takes too many resources for any seller with a significant payment volume. A systemic issue deserves systemic solutions.

The best way to significantly increase your payment recovery success is to invest in tools that address the underlying causes and automate solutions. Some of the methods mentioned in this post (such as Decline Manager and payment cascading) require merchant input and ongoing oversight. Others (like Account Updater and Smart Dunning) only need to be implemented; they’ll continue to perform well from behind the scenes. Every option, though, is much better than any attempted manual solution. Payment recovery is most cost-effective when it can be done at volume, and that’s what these tools enable.

Most importantly, you need a failed payment recovery strategy that’s able to scale with your company and adapt to new challenges. When new solutions become available, you’ll want the option to add them to your setup so you can recover even more revenue.

At up to a 70% salvage rate, Smart Dunning is the payment recovery solution your business needs. Click here to see how it compares to your traditional dunning solution.