A cardinal rule when it comes to online subscription sales: Never cancel a subscription order because a payment card transaction fails.
Cards are declined for many reasons. They expire, they get stolen, they fall out of back pockets, and, yes, customers often exceed their spending limits. But breaking the chain of transactions with a customer will break your bottom line.
Fortunately, decision makers who are facing recurring payment failures can implement certain strategies that will allow them to continue shipping and that will ensure high lifetime customer value.
Issuers Make Transactions Complex
Generally, there are only three categories of cards — credit, debit, and prepaid or gift cards — but there are many more issuers, networks, and banks that add layers of intricacies to card transactions. To add insult to injury, the credit industry operates on its own timetable driven by payrolls, interbank transactions, and clearing schedules.
Each card transaction is effectively either making a withdrawal from a customer’s bank account or stored balance or taking out a loan, and timing is everything in regard to the accessibility of funds or available credit.
Subscription operators have an advantage in knowing their customers’ habits and performance over time better than the payment card networks and banks. Savvy operators can use their combined customer knowledge and awareness of payment industry cycles to maximize returns from shipments and collections.
Attempts at Fraud Slow Service
Not everything is coming up roses for subscription services, though. Subscription services deal exclusively with situations in which the card is absent, which leads to more fraud. For subscription businesses, most fraud attempts occur during the initial enrollment transaction, so many systems need built-in screening at this stage.
Bad things can happen to good payment cards. They are lost, stolen, and hacked. A 2016 study by Javelin Strategy and Research found that 15.4 million U.S. consumers suffered identity theft in 2016, amounting to $16 billion. Identity theft totals have reached close to $112 billion in the past six years.
Two key markers for subscription fraud are high transaction volumes and rapid reuse of a payment card, which often are associated with either the same IP address or a small number of delivery addresses. Tracking use patterns of cards and scanning for potential telltale markers can be an effective fraud screen.
Perseverance Pays Off
Multiple payment card processors exist, and they all have their own strengths. Many providers focus solely on payment card billing. Decision makers typically use one of these companies and let its business rules decide what happens at each step. Thinking through your business rules critically and adjusting as necessary is essential for cultivating high lifetime customer value.
If a card is declined, many e-commerce companies stop at the initial stage of the payment life cycle: the order stage, or when the card is first enrolled. An increasing number of subscription businesses continue to the “recycling” stage but quit there if a recycled card still fails to authorize.
However, several powerful strategies are still available to save the sale after that point. When you’ve already invested your marketing resources, it’s worth fighting for every customer and each extra shipment you can fulfill to lift the lifetime value above the sunk acquisition costs.
The ebb and flow of funds and available credit in the banking and payment card marketplace means a single failed authorization shouldn’t be the end of your efforts to get an authorization and continue to ship to a customer.
Savvy Leaders Don’t Break the Chain
So how does the smart, experienced decision maker handle subscription credit card transactions? Here are three options businesses can use when card authorizations fail:
1. Payment Card Optimization
There are two strategies here. First, card updater services keep cards usable by automatically obtaining updated information or replacement card information — new expiration dates or card numbers — from issuing networks and banks. Second, if cards don’t initially authorize at continuity time, recycling services repeatedly seek an authorization on a schedule in sync with the financial and credit marketplace.
By evaluating decline codes and patterns from the financial institutions, you can optimize recycling strategies tailored to each situation, always adhering to rules established by the networks to avoid chargebacks and excessive fees.
2. Open Billing
If a card still fails to authorize but has successfully transacted many times, some systems also provide for open billing. Open billing allows a product to be shipped to a customer with an invoice and a request for a replacement card.
Clear, concise messaging is essential for this strategy’s success. In addition, business intelligence analysis can determine when and how open billing can be used most profitably.
3. Extending Credit
The decision to send products to reliable customers by extending credit is unique to subscription businesses. It’s rarely used because it can be hard to implement, but subscription companies, contrary to e-commerce and one-shot transactions, have standing relationships with customers and, on the basis of their histories with existing customers, can extend credit.
If a customer has been a reliable payer in the past but has his or her card declined, consider shipping your regular delivery on credit and follow up with gentle dunning messaging to obtain a payment and replacement card. Showing judicious flexibility and faith in customers will build your reputation and grow your business.
Crafting credit card rules and systems that preserve the chain of transactions with each customer will pay off in the long run, particularly in times of increasing fraud and identity theft. A missed transaction in a subscription relationship, and the value of the potential loss of that relationship, is much bigger than just one shipment. Don’t break the chain — think creatively instead.
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