Strategies to Understand Decline-Rate Data and Reduce Involuntary Churn
In our previous blog post, we summarized the common decline reasons for failed transactions and the messages that the gateway delivers. We also talked about Recurly’s Revenue Optimization Engine which helps recover failed transactions. In this blog, we want to discuss some strategies that subscription businesses can utilize to avoid payment failures in the first place.
Let’s start with two common failure types in soft declines “Generic Decline” and “Temporary Hold.” Transaction declines from these two failure types can sometimes increase sharply when a subscription business acquire a large number of new users, for example, from some seasonal event or free trial. A good approach for identifying the root cause of the declines is to determine if there are any common payment and demographic characteristics of the subscribers with high decline rates. Payment characteristics could include card type (credit or debit), card brand, and whether the card is prepaid or not. Demographic information could include location, age, or other demographic details. It may also be valuable to identify the marketing channel or campaign which are bringing in these new users. If a campaign is acquiring users whose transaction are more likely to fail, reducing the marketing spend on these campaigns may be warranted.
Looking at monthly decline rate data may also provide insights. For example, a business that offers a subscription plan that renews quarterly might notice a cyclical spike in decline rate every three months. And these increased declines may be primarily “Temporary Hold” or “Invalid Card Number.” In this case, the billing information entered during the initial sign up might already have changed before the quarterly recurring payment can be processed. Sending reminder messages to subscribers to update their billing information 2-3 weeks before the renewal is set to occur should decrease these declines.
Many business experience declines due to fraud. Some of these declines are actually a good thing, demonstrating that the fraud detection system is correctly identifying and blocking fraudulent transactions. Catching fraudulent transactions when they occur minimizes the need to handle chargebacks later.
Another common decline reason is “Fraud Address” which means the payment gateway declined the transaction because the billing address did not match the address on file. This failure occurs as a result of the gateway’s Address Verification (AVS) process. This can be a result of the subscriber moved to a new address. Preventing these declines can be as simple as asking customers to update their billing address.
It’s also worthwhile to look at failed transactions by customer region. Are you seeing more international credit cards rejected for this failure type? Although AVS helps mitigate fraud, the AVS rules need to be evaluated based on a merchant’s business model. Consult with your gateway on the AVS rules and settings and tailor them to your business needs.
The failure of a payment attempt is frustrating but Recurly provides several ways to help with recovering like dunning emails to remind the customers about the failed transactions and optimal retry schedule based on machine learning model predictions.
As mentioned in our previous blog post, decline reasons are not standardized across payment gateways. For example, one gateway might return the majority of the declines as “Generic Decline” which is very vague. Another gateway might return both “Generic Decline” and “Insufficient Funds.” The more granular the information about declines, the more effective Recurly’s Revenue Optimization Engine can be in creating customized retry schedules for each transaction based on this information.
Besides the custom retry schedule powered by Recurly’s Revenue Optimization Engine, customer updates (voluntary or due to dunning email) also contribute to recovery for the failed transactions. It’s important for merchants to monitor the recovery rate from both retry and customer updates. For example, when seeing a significant decrease in the recovery rate from a customer update, it’s worth the time investigating the root cause.
Decline management is a challenging and time-consuming task. But minimizing declines is critical for increasing revenue and improving subscriber retention. At Recurly, we’re happy to work together with our customers to tackle this difficult problem and find better solutions over time.