Hosted Payment Solutions
In today’s digitally driven society, hosted payment solutions support business processes. Subscription billing processes have evolved as an easy-to-use payment model to make online transactions as frictionless as possible for merchants and consumers. Depending on the service or product, invoicing can occur weekly, monthly, quarterly, or annually – the billing cycle follows a specific schedule. Since subscription billings occur via automated processing, billing cycle management is easier.
Preventing Failed Subscription Billings
For scaling companies relying on subscription billing to generate recurring revenue, client churn – whether voluntary or involuntary – is one of the most common factors resulting in capital loss. Recurring revenue from customer subscriptions creates stability because it is predictable, stable, and can be depended on with a great deal of certainty on a month-to-month basis. However, customer churn disrupts the accuracy with which scaling companies can predict their following month’s income versus spendable revenue. Unpredictable revenue could potentially hinder sustainable growth and the dynamics against which the company can develop its scaling strategy.
What is a payment orchestration platform, and why is it a useful tool?
A payment orchestrator’s platform generally integrates with- and manages the subscription billing company’s entire payment process. The platform includes payment authorization, transaction routing, and settlements. The process involves connecting to different payment service providers (PSPs), acquirers, and banks on a single and unified software solution. The payment orchestrator manages the end-to-end process of customer payments, from the initial purchase to the final settlement. Integrating with a company’s existing system enables a payment orchestration platform to automate and optimize the entire payment experience.
Scaling companies usually don’t have the resources or internal talent to create an in-house system that manages their subscription billings and payment processes. In addition, the technology is generally expensive to build from scratch and requires expert knowledge to program the intricate workings of an automated billing system.
Outsourcing a specialist partner in payment orchestration means the scaling company gains access to purpose-built technology and expert knowledge to optimize the payment process. In addition, using purpose-built technology benefits the company by spending less capital on invalid subscription payments and churn, as the payment orchestrator oversees and advises on the billing strategy.
Optimizing their subscription billing system with a payment orchestration partner allows a scaling company to focus less on acquiring new customers to make up for the churn and more time on understanding why the churn occurs and how to prevent it in the first place. Once we know how to avoid it, a healthy balance can be pursued between the customers’ lifetime value (LTV) and customer acquisition costs (CAC). By steadily bringing down churn, CAC is gradually improved over time.
Why do subscription billings fail, and how to resolve churn?
Some of the most common reasons subscription billings fail are payment method expiration, insufficient funds, or incorrect card details. These are external factors. However, sometimes billings fail due to a lack of supporting infrastructure from the company itself. A lack of infrastructure can lead to false declines, resulting in churn that the scaling company should have avoided.
Most customer churn happens passively or involuntarily. Fortunately, this is preventable by making use of a subscription management tool that assists you in recovering from failed payments – better yet, a payment orchestration system that avoids declines in the first place.
It’s more intricate to recover from failed payments due to voluntary churn. Voluntary churn often occurs when customers opt out of a subscription service when they no longer feel they are getting fair value for what they are paying. Preventing voluntary churn requires a balanced combination of customer engagement, experience, and perceived value.
For most scaling companies, preventing churn is a trial-and-error scenario. However, time is not always on our side when aiming to grow a company. A proven method of saving time and cutting back on voluntary churn is to improve the onboarding process when a new customer subscribes.
Automatic renewal & Fake churn
Customers should also be encouraged to opt-in for automatic renewal of their subscriptions instead of canceling a once-off subscription to combat voluntary churn. If a subscription is canceled, the customer should be invited back to reactivate their account later. This can be encouraged by an accompanying incentive, such as a discount.
“Fake churn” is also becoming a more prominent scenario. This is when 30 or 60-day free trials or money-back guarantees are taken advantage of. Although trickier to navigate, companies should ensure that their subscription billing T&Cs protect them and the customer against premature subscription cancellations and/or the misuse of free trials.
Optimize payment strategies to minimize churn
There are multiple reasons for customer churn. The critical factor to consider is matching your solution to the reason why the churn occurred. When looking at the payment lifecycle, there are different stages where it usually happens.
Areas of churn include occasions when a payment is due, when a payment failed after the first try, failed payment after retrying, during dunning, post-dunning, and after an invoice was issued. At each of these stages, there are measures that can be taken to minimize the chances of churn. More specifically, this decline recovery process is called recycling.
Although there are multiple strategies to follow at each stage to prevent churn, the most straightforward options are to have an easy-to-use checkout page and to notify customers that payment details might need updating. When sending a link to customers asking them to update payment details, ensure the page they land on is optimized for them to not leave without editing an expired credit card. Remember to always turn threats into opportunities by capturing your customers’ feedback at the point of cancellation.
Churn can also be decreased by aiming to convert cancellations into continued subscriptions and offering the right incentives to the customers that decided to cancel their subscriptions and make them change their minds at the point of exit.
What solutions exist to optimize subscription billing from the start?
For scaling companies, there’s usually a drawback to developing payment integration systems in-house. The skills and capacities needed to build such systems from scratch are traditionally the key hurdles to get over. However, there’s also the drawback of incompatible analytics and the factor of different reconciliation procedures. Furthermore, with constantly changing regulations in the industry, it could also get difficult to keep up with compliance requisites, not to mention the costs and time spent. This all can contribute to it being harder to flag outstanding transactions and overcharges.
How can teaming up with a payment optimization partner solve this?
A payment orchestration platform not only facilitates the process of accessing an unrestricted number of payment methods and providers through one single API integration but also helps your business scale faster to new markets with the needed flexibility and redundancy. In addition, with a payment orchestrator, there are a few potential resource-saving benefits companies can leverage:
- Advanced Big Data Analytics: Using big data to process voluminous and complex payment datasets from different providers and extract valuable insights in real-time through a single dashboard.
- Automatic Reconciliation: Allows a cross-check of the processing events with settlement events to reconcile transactional statements automatically. Payment managers can spot any inconsistencies in processing fees and payout schedules that were previously agreed upon with the distinct payment providers.
- Smart Payment Routing: Switching transactions in real-time based on rules across all different payment providers to optimize acceptance rates and reduce payment fees.
- Risk Management: Using third-party vendors’ risk engines to either flag or block transactions based on previously defined rules.
Customer churn hinders company growth and presents a roadblock for frictionless service delivery as fewer capital resources are available to allocate toward the customer experience. To overcome the hurdles created by customer churn, scaling companies can significantly reduce their risk of capital loss by teaming up with a payment orchestration and automated billing partner. In addition, having a partner to develop optimized payment solutions can save scaling companies time and spare resources by implementing the proper methods from the start.
About Our Source
Ideas for this article came from Frank Arellano. Frank is the CEO and founder of Revolv3, a fintech SaaS platform based in Laguna Beach, CA. Frustrated by the lack of subscription management payment systems that could minimize false declines and maximize first-pass payment approvals, he built his own. Frank started his career with startups. Afterward, he led as an executive at Ingram Micro and Experian for over 20 years. Now, backed by Rosecliff Ventures, he intends to reshape the recurring payment market.
Founded in 2020, Revolv3 is a full-stack SaaS payment optimization platform designing bespoke subscription billing solutions for merchants. The platform utilizes adaptive technology to deliver the industry’s highest credit card acceptance rates. Revolv3’s seamless integration enables merchants to instantly achieve transformational revenue growth and superior customer retention at the lowest cost in the industry. Revolv3 re-architected the payment process & implemented Network Tokens, Dynamic Routing, and Machine Learning to achieve the highest first-pass approval rates in the market. As a result, companies can highly configure subscription offerings, grow their top-line revenue, and scale confidently, knowing that their billing platform will grow with them.