How to resolve common subscription payment challenges

Subscription payments are notoriously challenging. Authorization rates are notably lower for subscription payments than for regular payment types. Our data shows that in Ireland, for example, the authorization rate for subscriptions is around 45% compared to 88% for regular payments, and this trend is indicative of authorization rates across many countries in Europe and beyond.

But churn isn’t the only issue plaguing subscription payments. Fraud and security concerns, cross-border challenges and inherent inefficiencies also rank quite high. Many businesses rely on multiple subscriptions in order to break even on a customer, so solving these challenges can ultimately result in higher customer lifetime value and profitability. In this article, we outline the most common challenges that subscription businesses face in their payments and how to resolve them elegantly and effectively.

Common challenges of subscription payments

Though failed payments are the biggest hurdle for subscription businesses to tackle, there are other issues that they could be facing in their payments setup.

1. Low authorization rates due to failed payments

Fact: Subscription payments have among the lowest authorization rates due to failed payments. Payments can fail for different reasons, but one of the biggest causes by far for subscriptions is insufficient funds, making up over 30% of failed subscription payments. Another common reason is the almost all-encompassing “generic decline” label, making up around 39% of all failed subscription payments. This category could include issues like expired cards.

Failed payments have a chain reaction: Consistently low authorization rates means a sustained loss of revenue for the merchant. It also leads to a frustrating user experience: Let’s say that a customer’s subscription payment fails repeatedly due to insufficient funds. Eventually the service might restrict access or block their account entirely. This is especially frustrating if the reason for failed payment could be solved easily (more on that below).

2. Subscription Abuse

Unfortunately there are plenty of fraudsters out there always trying to find ways to game the system to reduce their payment or scam businesses out of paying at all. With the rise of online subscription models came the advent of subscription abuse, types of payment scams designed to get out of paying subscription fees. Common ways that individuals might abuse subscription services are: 

• repeatedly signing up for trial subscriptions, called retrialing
• sharing accounts or creating multiple accounts
• discount abuse, i.e. claiming discounts or discount codes that one isn’t entitled to
• using a VPN to pretend to be in a different country and take advantage of reduced pricing or perks

Like failed payments, subscription abuse leads to low authorization rates. Some of these tactics also influence your internal data, as you can not verify the number of real subscribers and therefore not develop your business accordingly.

3. Security Risks

By definition, subscription payments mean that merchants are accepting online payments from their customers on a recurring basis. Merchants therefore need to process these payments, which involves collecting and storing their customer’s payment information. And whenever storage of sensitive card information is involved, then merchants must comply with all necessary regulations. 

Any merchant who processes payments and stores the payment information of their customers needs to be Payment Card Industry (PCI) compliant, so they have to uphold all the cryptography standards mandated by PCI Security Standards Council. The importance of protecting customer data and the effort it takes to do this shouldn’t be underestimated. Businesses should either invest in internal resources to ensure compliance or look for a payment solution that is PCI compliant, like Payrails’ token vault solution. We get into why payment tokens are a great tool for subscription businesses below.

4. Localization Challenges

If you have subscribers based all over the world, then you know first-hand how challenging it can be to keep the payments process as engaging and smooth as possible for each local audience. When you have multiple languages and currencies to contend with, it can be difficult to keep things straight and sorted in the backend. Is your payment setup equipped to switch seamlessly between different language and currency combinations?

On the frontend it can be just as challenging. If you don't offer the types of payment methods that are preferred by the local audience, then you risk users churning or not even signing up for your subscription service in the first place.

5. Manual or inefficient invoicing 

If you’re an enterprise-size business and you aren’t automating financial operations like invoicing yet, then that should be your first order of business. Manual invoicing is not only time consuming, it’s inefficient and prone to errors. Plus, manual invoicing is so inflexible, that it’s impossible to account and optimize for individual scenarios that might require a more creative invoicing solution.

How to effectively decrease subscription churn and optimize your recurring payments

Subscriptions can be challenging, but the good news is that there are many ways to address some of the common pitfalls listed above. Here we explore some of the keys to winning subscription payments and making them profitable. (And pro tip: with the Payrails platform, you can achieve all of the below with just one solution. Learn more here.)

Automated, flexible billing schedule

Solves: Failed payments due to insufficient funds, inefficient billing schedule

Reduce failed payments and streamline your billing by introducing a flexible billing schedule that you can customize according to different factors. With a smart billing schedule, for example, you can program bill collection to occur right after pay day, which you can tailor based on pay days in individual countries. Pre-configuring billing conditions and automating the entire process will also help solve billing inefficiencies.  

Smart retry

Solves: Failed payments

Payments can fail for many different reasons, not always because of insufficient funds. Sometimes payment processors experience technical difficulties or downtime and therefore cannot complete the processing, which then results in a false failed payment. A smart retry mechanism can help: It automatically attempts processing the transaction with the same processor for a set amount of times (determined by you) and eventually re-routes the transaction to a different processor in case the issue persists. This ensures that a payment is processed regardless if a processor is experiencing issues, so that you avoid false payments, a bad customer experience, and guarantee payment authorization, all in one fell swoop. It also helps to avoid unnecessary authorization requests which would incur additional costs and might cause your account to be temporarily suspended by the acquirer due to excessive failed payment attempts.

Network tokens

Solves: failed payments

‍Network tokens are a kind of payment token that is issued directly and in real-time by card schemes (like Visa, Amex or Mastercard) and act as a replacement for a customer’s card details. Using network tokens in subscription payments can help reduce failed payments due to missing or out-of-date card information, as the (encrypted) payment details are safely stored for future payments. Network tokens are also cheaper to process due to their low fraud risk and low chargeback ratio, making them an excellent choice for subscription businesses.

Add alternative payment methods

Solves: failed payments, localization challenges

Another way to optimize your subscription payments and avoid user churn is to offer alternative payment methods, especially taking country-specific and even regional payment preferences into consideration. You’re more likely to keep a customer happy and subscribed if they are able to use their preferred way to pay. You should also consider making it possible to combine different payment methods and to spread payment across multiple sources. For example, you could make it possible for a subscriber to pay one part of their subscription fee with their available funds in their account and the rest with a card.

Efficient collection process through CRM communication

Solves: inefficient billing process, outdated payment method, user churn

Besides implementing a flexible, time-optimized billing schedule, there are other ways to make the billing process and money collection process more efficient. One way that has proven results is to initiate communication with the user during the billing cycle. Through CRM communications like emails or push notifications, you can provide your subscribers the option to update their payment method or to send them a “pay now” link. By offering them alternative ways to pay and giving gentle but regular reminders of an upcoming amount due or owed, you can ensure that the payment actually goes through and you can collect your revenue.

Payment prediction

Solves: user churn

To solve subscription churn in the long run, it pays to understand the exact reasons why payments keep feeling. An AI-based analytics tool can help you do just that. By taking factors like historic data, user behavior and demographic data into account, a smart prediction tool can determine when, if and how a user will pay (or not pay) and to optimize the payment process for that user. For instance, if it is predicted that a user might have trouble meeting their next billing cycle, you can send them an email offering to switch payment methods or split the payment over several different payment methods.

Contact Payrails

Payrails can help you to reduce subscription churn and increase payment success. Our modular payment platform empowers you to design subscription workflows and logic that increase authorizations and help you meet your revenue goals. Build checkout experiences that your customers will love – get in touch today to learn more.