Payments
Open Banking
eCommerce
Payments
Open Banking
eCommerce
July 19, 2023
5 minutes

How Subscription Businesses Can Reduce Involuntary Churn

Timothy Shin

Open Banking Expert

Churn, also referred to as customer attrition, refers to when consumers stop doing business with a merchant over time. While churn is a normal thing merchants face and combat on a regular basis, involuntary churn is much more difficult to handle, and existing solutions aren’t enough to face its root causes. Involuntary churn refers to issues such as card payments declining, cards expiring, insufficient funds, etc.

Subscription-based merchants especially are impacted by involuntary churn since the entire basis of their business is built on the recurring nature. While subscription-based merchants have some options available to them, Open Banking solutions offer a reprieve in which they can reduce their churn rate while also satisfying their customers with an easy onboarding and checkout experience. 

The Overarching Impacts of Involuntary Churn  

Involuntary churn often stems from forces outside of a merchant’s control. Merchants across verticals in the subscription industry lose, on average, 9% of revenues due to failed payments, totaling an estimated average of $278 billion in losses

Forbes reports that, on average, it can cost 5 to 7 times more to acquire a new customer than to retain one. LTV is essential for subscription-based merchants as it is the fundamental backbone of their business model. Customers need to stay subscribed in order for merchants to turn a meaningful profit over time. Not only does payment failure make it hard for subscribers to stay subscribed, but it also decreases overall customer lifetime value (LTV). 

Reduce Involuntary Churn with Open Banking Payments 

The root cause of involuntary churn stems back to card payment failure. In fact, card payment failure is the cause of 50% of all consumer churn. When cards fail, recurring payments can’t go through for subscription-based merchants, and this directly impacts their bottom line. Essentially, subscription-based merchants are at the mercy of cards. 

When card payments fail, subscription-based merchants often turn to sending payment reminders, known as dunning, or significantly promoting pre-paid leases of their service or product, offering discounts for yearly subscriptions instead of monthly. While these are all viable solutions that yield results, constant dunning can often get viewed as an annoyance, and offering long-term payment models only prolongs the inevitable. When the card expires, and it is time to renew, there will still be the same involuntary churn issues. 

Fundamentally, these solutions don’t tackle the root of the issue, which is cards. Simply put, cards weren’t inherently designed with recurring payments in mind, as they expire or can get lost or stolen. However, Open Banking Payments can directly make an impact against involuntary churn. Open Banking Payments enable consumers to pay directly from their bank accounts using just their online banking credentials.

How Open Banking Payments Can Mitigate Involuntary Churn for Merchants

As mentioned above, the key culprit in involuntary churn is card payment failure. According to both Visa and Mastercard, roughly 15% of recurring payments get denied, and depending on the industry, this amount can double. Leveraging Open Banking Payments means avoiding card processing altogether and offering a payment alternative that allows consumers to pay for subscriptions directly from their bank accounts. 

Open Banking Payments reduce churn in several ways: 

  • Unlike cards, bank accounts don’t “expire” every few years or require constant updates to information. 
  • Avoid issues with card decline or lost/stolen cards entirely because a card is never used to pay for any subscription to begin with. 
  • Open Banking Payments are easy to use and require no additional hand-holding. No need to enter card data or account numbers, just sign in and get authenticated.

Additionally, Open Banking Payments allows subscription-based merchants to avoid card processing fees and having to pay for additional services such as automatic card updaters or tokenization services provided by card networks. 

Current solutions, like dunning that exist for involuntary churn, only address the symptoms. They don’t actively tackle the main cause, which is card payment failure. Subscription-based merchants can take meaningful actions against involuntary churn with Open Banking solutions. Instead of just mitigating symptoms, merchants now have the ability to mitigate card payment issues directly, reducing their churn rate and increasing customer LTV. 

Open Banking for Your Subscription-Based Business

Open Banking solutions are a win-win scenario for both merchants and consumers alike. Consumers benefit from a frictionless payment system that allows them to set their payment and forget about it with confidence. Utilize Trustly Pay to provide robust and flexible payment options that can improve your consumer experience and lessen your involuntary churn rate. Request a demo today. 

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