Recent economic changes have created challenges for subscription businesses, forcing them to change their priorities. Instead of spending most of their time and energy on getting new customers, subscription businesses are now focused on keeping the customers they already have. Unfortunately, failed payments put a huge dent in retention. This means using a failed payment recovery solution is no longer a nice to have, it’s essential.
Researching and implementing the right failed payment recovery solution is not a simple project, however. And the solution you select can make or break your entire customer relationship. It’s the difference between a customer churning and one that continues to bill successfully for many months to come.
Your recovery process must be both technically effective — meaning the payment is recovered successfully — and the customer continues on to achieve full LTV. But many organizations assume that because they know their customers best, they have the know-how to create their own in-house recovery tool. Because who knows their business better than they do? An in-house solution is a good first step to take, but it doesn’t do the whole job. Internal solutions have performance limitations compared to specialized technology solutions, and they often cause unwanted challenges with hiring, optimization, and operation.
Problems With Creating Your Own In-house Payment Recovery Solution
Internal Retry Solution
- Simple retry rules that resubmit a failed payment every day or on a fixed schedule don’t deliver the results that a sophisticated recovery solution can provide.
- An internal retry solution isn’t optimized for each failed payment reason or issuing bank and can’t address the hundreds of reasons why a payment can fail.
- Repeatedly retrying a payment harms your merchant account risk scores, leading to higher decline rates in the future.
Customer Service Outreach
- Customer service outreach attempts can create a negative brand experience and put the customer relationship at risk.
- Customer service outreach doesn’t work directly with the payments system and the customer is made aware of the failed payment. This reduces customer satisfaction and can actually increase customer churn.
- These programs typically use a simplified engagement message that asks the customer to resolve a failed payment, rather than applying different messaging designed to motivate subscribers.
Third-Party Failed Payment Recovery Software
Most companies simply don’t have the money to hire the data scientists and software engineers needed to create a truly effective failed payment recovery solution. Instead of trying to do it on your own, reach out to third-party solution providers. According to a 2023 joint study by PYMNTS and FlexPay, top performing companies are 12X more likely to use a third-party payment recovery software specifically designed to achieve the highest rates of recovery and minimize churn.
Recovery experts should give you their recent recovery rates for businesses like yours. Each provider should also be able to evaluate your current failed payment data and forecast your expected recovery performance. When talking to the expert, it’s also important to find out if they have any customer outreach programs built into their recovery solution. This type of outreach will ensure high levels of customer satisfaction through the engagement process and provide high recovery rates.
Failed Payment Recovery Best Practices
Once you have a few recovery solutions lined up, it’s time to make a decision. What solution is best for you? A sophisticated technology solution designed to achieve high recovery rates and top customer retention is the logical choice to ensure you get high recovery rates and maintain a positive customer experience. Advanced features such as AI are useful but be sure to question providers to learn why and how their AI is suited for this application. Has their system been trained on large enough data sets? Does their data come from issuing banks, which is crucial for achieving high recovery performance for each decline type and issuing bank?
When speaking with recovery companies, make sure they give you their recent recovery rates for businesses like yours. Each provider should be able to evaluate your current failed payment data and provide you with an analysis forecasting your expected recovery performance.
Questions to ask failed payment recovery solution providers:
- Does the system create individual recovery strategies for each failed payment?
- Is their solution designed to achieve high recovery rates and full LTV following recovery?
- Does the system use AI? If so, has it been trained on data from issuing banks?
- What are their recent recovery rates for similar businesses?
- Does the solution include personalized customer outreach for times when customer involvement is needed?
For more help evaluating failed payment recovery solutions, reach out to us.
