How Credit Card Processing Fix Lifts Autorenewals: 6 Steps for 98% Success

CHALLENGE
Fred Macri, Online Business Manager, EnlightenNext, spent very little time mulling over payment processing when his team developed a subscription-based audio and video service several years ago. His primary concern for WIE Unbound, a spin-off of the firm’s print magazine, What Is Enlightenment, was navigating the technical issues for the website’s launch.

Team members had their hands full creating the multimedia platform. Integrating it into their “bare-bones” payment infrastructure was a low priority. Then in late 2006, Macri noticed a troubling trend: A large number of subscriptions were cancelled because of credit-card breakage -- recurring payments declined because of expired cards or exceeded credit lines.

Billing practices suddenly became a big issue. “When you see how much money you’re losing, how much money you’re leaving on the table, you realize you have a leaking bucket,” says Macri. “You do whatever you can to plug that hole.”

Macri didn’t have much data from their payment processor to point out exactly why cards were being declined. And he realized that their existing payment processing infrastructure couldn’t provide the detailed reporting needed to solve the credit card-breakage problem. It simply wasn’t flexible enough to support his goals for testing and expanding payment options.


CAMPAIGN
Rather than tinkering, they created a whole new payment-processing system. Here are the 6 steps they took to create a new recurring billing strategy to plug holes in the leaking subscription renewal bucket:

-> Step #1. Replace key parts of platform

Macri and his team started by replacing key parts of their payment-processing infrastructure.

- They hired a new payment processor that could provide detailed reports on specific reasons for credit card declines.

- They installed new software that could handle multiple payment plans, support price testing, and allow them to more easily create SKUs for new product bundles in their inventory.

“We needed a very solid technical platform to launch from,” Macri says.

-> Step #2. Analyze specific card decline codes

With better infrastructure, Macri’s team examined transaction records to map specific credit card decline codes and learn exactly why a transaction was denied. The process identified more than 30 codes.

First, the team differentiated between “hard” and “soft” declines. The former indicated a problem with the payment or the card itself. The latter indicated a problem that could be addressed through new payment processing strategies.

Hard declines:
o Lost/stolen card
o Invalid account number
o Expired card
o Invalid merchant
o Invalid payment type
o No such issuer
o Cardholder requested that recurring payment stop

Soft declines:
o Insufficient funds
o Exceeds approval amount limit
o Resubmit transaction
o Issuer unavailable
o Invalid pin
o Generic decline
o Do not honor

> Step #3. Develop re-billing strategies based on decline codes

With the codes, the team identified three ways to re-bill transactions that had failed because of a soft decline or because of a hard decline that could be addressed with new billing techniques.

Every payment is attempted twice: The day the payment is due, and then one day later if that transaction did not go through for any reason.

For soft declines that occur during that process, they adopted a policy of re-billing the card three times over a month, using these intervals:
o 11 days after first attempt
o 21 days after first attempt
o 31 days after first attempt

- The team did not attempting to re-bill hard declines, except in the case of declines due to an expired credit card.

“By cutting them out of the system you’re not wasting money on the processing charge you pay every time you whack a card.”

- For a decline to a card their system said was expired, the team had their processor go through a series of steps to re-bill that card. The details of the processor’s strategy are proprietary, but best practices for handling expired cards often include several re-billing attempts:
o First, by running the card again with the expiration date left blank
o Adding two years to the expiration date on file for the second attempt
o Adding three years on a third attempt
o Adding one year the fourth time

-> Step #4. Email subscribers whose cards weren’t processed

For hard declines that were not due to an expired card, the team sent an email notice to subscribers asking them to update their card information. The email used the subject line: “Important WIE Unbound Subscription Issue - Urgent Action Required.”

The message informed subscribers that their subscription was suspended due to a credit card-processing issue, and asked them to update their billing information. The email included a hotlink to the account-management section of the WIE Unbound website, and provided a toll-free phone number for subscribers to call for assistance.

The renewal notice was sent three times:
o 11 days after the first billing attempt
o 21 days after the first billing attempt
o 31 days after the first billing attempt

-> Step #5. Test price points and annual billing option

Macri’s team launched WIE Unbound with one payment option: $10 a month. With the new billing system in place, they tested different price points. Included was an annual billing option to maximize revenue and limit the number of times they had to bill a subscriber’s card.

Two price points for the monthly billing option were tested:
o $9.95 a month
o $12.95 a month

Three price points for the annual billing option were tested:
o $89.95 a year
o $95 a year
o $99.95 a year

Macri’s team ran a six-week multivariate test that presented subscribers with six different combinations of those prices. They took the top three combinations from that test and conducted a second multivariate “run-off” test to determine the optimum pricing combination.

-> Step #6. Provide accurate product name on statements

The old payment-processing system didn’t differentiate between EnlightenNext products on a customer’s bill. Charges were attributed only to a generic company name, such as EnlightenNext, or an account number.

Confusion over the source of a charge on a credit card statement can lead to unintended chargebacks. With the new system in place, the team used a specific identifier for each product. Charges for online subscribers, for instance, were attributed to WIE Unbound.
RESULTS
With their leaky billing bucket patched, EnlightenNext has seen a 98% success rate for transactions that had previously been denied and only two chargebacks in six months.

“That’s huge,” says Macri of the success rate. “We did modeling for the expires we had lost prior to going live with the new system, and if you model those subscriptions out two, three or four years, the compounding effect is staggering.”

Macri was not tracking chargebacks before implementing the changes. But he’s convinced the new policies brought that number down to a figure he sees as “extremely low.”

Price testing helped the company increase revenues because the winning combination was not the lowest price point. Instead, the $12.95 a month/$95 a year combination produced the best results:
o 5% increase in conversion rate over the second-place option
o 19% increase in average order size over the second-place option

A growing number of customers also are choosing the annual subscription payment option:
o 31% of customers chose an annual subscription when it was first offered
o 42% of subscribers now choose the annual option

Useful links related to this article

Creative samples from WIE’s credit card processing system:
http://www.marketingsherpa.com/cs/wie/study.html

Paul Larsen - consultant who helped with rebilling strategy:
pnlarsen@verizon.net

Litle & Co. - new payment processor:
http://www.litle.com/

Vindicia - provided recurring billing engine:
http://www.vindicia.com

WIE Unbound:
http://www.wie.org/unbound/

EnlightenNext:
http://www.enlightennext.org/