Engaging in an ongoing relationship with a customer is challenging under the best of circumstances. When you are a merchant in the business of continuity, billing for a good or service with a set frequency – weekly, monthly, quarterly, annually, or anything in between – maintaining this relationship for the duration is the crux of your revenue stream. We will always lose some customers due to the customer’s desire to end the relationship. What’s untenable is losing a valuable customer who wishes to remain a customer, but whose billing fails. Payment declines can cost merchants thousands to millions of dollars in lifetime value of a customer.
The universe of credit and debit cards that churn is about 40% each year. So continuity programs without decline prevention and recovery tactics are losing almost half of their otherwise happy and willing customers. The rate of churn is largely due to data breaches and lack of customer loyalty to a specific issuer. Data breaches have been on the rise in the past decade as an increasing number of transactions and data are being housed online. Cardholders are more likely to switch plastic as they are solicited by other issuers with promises of lower interest rates, more points/rewards, or the ability to consolidate debt with lower payments.
What’s a Merchant to Do?
Implementing best practices around preventing, recycling, and recovering declines is key to extending the lives of those customers that wish to remain customers. Understanding the nuances between decline codes and how to treat each will help close the gap between approvals and declines. Detailed reporting that gets to the heart of your card type mix and enables you to delve deeply into the process flow can give additional insight into how to optimize your merchant processing.
Depending on the size of your organization, ability to create the necessary reporting, and resources to monitor and mine this data daily (or more frequently) you may be able to increase your bottom line by anywhere from a few percentage points to as much as 40% while extending the lifetime value of your customers for multiple renewal periods. It’s also crucial to ensure you have the right relationship with the right vendors – for the right price. Be sure to read next week’s post about the latest data breaches that are impacting your customers and causing additional plastic churn.