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What are the trends and issues that will impact your ability to get paid by your members and subscribers in 2020? In this on-demand briefing we:
- Examine trend data to help you understand how your business needs to navigate 2020.
- Discuss other key emerging issues in 2020 to prepare for.
- Walk through tactics and best-practices your business should employ to mitigate any negative impact from these trends.
If you operate a subscription or membership business – regardless of subscription vertical, industry, consumer focus, or transaction volume – your revenue is impacted by payment trends and market dynamics happening right now. And, if your business is still operating with payment best practices from 12 months – or even 5 years ago – you are leaving money on the table. This briefing will help you understand what you need to learn and plan for so you won’t leave money on the table from involuntary churn.
Melanie Stout, Partner at PLC, delivers an information-packed session, outlining important trends and actionable insight for all of us to learn from, plus we had great questions from all of our attendees that we discussed too.
TRANSCRIPT
Introductions
Kathy G. Sexton: Welcome everybody. This is Subscription Insider’s, subscription payment trends 2020 and we have expert Melanie Stout who is from PLC. She is going to be teaching us and walking through seven payment trends that are going to be impacting all of us working in recurring revenue and memberships. Melanie, welcome.
Melanie Stout: Thank you. Thanks for having me Kathy.
Kathy G. Sexton: So Melanie is, I mentioned is with PLC and Pulse and her partners here are on the line. Melanie, can you walk through what you do and why you guys are so good at what you do regarding recurring not present recurring payments?
Melanie Stout: Sure. PLC has been around, it was first started by Paul Larson about 18 years ago and we have helped over 600 recurring merchants optimize their recurring payments and we were all originally from a recurring merchant ourselves and our focus was to ensure that we did not lose a single transaction due to involuntary churn. And we’ve brought that experience to all of our merchants over the years. We have also built a proprietary reporting tool called Pulse, which helps us not only manage our clients, but it also enables incurred not present merchants to monitor their payments.
Kathy G. Sexton: Well, thank you. That’s really great. I actually first met Paul helping me when we’re working through some card not present issues at a recurring revenue company. I don’t want to say how long ago, but really they are the gurus when it comes to many of the issues that we all address. So for those of you who are not familiar with Subscription Insider, we are an information media company and our mission in life is to make all of you smarter and empower you with information to help you grow your businesses and scale profitably. We do that through our daily news. We have a membership portal. We also host online events like this online training and events and conferences. So if you want to learn more about us, you can certainly go to subscriptioninsider.com and there are a few things I just wanted to get onto your calendars.
Kathy G. Sexton: We have a training program coming up in two weeks and it’s actually with Melanie. Today we’re focused on helping you understand the trends. Subscription Fundamentals is on February 13th a two-hour online training program, talking about recurring payment fundamentals. We also are going to be hosting in-person workshops in Chicago, New York and LA focused on advanced recurring payment strategies and tactics. We also have another one that we will be hosting that have not announced yet on retention and then subscription show 2020 our highly acclaimed industry conference that’s going to really help all of us working in the subscription economy to connect, learn the latest strategies across retention payments technology and that we’re going to be hosting on October five through seven in New York.
Kathy G. Sexton: So before we get started, I know I’m a multiprocessor. I try and get a little few things done while I’m listening to webinars. But Melanie, I have seen these slides. She has put together with a team some amazing information with a lot of information for you to reference. So with that, I’m going to hand the microphone back to you, Melanie so we can get started learning about payment trends that we need to plan for. Take it away.
A Bit of History
Melanie Stout: Thank you. So as we’ve entered a new decade, I thought we would look back a little bit over the past year to get a brief history lesson. Everyone loves the subscription economy, which is wonderful news for all of us here. Consumers have adopted it in droves. Hard brands have been changing regulations to help support services and improve the experience for merchants and for consumers and tech companies are diving in to solve additional needs. Over the past decade, M commerce has exploded as phones have become multipurpose tools. Earlier phones like this one were very small, often didn’t even have full keyboards and made it very difficult to transact by mobile device. Newer phones obviously are kind of one stop shop devices for consumers to really do everything and manage everything in their lives on enabling transacting on mobile devices wherever they may be much simpler.
Melanie Stout: In 2007 Netflix added streaming content, which blazed the path for a shift to OTT as an option for TV and movies and then Dollar Shave Club became a major disruptor with its launch in 2011. From here, the subscription model rapidly expanded to include replenishment, access and curation models that are now the norm. Also, digital subscriptions have grown with an increase in gaming with content and particularly as some print publications are switching to either digital only or digital plus print. But the more things change, we are still seeing some similarities and the early 2010s we had massive data breaches. Prepaid cards began to pose a retention problem and American spent to their credit limits causing declines for insufficient funds. Now there are breaches. One was just announced two days ago, I believe Wawa had about 30 million cards breached that are not for sale on the black market. Invasive fraud is also expanding now. Prepaid cards are gaining rapidly in usage, but there are better detection tools for them and a booming economy means higher limits, but Americans are still spending to those limits.
Melanie Stout: When we look at approval rates from 2010 and 2011 versus 2019 this was across the subsection of PLC clients. We see a lot of it is very similar. Amex and Discovers still remain higher approval rates. Overall, not a lot of influxion in 2019 but we do see in general the approval rates are slightly lower now than they were back then. Although that is largely due to an increase in retry attempts and adding in additional decline responses that we traditionally were not retrying. Now we are and we’re seeing great success with some of those decline responses.
TREND 1: The Age of the Customer
Melanie Stout: So our first trend is this is the age of the customer. Competition has been fierce and is only increasing, [inaudible] subscribe and save on Amazon and pretty much everywhere else. Auto replenishment on just about every usable product on most retailers, box subscriptions for everything under the sun. It means you’re likely not the only one in your category.
Melanie Stout: There are more than 3,500 subscription box companies in the US not even accounting all of the other continuity services such as streaming media, gaming content and more. All of this can be overwhelming for a consumer and they have multiple options to get what they need, wherever they wish. If you’re playing to win in the space, the best way to thrive is by offering stellar customer service, meeting the subscriber where they need you and allowing the ultimate flexibility in your subscriptions. This means many of the traditional models and even technology platforms made no longer contribute to your success. The customer is always right. That old [inaudible] rings true still. Allow customers to pay when and how they want. Installment billing is on the rise. It’s been very popular around the world and it’s now becoming more popular in the US, alternative payment methods and wallets are all options to consider to help increase conversion.
Melanie Stout: Also, it’s becoming increasingly important to allow your customer to self-service, allow them to upgrade, to downgrade, to pause, to change frequency. If you have a food company, for example, someone’s on vacation for a week, they might not want to receive it. Allow them to shift even with print publications. If you’re going to be on vacation or if you’re feeling overwhelmed with things in your mailbox, you might want to pause, allow consumers to do that and allow them to do it themselves. Also, becoming very important is allowing customers to cancel by text or email or online. Financial institutions agree with this and they have actually enacted some different regulations now, more coming in April where they’re requiring more disclosures in the conversion path, more communications before billing and restrictions on free and low intro trials. So you’ll have to inform the customer more beforehand as well as make sure you communicate with them before you bill them after the free or low intro trial and allow them to cancel simply through an email or through a text.
Melanie Stout: The card brands are now implementing these regulations which are more stringent and similar to laws that have been rolled out in multiple States like Vermont and California, and we can expect that trend to increase. There are almost as many apps to help manage and cancel subscriptions as there are subscription companies these days. So when you’re offering your consumers complete flexibility and self-service, they’re going to be less likely to resort to using these types of tools more comfortable coming to you, and then you’ll have an opportunity to actually keep them in there without letting them go and cancel the whole subscription. So if you allow them to change their frequency, or changing their next scheduled billing date, then they’re going to be more likely to stay with you.
Melanie Stout: It’s important to understand your volume by issuer as well. Capital One for example, offers a tool for their card members to cancel subscriptions and manage their subscriptions online. As a second leading issuer in the US they likely make up a large proportion of your subscriber volume. So by making the subscription, tailoring experience as simple as possible for your customers on your site, you’re allowing yourself the opportunity to retain them in some capacity.
TREND 2: How People Are Paying
Melanie Stout: People are paying differently now. We can see this is a through 2000 to 2015 debit cards have gone up, credit cards have gone up, ACH is increasing slightly, paper cheques have obviously decreased. Consumers are getting away from that and prepaid debit cards have increased quite a bit. That has actually grown quite a bit more since 2015. The reasons for the increase in prepaid card usage are primarily related to un-banked and to debt-averse consumers.
Melanie Stout: About 8% of US households have no bank at all, which equates to about 17 million adults. Another 20% are under-banked. Recently New York City has joined Philadelphia and San Francisco in banning cashless stores in order to ensure that the 25% of the city’s population who are unbanked can still transact. Other cities, including Chicago and DC are going to follow suit. Your card not present eCommerce store is essentially a cashless place, so you need to also ensure that you have an opportunity to allow these consumers to transact if you want to have them as customers. But the fact that these laws are coming about really highlights how pervasive the unbaked population is. In some cases you might want to prevent prepaid cards from coming in. Some acquirers or gateways offer prepaid cards screening. That’s one size fits all.
Melanie Stout: But with these types of consumers and the growth in prepaid, there are different types of prepaid cards being used now. Your business may be one that appeals to an under-banked demographic or to people using government benefits card or payroll cards. So if you’re blocking all prepaid cards, it might not be an effective strategy any longer and it might be causing you to lose out on revenue and customers. There’s also a different type of consumer who’s using prepaid cards while they’re embracing subscriptions for convenience and things that they know they want and need. There’s still is a reluctance for some consumers to commit to a longterm relationship. So oftentimes prepaid cards are used to enable dabbling with your service. Your initial offer can make you more or less susceptible to these gamers.
Melanie Stout: These may be the scenarios where you wish to block the prepaid card usage, so it’s important to understand whether cards are reloadable or non-reloadable or what type of prepaid card the consumer is using, whether it is a payroll card or a social security card or something in that nature. When we look across PLC’s clients at auth rates by issuer, we can see some of the key prepaid issuers here having very low response rates, very low approval rates. And so if you look for example at Comerica bank, the overall approval rate for the quarter was around 15%, 20% that includes social security cards because they are the issuer for social security benefits. If you have an older demographic, you don’t want to block all of those. If your acquirer or your system is only blocking by all of prepaid, you might be missing out on a demographic that could be doing well while there are others within that brand that you do wish to block.
TREND 3: FinTech
Melanie Stout: FinTech is the buzz word of tech and finance merging. What we see with FinTech is a few things. The pervasive pays. FinTech is enabling new ways to pay and making payments easier. Tech companies are expanding into banking services and banking companies are focusing on growth in tech, so banks saw that growth with peer to peer payments via Venmo and they quickly banded together to create their own solution called Zelle. This crossover between tech and finance has been contributing to ramp an M & A in the space and the developments in tech have also enabled new ways of commerce including voice and even incur commerce to gain ground. If we focus on the pays first, you can see the payment methods used in 2018 the stored card is still the highest, PayPal at 22% has actually grown a bit in 2019 and the other pays combined averaged about 10% of overall transaction volume in 2018.
Melanie Stout: The question on which pay to take varies based on your demographic, but Apple pay has about 400 million users globally continuing to grow as acceptance in contact those payments increase. However, Apple pay historically was more of an in person contactless transaction, so using it at Starbucks, using it for your mass transit. PayPal just announced yesterday that they now have 300 million active accounts. They do have nearly two times the conversion and checkout versus any other wallet. All of the pays have global reach and can make cross border shopping easier for your customers. While let’s behave similarly to credit or debit cards because they’re funded by credit cards and make accounts. Historically, merchants have been reluctant to accept these payment methods because consumers could cancel directly in the wallet, but now with sophisticated consumers canceling without contacting you anyway, you may as well go ahead and accept them.
Melanie Stout: The upside to taking the pays is that these wallets have multiple funding sources available, so if one payment method fails, they can go to another. They can look at the different cards or bank accounts that are attached to that wallet and try different options. Additionally, consumers are motivated to keep their payment methods current within their wallets because they’re using them in more than one place. As we look at the leading peer-to-peer facilitators, both companies are showing the same growth trend, but Venmo as the first in the space is definitely leading in volume. In Q3 of 2019 Zelle had 196 million transactions. Venmo had 27 billion transactions in that same time period.
Melanie Stout: For a few of the companies that are really tech first, and we’re looking at Venmo and Apple, they’ve actually both launched their own cards. Venmo actually just announced today that they’re just going to be by visa, so this graphic will change, I assume, but both will be accepted wherever Visa and MasterCard are accepted. Venmo’s card is tricky. It’s funded by peer to peer payments, so when you’re a recurring business, they will only have funds on it when they’ve been paid by a peer. Unlike a regular debit card where you can assume it’s funded once payroll hits every other Friday or the 15th and 30th of the month, for example, a peer to peer type of payment, the Venmo card will only be funded if someone goes out to dinner with her friend, for example, and they split the check and their friend pays them by Venmo. There’s not a regular schedule to the replenishment of funds.
Melanie Stout: However, the Venmo card does allow for automatic reloads from an associated bank in increments of $10 assuming the cardholder has agreed to those terms in advance. So it could be possible to have funding come in, but it’s going to be a trickier one to tackle. Apple card is just a MasterCard issued by Goldman Sachs and it’s a credit card just like a regular credit card. They are offering cashback rewards that they’ll be delivering daily and can be transferred to an Apple pay account or it can be used in iTunes or the Apple store. And because it’s a credit card, there really aren’t any special considerations that need to be taken into account. But what could be useful information is if you see a lot of your users coming in using an Apple card and you’re not taking Apple pay, perhaps you would want to add that payment method as well.
Melanie Stout: Recent M&A demonstrates the fluidity of the tech companies and financial institutions coming together. As acquirer to a consolidating, they’re working to pull the best functionality from each of the companies. So if you’re able to benefit from one of these acquisitions, make sure that whoever you’re working with is bringing those synergies to your solution as well. V-commerce is a new opportunity and there are about 53 million people who have access to a voice-enabled device. About 40% of those are shoppers, currently, that’s primarily single sale, not recurring, but there are opportunities for the future to consider how you can translate those into subscriptions and how you can also add those to replenishment. The risks and the unknowns here are how will you get them to truly opt-in, what will be the requirements for voice opt-ins and the biggest unknown remains the fraud risk. There’s definitely additional exposure potential, but we don’t know what that will look like yet.
TREND 4: Card Brands Embracing Subs
Melanie Stout: Car brands are embracing subscriptions. They have been for a while, but they’re definitely making more strides. Visa announced actually in November at subscription show 2019 that they’ve changed their retry restrictions, which were previously up to four times over 16 days, now up to 15 times over 30 days. So they’re seeing the value in continuing and extending the retry process and extending the amount of times you can see if the card is good. They’ve also launched realtime account updater, which could bring updates to the forefront sooner so you don’t have to retry as long or you’ll get more update information. There’s also the new fairly new card on file indicator. A lot of merchants and acquirers are not ready for this yet, but those who have been using it have seen a slight uptake in approval rates for the card on file indicator, which really just shows that issuers do value the recurring transaction and they’re likely are to prioritize an approval on a recurring transaction than on a non-recurring.
Melanie Stout: What we’ve seen at PLC over the past three years, this is showing issue or participation. In 2017 74% of issuers participated in account updater, in 2019 that rose to 98% of issuers. We are expecting that to at some point reach as close to 100% as possible. So that is excellent news for everyone who relies on account updater.
TREND 5: Global Expansion
Melanie Stout: Digital content has fewer barriers to global entry than physical, obviously. So if you’re a digital company, you should consider expanding going globally. So an example from Netflix. Half of their revenues come from the US which means that half of them don’t. Growth in the U S has matured as they’ve reached a saturation point. Much of this growth can be attributed to price increases rather than incremental subscribers in the US but there’s much room for growth and rapid growth in global markets. The digital media growth in the world is expected to grow by 3.6% by 2024 but when we look at the growth in the US it’s only expected to be 2.4% increase and in Europe 3.2% so that means the rest of the world is responsible for most of this growth.
Melanie Stout: And that’s 3.8% growth for China was actually predicted before the trade deal with China was announced. The first phase of this trade deal has opened the opportunity for US card brands to obtain licenses in China, which they’ve never had before. So this will make it much easier for US-based merchants to easily accept payments in the sought after market. PayPal also just announced a deal with China UnionPay, which will enable PayPal merchants to accept payments from Chinese consumers who are using China UnionPay and it will also accept Chinese merchants to enact with American consumers. When you’re expanding globally, the challenge is knowing when to go local with presentiment and settlement. You should begin by testing regions and testing presentiment currencies. If your volume warrants it, you may decide to establish a facility in that region and then eliminate the cross border fees.
TREND 6: Evolving Fraud
Melanie Stout: Fraud has been evolving over the years. Bot attacks was still on cards and card testing are continuing. We saw a huge growth in that about two years ago and that hasn’t subsided too much, but new forms of fraud are coming on the horizon. These types, which first began as account takeover are now morphing into cell phone takeover. Account takeover was really predominant when Uber and Lyft began. You could buy credit cards on the black market for a couple of pennies and you could buy an Uber account for many dollars. It gives more information about that account holder. It gives personal information including passwords, usernames, email addresses and payment information. These types of attacks are actually making it much harder for fraud to be detected.
Melanie Stout: The new SIM card swapping is growing quite a bit. Jack Dorsey’s SIM card was stolen in August and Jeff Bay’s cell phone was actually just hacked into this month. So everyone is susceptible to this type of fraud and it’s very difficult to be detected. The biggest risk now is also what’s next. So what is on the horizon? What will the fraudsters come up with as fraud tools evolve? What will they come up with to counter those? Again, voice purchasing opens up an entirely new opportunity for fraud and we can expect this to continue. The good news is that fraud losses in terms of dollars have decreased in the past few years and they are expected to continue decreasing. This decrease is largely expected as a result of sophistication with broad tools, machine learning, being employed, and just general knowledge about what’s happening in the environment.
Melanie Stout: But we are still seeing bot attacks. So this is an example, a case study of one of our clients who was suddenly hit by car testers. The problem progressed, it was identified early, but it continued for a couple of months because the fraud prevention was being developed. They did not have a fraud strategy in place beforehand other than CVV potential AVS screening. So building this in took time while the car testers were still running wild with testing accounts and getting quite a number of them through. So as fraud continues to evolve, it’s really important to have that tech tool in place to prevent an attack. Despite efforts of issuers and card brands to reduce dispute volume, there was an upward trend in disputes over the past year. The primary reason is fraud, but this does also include friendly fraud. So again, communicate with your customers, offer them easy ways to cancel before they’re billed and check your billing descriptors.
Melanie Stout: So we recommend testing your billing descriptors personally across multiple issuers and even testing them in different media. For example, I recently looked at my charges via my bank’s app and then at my bank’s website and the same charges displayed different information. On the app there was no phone number or website on the website there was. So just test and see what’s out there. See what your consumers are seeing to help prevent any sort of friendly fraud.
TREND 7: Tech Stack
Melanie Stout: Making sure your tech stack meets your needs is also critical. Do you have a flexible billing system? Can your billing system allow you to have your customers self-serve? Are they able to change the frequency? Can they schedule their billing date? Make sure that your processor is a recurring focus processor, so you want to be sure that they understand recurring billing, that they are experts in recurring billing. Not all processors are created equal. Certain information, as we’ve mentioned before with the card type, different types of prepaid cards, funding available, the demographics of the cardholder, having flexibility in payment methods, having flexibility in presentiment, currencies and settlement currencies are all important.
Melanie Stout: The other thing you want to do is make sure that your billing system and your processor or your gateway have the tightest integration possible. So a billing system may have all the bells and whistles you need, but they might not be accessible with the processor you’re using integrated with them and vice versa. Your processor may do everything under the sun, but the billing system you’re using might not be able to access all of those rich features. The other thing you need nowadays in your tech stack is a purpose-built fraud solution. So there are a lot of solutions built into billing systems and built into acquirers, but a lot of those don’t cover what we’re seeing now. They’re limited, they’re more of IP testing or velocity checking. So having a machine learning purpose-built fraud solution, particularly for certain demographics or certain merchants that are most at risk is becoming increasingly important.
SUMMARY
Melanie Stout: So what does all of that mean for 2020 and beyond? Delight your customers offering flexibility and subscription terms. That’s a deep dive analysis into your card type and your payment method success. Determine your rules around prepaid and whether you should actually be blocking any or none or some. And then can you identify those which ones you need to be blocking? Add alternative payment methods if you don’t already add wallets, consider adding different currencies in different payment methods globally. Always you should adhere to issuer and state regulations on notifications and on terms throughout the shopping cart. Test the global waters or go deeper if you’re already there. Add tools purpose built for fraud detection and prevention and evaluate your vendor’s capabilities to ensure they can meet current and future demands. In the end it is still all about maximizing capture by minimizing churn while also mitigating fraud. So with that, any questions?
Q & A
Kathy G. Sexton: Thank you Melanie. There’s some really, really great information there. I invite everybody to go to your chatbox and ask any questions that you have on any of this and while you’re doing that, Melanie can you go to the next slide and then we can just come back to this slide.
Melanie Stout: Yes.
Kathy G. Sexton: I just would like to remind everybody about some of the upcoming programs that we have. We just heard Melanie talk about the trends that are going to be impacting our businesses and as you can tell, Melanie really understands all of this in a very, very deep way. On February 13th from 11:00 AM to 1:00 PM we’re getting online for a recurring payments fundamentals course, so if you are new to subscriptions, if you’re transferring into a subscription business or starting something, I really recommend you come to understand subscription payment fundamentals to make sure that you really understand how to get them set up and look at them and measure them effectively and properly set up in your business. We have our accelerator workshops which are geared towards executives that already are set with the fundamentals but are looking to really understand what the latest strategies are. That’s an in person workshop that we’re hosting in Chicago, New York and LA.
Kathy G. Sexton: And then again I’d invite everybody to check out Subscription Show 2020 we’re about to officially launch it in February. We have a pre-launch special going on. So if you want to take advantage of that, that is available live and that will be available through tomorrow. That’s special. So that’s everything there. If we can go back to the slide, Melanie we have a ton of questions so everybody can see your contact information. If anybody wants to get in touch with you directly. One is about the visa retry rules. Do they have specific rules on the retry, for example, 15 days. What’s your insight on that?
Melanie Stout: Yes, they said that you can go over 30 days and 15 times, so essentially every other day for a month.
Kathy G. Sexton: Okay, great. That is great. Now, somebody asked a question about the figure that you had on Apple pay users globally. And I know we’ve got the team on board, all of team PLC is on board, so we have an answer for that, which is of the 400 million Apple pay users globally, what is the percentage of US users? And the answer from the team is 9%. So Jason, that’s the answer. That was from August I believe. The next one is do you have examples of processors or billing systems that you’ve worked with that regularly get recurring revenue models? I know that’s probably a delicate question, but maybe what we could do is figure out do you have any questions that are really great to ask processors and subscription management companies to make sure that they really get the whole recurring model?
Melanie Stout: Yeah. Some of the key things you would want to know from an acquirer to know if they truly understand and get recurring billing would be do they have, in some cases it’s called an enhanced authorization or detailed card attributes that you can get back in your authorization response. Key would be are they able already to handle the card on file indicator? Do they know what the recurring indicator is? Those are probably the main ones. And just ask how many recurring merchants they have, how much recurring volume they handle.
Kathy G. Sexton: That’s great and I think we have a really great crew here on online because we’ve got some great questions and don’t be shy about asking any question. If we can’t answer it online, we will follow up with you. So by all means get your question in. So the next question is can you explain real time account updater?
Melanie Stout: Yes, that’s a Visa service. So Visa issuers are essentially providing updates in real time, so as soon as there’s an update they can make it available. So if you’re hitting the account, updater database, you can request an update at the point of your authorization.
Kathy G. Sexton: That’s great. The next question is benchmarking. This company has both annual and monthly subscribers and they’re trying to understand the expected payment failure between them. This might be a followup question, but I don’t know if you have any general guidance on what the fail rate is?
Melanie Stout: There isn’t really much general guidance. It completely depends on what you’re doing for best practices. It also is variable based on price point based on your market. So if you’re a B to B versus B to C, that could be a different recovery rate. If you’re charging $300 for your annual or $50 for your annual, all of those factors come into play as to your success rate. So it really is completely variable based on your business and your company.
Kathy G. Sexton: Okay. Well thanks for that question. We will follow up probably with you. Well, I know we will Kate on that one, having trouble speaking here. Alrighty. So the next question is about how you use account updater functionality. Are businesses using it inside their billing systems or are they using third parties to do the account updater separately?
Melanie Stout: If people are outsourcing their billing and they have a billing platform that they’re using, then usually the billing platform is the one who who’s managing the account updater process. If you built your own in-house billing system, then you would be using you’re acquirer to handle that. There are a couple of outliers. So if you do have the billing system, for example, who is not able to send American Express and utilize their card refresher service. Some merchants would do that on their own, but that would require you to have the card in the clear rather than having it be tokenized. So typically the billing platform is who manages the account updater process.
Kathy G. Sexton: We have another question. This individual seems that they are frustrated with their processor, so I don’t know what guidance their processor is not providing a clean interchange plus merchant statement. What’s your guidance for working with processors that may not be giving a merchant what they absolutely need?
Melanie Stout: Usually, that would require a conversation to get to the heart of what’s happening there. I would say usually true acquirers offer flexibility in pricing. They will give you an interchange plus model. There are some gateways or ISOs that might do bundled pricing, so you can’t get to that level of granularity. Often it’s a matter of negotiating your contracts with them. It could require changing vendors, but definitely that’s probably a deeper conversation to figure out the pricing and what you can expect.
Kathy G. Sexton: So that’s a great one that we can follow up with you on. So what can you do with a do-not-honor response? That’s a great question. Thank you for whoever asked that.
Melanie Stout: Yeah, you can retry it. Do not honor is a generic response that was created about 12 to 15 years ago to help reduce fraud that was being experienced at the time NCNP where cardholders or card testers were coming and getting a detailed response, not enough funds. So they would go somewhere else and try to find a cheaper TV for example. So issuers created, do-not-honor intentionally to be generic and not allow a lot of information in the shopping cart, but the do-not-honor decline really does contain pretty much the same breakout as all the other named declined responses. So, if you’re seeing invalid account number insufficient funds at whatever rate you’re seeing those you can assume a similar proportion of your do-not-honors are mirroring that. And you can retry those. We see a lot of success, usually around 25 to 45% of do-not-honors are recoverable.
Kathy G. Sexton: That’s a great stat. Here’s a question on account updater transaction fees. Is there a typical or standard fee that people should be keeping in mind?
Melanie Stout: It varies. There are some issuers or some acquirers who will take a percentage of what’s recovered. Some billing systems will take a percentage of what’s recovered and then there are others that just charge a transactional fee. Usually they only charge that fee for a successful update. That doesn’t mean you were able to bill them successfully, but you actually got a response. It wasn’t a non-participation response and it’s not based on making a request, it’s based on whatever information you get back.
Kathy G. Sexton: Yep. I have another followup question from somebody. I believe it’s a different person, but it’s another account updater integration question. Do you need to go through your acquirer or processor or do you typically need to go directly to Visa or MasterCard or American Express?
Melanie Stout: That would be your acquirer. They handle the relationship, so Visa and MasterCard.
Kathy G. Sexton: Yep. Okay, great. Do you see typically a difference in the delinquency between retail and digital media versus venue membership? I’m not totally sure what a venue membership is, but let’s say-
Melanie Stout: I’m not sure what a venue membership is.
Kathy G. Sexton: Okay. Amanda, can you respond what a venue membership is and we’ll circle back on that. Okay. Do you have an approximate percentage or guidance of online or mobile transactions that are paid for with let’s say Apple pay, Amazon pay, Google pay, other than PayPal. What’s the percentage market share of PayPal in the US? I guess it’s another way to ask that.
Melanie Stout: Yeah, all the pays combined are at about 13% give or take from 2019, 2019 data isn’t completed, but it’s around that and PayPal is about 25%.
Kathy G. Sexton: Okay, great. So Amanda got back to us on what a venue membership is and drum roll please. That would be a gym membership or an attraction, like a physical venue where they have a subscription to access that venue as an example. Do you remember the original question?
Melanie Stout: Delinquency between digital and those?
Kathy G. Sexton: Yeah.
Melanie Stout: Delinquency being lack of funding is really driven by price point and card type used. So you’ll see higher delinquency with a prepaid card typically because they might have money on it or a debit card because they sometimes have less money in their checking account. So typically what we see is lower price points have higher debit card usage, higher price points or more credit card. So that’s a good way to break it down even more than where the membership is initiated.
Kathy G. Sexton: Okay. Let us know if that answered your question, Amanda. Pat wants to understand and discuss the use of gateways.
Melanie Stout: Gateways are sort of a loaded term, so there are a lot of companies out there that call themselves gateways. It’s often used interchangeably for an acquirer. Technically a gateway is something that feeds to one acquirer. So there are acquirers or processors that have their own gateway or that don’t require one so you can go directly to them without the use of a gateway. There are other gateways that offer additional services, so they might tokenize, they might handle account updater for you. They might be your billing system. So if you have a billing platform that also acts as a gateway, they offer additional services. So high-level gateway could be nothing. It could be very useful. It depends on all of the other features that they offer.
Kathy G. Sexton: So great answer and let’s see what else. All right, so this is a comment about these are relaxing. It’s retry rules. So what about MasterCard?
Melanie Stout: MasterCard hasn’t said anything. They usually do follow suit so we can expect that they will. The recent statement MasterCard made about abuse a few months ago, they made an announcement that they were fining or implementing fines for abuse when it was, I think a few hundred retries in a day. So it’s substantial.
Kathy G. Sexton: Yep, that does. That is substantial. So we’re running to the end of our time pretty soon. I see we have a couple more questions. So let’s try and get to them before we finish. And as a reminder, if you do have questions, even if we don’t have time, get them in and we can follow up afterwards. I’ll make sure that Melanie and the team from PLC have access to all of your questions. So this is about Amex and they use Braintree so they don’t… Amex doesn’t partake in our account updater tool via Braintree. So how can we get access to account update or tool direct? Is that even possible?
Melanie Stout: You can, but you have to have the credit card itself. So you can’t have it tokenized if Braintree is tokenizing that account for you, you wouldn’t be able to use card refreshing yourself. You would have to store the Amex cards on your own and transmit those to American Express yourself and then receive back the updated information and then put that in.
Kathy G. Sexton: Okay. I think that’s good. Good advice. I see some other questions in here, but I am going to make the call that those are perfect questions for following up on because they’re getting specific. So I’d like to thank everybody for all the really great questions in this discussion. Melanie, any final recommendations for everybody as we kind of continue? .
Melanie Stout: I would just say always evaluate what you’re doing. Never lose sight of the data. Things change quickly. So just be sure you know what’s happening with your retry logic, with your churn, you understand your customer satisfaction, even things that you might not consider, like certain types of disputes can be a symptom that you can use to influence your marketing and improve the overall experience.
Kathy G. Sexton: Thank you. That’s really great advice. You can see Melanie’s information here mstout@paullarsenconsulting and her phone number. We’ll make sure that we get the questions to everybody and we can certainly follow up with you on. With that, I’d remind you to check out subscriptioninsider.com especially our events tab where we have access to our online training event with Melanie on the fundamentals of recurring payment in two short weeks and our other programs. So please check that out. Thank you all very much for your time today. We know your time is valuable. Thank you. And until next time, have a great day.
