Matt Wegner, Adobe’s Head of Global Payments & Risk, shares his top 10 strategies subscription companies can use to achieve successful payments. Learn the first five strategies he recommends for recurring revenue companies in part one of this two-part series.
Subscription businesses these days can’t simply rely on payments being a success. They have to work at it. Of course, there are many strategies out there to increase and maintain successful payments, but which ones actually work?
This is where subscription businesses can take a page from Adobe’s PDF. In 2012, Adobe shifted from a one-time purchase model to subscriptions. Since then, they’ve become one of the largest and most successful subscription providers in the world, offering more than 100 products in a subscription model.
Their continued success can be attributed in part to Matt Wegner, Adobe’s Head of Global Payments & Risk. Using 10 strategies, Adobe continues to see recurring revenue success. These strategies aren’t just what everyone in the subscription industry is doing. Rather, they’re what the best, most successful merchants are doing.
“If you’re not doing any of these things, when you go back to the office on Monday, go fire a few of these things up, and I think your company will be very, very happy with you,” says Wegner.
Below are the first five of Wegner’s recommendations.
1. Use Account Updater
Many subscription business owners are likely familiar with account updater, a program offered by credit card companies that automatically updates subscription customer data.
“It’s a very smart thing to have,” says Wegner.
This allows subscription companies to reduce the likelihood of failed payments due to a change of customer information, like when their card expires and they are issued a new one. There are a couple of different ways to set up an account updater; much of it depends on the size of the business.
“When our subscription business was small and growing, [we had] a batch-type process. Depending on how it’s set up, you can probably run through the whole thing in a few hours and definitely less than 24 hours,” says Wegner.
However, when Adobe experienced what he calls “hockey stick growth” — when they began trending steeply upward — batch-type processing became less feasible.
“When you get a massive book of business that’s global, it could take you potentially up to three weeks to run your entire customer base, depending on how it’s set up,” points out Wegner.
This means that when a subscription business goes to implement account updates, they need to 1) understand how it’s running, 2) how long it takes to run and, 3) set it up the right way to ask for updates when they’re needed, so it doesn’t run through the entire subscription base every time.
While account updater by itself seems like a great strategy, a lot of banks around the world do not participate in account updater. Thus, subscription companies operating globally must implement an advanced strategy. One way they can do this is by adding 12 months to the expiration date.
“You’ll be shocked at how many issuers and risk-decision systems will accept that until you’re able to get an updated credit card number from your customer,” says Wegner.
Adobe has tested this across several different categories — 12 months, 24 months, 48 months, 60 months and even blank expiration dates — to find out which one is best. But Wegner’s favorite is something called the “magic date.” This date is December 2099.
“There is some part of the rules — I think it’s VISA or maybe Mastercard — that talk about how issuers can use December of 2099 if you don’t have an expiration date. Try it in your business. I think you’ll be very happy with what you can get out of it,” encourages Wenger.
2. Change the day of week retries
With an account updater in place, subscription businesses can focus on when they charge their customers.
“[In] most places around the world, Friday is going to be a payday, or the first or the 15th are high probability days when money is going to show up,” says Wegner.
It’s important to keep in mind that targeting a payday to maximize approval rates will be more effective with debit cards than credit cards. However, that may not be true for every business. And the “perfect” day of the week is often revealed in the data.
“What we’ve discovered trying to optimize for Adobe is that Fridays make a lot of sense. They’re our best day of the week; Saturdays and Sundays are horrible. And we’ve discovered from some of our data that we’ve got higher success rates on Tuesday,” Wegner shares.
Offering this type of personalization for customers cannot only result in a successful payment but an increase in their lifetime value, too.
The basic strategy is figuring out what day of the week is the best to retry payments. But moving retry strategies around to different days of the week is very powerful.
“If you haven’t done this, you probably want to target Fridays, and you want to get into your data to figure out with A/B testing where the bigger opportunities are,” says Wegner.
Through A/B testing, companies can home in on a perfect day to retry payments for their subscribers which may differ from customer group to customer group.
3. Change the time of day to retry
Drilling down even further, Wegner encourages companies to not only figure out what day is best to retry, but what time on that day is the best to retry.
“One of the other things that I inherited at Adobe was all of the payment transactions every day were batched up and put on one big batch job and then we’d shoot it out the door at the same time. We’re all over the world so, in some parts of the world, that’s in the middle of the business day, and in other parts of the world, that’s in the middle of the night,” says Wegner.
While batch retries at the same time might make sense for smaller companies, for larger companies, this could mean leaving money on the table.
Adobe discovered in their A/B tests that they were able to target more transactions during the business day just by changing when the global batch job ran.
“It’s not too surprising but it was interesting to see that approval rates at issuing banks seemed to be higher during the day than they are in the middle of the night,” Wegner shares.
That’s because a lot of the risk-decision programs are primed to target fraudsters who do their “work” in the middle of the night.
Adobe zeroed in even further within different countries to try and more precisely target where they thought the day started and ended for certain banks in those places.
“The final thing that I think is really powerful and that we continue to finetune is there are different times that work better for different banks,” says Wegner.
This is a simple strategy, and it makes sense. In the U.S., if a subscriber gets paid on Friday, some banks will post it Thursday evening, and some banks will not post it until Friday morning. This offers businesses the opportunity to increase the likelihood of a successful payment.
4. Migrating to Network Tokens
Once an organization implements account updater and determines the best day and time to charge their customers, looking into network tokens could be a natural next step. Network tokenization is the issuance of tokens from payment providers that replace primary account numbers (PANs) and other details.
Based on Adobe data, Wegner has seen that network tokens usually perform better than PANs. This is due to several factors, including higher authorization rates, simplified fraud management and improved customer experience.
“We got a nice big lift when we migrated most of our customer base to tokens where they were available,” says Wegner.
However, in the process of migrating Adobe’s customers to tokens, Wegner and his team made an interesting discovery.
For the installed base of customers, some of the banks at the Bank Identification Number (BIN) level didn’t have a better approval rate than PANs. In some cases, it was even worse.
“It’s near impossible to discover how all of the issuers have designed their risk decision systems. There are hundreds of factors that go into whether or not [a payment] gets approved,” says Wegner.
Some banks haven’t upgraded to prefer tokens over PANs, meaning companies want to stick with PANs. In some cases, it makes sense to develop a partnership with an issuer and set up an agreement where they will default to a PAN if the token fails. But there are times when sticking with the PANs is going to be the best option.
5. Routing optimization
“Once your business gets to a certain point, it makes a lot of sense to have more partners. In fact, it makes more sense to have more partners for a couple of reasons,” says Wegner.
First, it keeps everybody sharp. Since Adobe is a global organization, they’ve established partnerships in most of its key markets. They measure those partners against each other to find out if there are performance issues with one versus the other on a number of levels (BIN, debit card, credit card, etc.). If a problem exists, it’s easy for Adobe to approach their partner and ask them to help solve it.
“If they can’t solve it, I’ll let them know that I’ll solve it on my own 60 days later and I’ll move the volume over to this other provider that has better approval rates,” says Wegner.
Second, it helps point out where Adobe may need to take another look at its data and develop a fair view of the situation. This is important, as it helps ferret out internal issues that could get worse with time.
“More often than not, we’ll discover that our partner can go make some changes on their end to finetune what they’re doing and how they’re sending transactions out into the networks,” says Wegner.
Though one acquiring relationship makes sense for smaller companies, an increased number of partnerships can be very powerful for organizations starting to scale.
“A lot of acquirers will tell you they have a global solution and that they’re the best globally. And maybe they are the best globally, but they’re not the best in every single one of the markets,” points out Wegner.
For example, doing business in Latin America is very different than in Europe. Working with solutions providers that allow companies to transact as local merchants instead of cross-border merchants can have a major impact on approval rates.
“If you’re a cross-borderer, there are fees that are involved. We don’t like those. And there are lower approval rates that are involved because it looks riskier to the banks because it’s coming from outside of their country,” shares Wegner.
One of the other advanced strategies for routing optimization is orchestration. New businesses are emerging that will make it easy to have multiple acquiring relationships.
“Instead of getting your engineers and your product team to build an API out to another acquirer, [with] an orchestrator, you’ll have one API out and they’ll go deal with all of the complexities of multiple APIs out to different acquirers and on top of that, they’ll also deal with the complexity of the inbound,” says Wegner.
From reconciliation files to chargeback files, companies will have one format that their system can already ingest and allow for quick changes. Thus, no matter the merchant size and volume, companies will have the opportunity to move things around to benefit their business.
For an even more complex strategy, Wegner says, “You could kind of microscale where you’re accessing different retry strategies with a particular processor or another that can turn off certain decline codes where you can access a lot of different value for your company.”
Wegner shares another five strategies subscription businesses can implement to increase successful payments in part two of this two-part series.