When the global pandemic began in March, no one could predict the enormous economic impact of COVID-19, let alone the potential long-term effect on business models and customer relationships. While the outlook remains uncertain, there are steps you can take to protect your business and position it for the future.
Listen to our panel of executives from J.P. Morgan and BillingPlatform as they share critical insights and techniques that can be used to protect existing revenue streams as well as unlock new ones during times of crisis.
Actionable topics addressed by our panel in this hour-long webinar include:
- Increase revenue from existing and new customers through dynamic pricing strategies
- Optimize payment performance and reducing customer churn
- Streamline billing operations to improve cash flow, increase efficiency, and manage overall costs.
Listen to the webinar for actionable insights that can immediately help your organization adapt to ongoing uncertainty and future opportunities.
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Presentation Slides (PDF)
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Our Experts
About Dennis Wall, Chief Executive Officer for BillingPlatform
Dennis is the CEO of BillingPlatform and previously was the founder of Cloud Sherpas, a leading cloud technology and advisory services firm. From its early self-funded growth, through strategic investment, multiple acquisitions, global expansion, and triple-digit revenue growth year-over-year, the company was acquired by Accenture in 2015.
Prior to Cloud Sherpas, Dennis was the co-founder of OKERE, a global cloud services provider that was acquired by Fujitsu in 2007.
Dennis brings more than 20 years of experience enabling companies from mid-market to Global 100 to realize transformational change through innovative software and services solutions.
About Jim Cho, Executive Director, Technology Segments for JPMorgan Merchant Services
Jim Cho is Executive Director, leading the Merchant Services team aligned with the Commercial Bank’s Technology Segments nationally. He manages a national team of Business Development Executives whose responsibilities are to partner with various channels to promote the Merchant Services and JPMorgan brands in the global marketplace, drive a vertical strategy, and consult on solving for the unique needs of our highest growth clients. Jim brings over 15 years of financial expertise and payments experience. He has held various direct sales, channel sales, and management positions in the middle market and national space with First Data, Intuit, and JPMorgan Chase.
About Brad Sawaya, SVP of Finance for BillingPlatform
Brad started his career with Ernst & Young in Silicon Valley, auditing many high-tech companies including Hewlett Packard. Since then, he has held leadership positions in Controllership and Finance with VMware, EMC2, and General Electric. Most recently, Brad was the Director of Business Operations for Predix.io, which is a platform developed by GE for industrial developers.
Brad is a CPA and has extensive experience helping Software as a Service companies scale and traditional companies undergo digital transformations.
About Tyler Heun, Vice President, Wholesale Payments Solutions for JPMorgan Chase
Tyler joined JPMorgan in January 2011, holding various treasury, merchant services, and payments roles. He has over 15 years of experience in the financial services industry. Tyler is the payments solutions expert for large global technology, streaming media, and gaming clients of Wholesale Payments. He focuses on helping businesses optimize cash flow, collect revenue internationally, navigate global complexities of cross border international sales, optimize authorization approval rates while limiting risk, and reducing revenue collection expense.
About Kathy Greenler Sexton, CEO, Subscription Insider
Kathy Greenler Sexton is the CEO & Publisher of Subscription Insider, a media company uniquely focused on the business of subscriptions. Subscription Insider reports on daily subscription economy news and delivers best-practice information, training and research through memberships, training events and conferences. Subscription entrepreneurs and executives representing all sectors of the subscription economy depend on Subscription Insider to improve decision making, team skills and business profitability. Learn more at qa.subscriptioninsider.com and www.subscriptionshow.com
Transcript
Kathy Greenler: Hello and welcome. This is a Subscription Insider Webinar, and today we’re going to be talking about Strategies for Protecting and Growing Revenue During a Crisis. Hello. My name is Kathy Greenler, and I am the CEO and publisher of Subscription Insider, and I am your host for today’s event. I’d like to welcome you to our webinar today, and I’m going to informally introduce you to everybody that you see in video here today and on the slide in just a moment. Our discussion is scheduled for an hour. We have a lot to cover, so we’re going to get to it right very, very quickly. Now, feel free to use the chat feature, so ask a question throughout the webinar.
We have the team monitoring it, and you can ask any questions at any point during the webinar. We’re going to reserve 15 minutes at the end to go over all the questions. If we need to go over, we certainly can and any questions we can’t get to, we can certainly follow up with you after the webinar. Today’s webinar is one of the many programs that Subscription Insider. We are the leader in providing subscription industry news and insight for executives working in the subscription economy. From our daily news covering subscriptions, our membership programs, our online training, and our highly acclaimed and global industry conference subscription show, we keep you in the know and informed the latest tactics and strategies to grow your business profitably.
If you’re interested in learning more, you can certainly go to subscriptioninsider.com. The COVID-19 pandemic has had an extraordinarily major impact on our country and globally. There have been clear financial implications during the past calendar quarter that we continue to see for the foreseeable future. Additionally, it has changed our behaviors and perceptions related to the traditional work environment. Today, our panel will share insights and techniques that they have gained through customer engagement that you can use to protect existing revenue streams and unlock new ones. For today’s discussion, I’d like to introduce four executives from both J.P. Morgan and BillingPlatform.
BillingPlatform is the leader in cloud-based recurring revenue management solutions, and I am delighted to introduce their CEO, Dennis Wall:, who will be moderating today’s discussion, and Brad Sawaya, senior vice president of finance who will be participating in this discussion as well. While I’m sure you all know and are familiar with J.P. Morgan Chase and Company, they are a leading global financial services firm, and one of the largest banking institutions in the united States with operations worldwide. Joining us today is Jim Cho of the wholesale payment division, and Tyler Heun, who is vice president of the wholesale payment solutions division as well. Dennis, I know everyone is anxious to get started, so I’m going to hand this over to you to get started.
Dennis Wall: Thank you Kathy and thank you to Subscription Insider for hosting us and for being such a great platform, for thought leadership, for your past events and programs, as well as all of the outstanding virtual content that you’ve delivered over the past three months. I hope we can live up to the high standards your previous speakers and panelists have shared. While it feels almost as if every conversation and email has to start with I hope everyone is staying healthy and well, I’m looking forward to the point when we don’t have to start every conversation with that. That being said, I hope everyone is staying healthy and well, and thanks for joining us today.
I’m here to set the stage and then share a bit of the stage I hope while some great minds in the monetization and payments space share their insights. As we look back on the past three to four months and how that will shape our future, our panelists today will share some of the learnings they have gained through their customer interactions and experiences, and what we think and know about how those learnings will impact your business. With that, and welcome Brad, Jim and Tyler, let’s dive in. I guess first of all, what brings J.P. Morgan and BillingPlatform together for this webinar? Our partnership helps companies to protect and grow revenue. BillingPlatform enables companies to leverage the cloud, to automate and streamline billing processes, and J.P. Morgan helps to facilitate the flow of those funds.
Our combined expertise enables the frictionless flow of billions of dollars of revenue to our customers. Yes, COVID-19, it has upset business operations. It has caused record unemployment claims, and has led to volatile market conditions, which I’m sure will continue to be volatile for the foreseeable future. The cause of this market disruption is truly unprecedented, but market disruption isn’t. Whether it’s financial crises like the 2008 subprime mortgage crisis or the dot-com bubble or it’s industry disruption how companies like Netflix or Airbnb or Uber have turned business models on their head or most recently COVID-19, are you prepared to weather the next storm, and do you have the systems and processes and partners in place to be able to react effectively and quickly?
Depending on the industry, there have been some meaningful impacts in this most recent disruption, both positive and negative as companies and consumers are assessing and reacting to the market uncertainty. The communications industry, for example, is seeing explosive growth with the shift to virtual engagement, much of what we’re enjoying here today. The industries like retail and transportation have been negatively affected. I think it’s fair to say that impact will be felt throughout the rest of this year as we continue to recover, but there’s also the impact of how this pandemic is affecting business behaviors, certainly from a consumer perspective where we are seeing substantial increases. In e-commerce purchases, a general reduction in credit card spend, a focus on savings…
Jim Cho: Then a second double click on a couple of these payment trends, I’m going to obviously start off with stating the obvious here to your point of substantial increase in e-commerce spent as traditional retail channels were shut down and moved solely to ecom. I think what we also saw which is really interesting are integrated channel experiences, so really things like order ahead or buy online and pick up in their store. We also saw companies really shift to different payment options, like just subscription installment payment options. Afterpay, Affirm, Klarna started to take off a little bit. A lot of these companies offered longer free trial times up to 90 days, even upwards of a year, and also tying subscriptions to product purchases.
A couple other ones here increased chargebacks. I mean we had a lot of consumers referred to chargeback as a means to a refund. We also saw companies struggle to keep up with online volumes and fraud monitoring as fraudsters really took advantage of the shift in currently now present volume. Two really interesting points that obviously have a huge impact in the subscription space you alluded to before is one, we saw a reduce access to credit as issuers reassess credit lines upwards of 50 million cards over a 30-day period. Less credit fundamentally means we saw a sharp decline and drop in credit card spend. Also, due to consumers hesitating to incur debt. We also saw this in 2008, so a heavy shift to debit card usage. A couple key points that obviously impact payments.
Dennis Wall: I think some of these may end up being short-term responses to the current situation, and I think it’s fair to see, and we are seeing how some of these trends are going to find their way into the fabric of our day-to-day lives, the idea that how businesses are becoming significantly more virtual than they were in the past and companies are realizing that it’s not having as significant negative impact as they thought it would. Virtual engagement, whether it’s B2B or B2C does work, and even those companies that historically shied away from it are starting to embrace it. I think some other areas cloud-based systems, they are critical and they’re being recognized as critical for business continuity.
I think another area are recurring revenue relationships as the services relationships and the flexibility that they offer are certainly becoming a meaningful option, if not the norm across many industries. As we navigate through some of the variables, as well as some of the knowns at this point, every industry is forced to take a look at their strategies around sustainability and growth. Coming back to our specific strengths, ours around the automation of billing processes, J.P. Morgan around the facilitation of fund flow. Today, I’m joined by Brad and Tyler and Jim to discuss strategies for protecting your current revenue, continuing to drive top-line growth, and some of the practices and systems that will support your journey, not only for today, but beyond COVID-19.
Maybe we can kick off by talking a little bit about the strategies and techniques that are surrounding protecting revenue. Brad, let me start with you. What have you seen customers doing to respond to the current economic environment?
Brad Sawaya: Sure. Thanks Dennis. We’ve seen customers do a variety of things in response to the current situation. Those things could largely be categorized into two buckets of relief and reinforcement. For relief, we see 50% of companies offering modifications to payment terms. That relief could come from not only extending traditional payment terms from due upon receipt to 30-, 60-, 90-day plus payment terms. It also could come in the form of breaking down payments into smaller increments. For example, if you have an annual subscription that is paid for once a year, that could be broken down into quarterly or even monthly invoices. Also, we’ve seen a number of companies simply pause subscriptions for a time period, and pause their customers for having to pay for the service.
As you can see here, 33% of enterprises are offering price cuts to their offerings. We’re also seeing 30% are offering additional functionality to supplement current offerings. That speaks to reinforcement and whatever you can do to reinforce the value you’re delivering to your customer would be great at this time. It really comes down to working closely with your customers to see how your solution can benefit them and their customers. For example, we’ve implemented a day in the life program where our customer success rep will go and sit, of course virtually now, but we’ll sit with the end users of our platform and work with them and watch them work.
It’s a great way to get meaningful insights into what they’re doing, get rich feedback and how our platform can deliver the most value to them and understand what we can do differently. Something else we’ve seen is arranging for a formal meeting with customers and their various stakeholders, where you can present and clearly articulate the value you’re delivering to them. Sometimes that value isn’t always obvious, and it happens in the background, and that’s a great time to make sure that is well-understood. Lastly, obviously quarterly business reviews are a great way to go to check in and listen to your customers, understand what features or functionality they’re particularly benefiting from and that are benefiting their customers.
Depending on the circumstances, they may want to consider doing that on a even weekly or even monthly basis.
Dennis Wall: Great. Thanks Brad and Jim, from your perspective, what are companies focused on when it comes to payments?
Jim Cho: Dennis, I actually think it’s just really trying to understand payments as a whole. I mean in the end, it’s not really rocket science, but we definitely sure make it feel that way sometimes with so many data points and complexities and intricacies. I mean sometimes I call it job security, but in the end, well if you want to create those transactions, you got a million combinations of variables that go into approving a transaction. I mean the US alone, there are 4 900 issuing banks all with a unique approval algorithms and approval requirements. You multiply that as you think globally, and then you also want to do this at the lowest possible cost. You’ve got a monthly charge of X.
Before increasing, you got over 60 different dispute reason codes. You also had different alternative debit networks that you can find for routing costs for a lower form of payment, as well as understand the nuances around the 3100 different interchange levels that there are. Definitely a complex landscape with a lot of moving variables.
Dennis Wall: What are you seeing as opportunities to really take that overarching objective and optimize the protection revenue?
Jim Cho: Great question. I think right now, a lot of clients are coming to us, and it’s really starting with preservation. It’s probably not that different than how people are starting to manage their personal expenses, right? You look top down and figure out where there are opportunities to cut those top expenses and for a lot of these direct-to-consumer companies, payments are one of your top five line items. I think the first thing to really start working through is evaluating the data to try to find ways to optimize those payment channels. The first probably starts with interchange. Interchange is what we reimburse an issuer for and again, to my earlier point there about 3100 different interchange rates.
Then there are certain data requirements and elements to help you qualify for the optimal rate. Number one, make sure you collect those data points. A good example of that is zip code ABS. If you do not pass zip code along, that actually has almost a percentage impact on some of your card types, and then this actually will multiply because Visa and MasterCard had pushed back their release this past April, April 2020 to April 2021. We’ll actually see some more increases on what we call those downgraded transactions. Another area is if you guys take a lot of business cards purchasing or corporate, you can pass along additional data points like level two and level three to help you qualify for better interchange rates.
Level two is very simply passing on sales tax and a PO number, and this has upwards of a 45 basis point or 0.45% impact to your cost. Then level three is setting invoice level detail along with that transaction record, which can actually decrease your cost upwards of 100 basis points or 1%. Another thing a lot of our clients are doing are looking at these alternative payment rails. I’ll use debit card as an example. We talked about the increase in debit usage before amidst COVID. You can actually process the debit card one of two ways. You can process it through the Visa or MasterCard network, or if you flip over your debit card on the back, you oftentimes find different debit networks like Accel or Pulse, Maestro, Star.
Each of those debit networks has a very different cost point than Visa MasterCard. The payment brands actually charge you about 14 basis or 0.14 on sales volume if you process it through visa, and the networks usually are per click basis around nickel. As you have a higher average ticket, $40 or higher, you’ll see a lot more advantages of processing that through the debit rails versus the credit rails. Then also find a processor or work with a processor that offers you dynamic debit routing, which is fundamentally routing those debit transactions to the lowest cost network. We’ve actually released ourselves and the market have released something called pinless debit, which is for e-commerce companies the ability to process those online without a pin.
Then last but not least, I’d say watch fraud because fraud is a cost of payments, right? It’s a leverage technology that’s available in the marketplace that has artificial intelligence, advanced machine learnings, third-party tools where it’s proxy piercing and device fingerprinting or dynamic order linking to really track fraud because we’re seeing that increase again amidst COVID.
Dennis Wall: Got it. I don’t want to leave you out of the out of the conversation, Tyler. Maybe we can make a little segue here from strategies and techniques for protecting revenue to now turning more of a focus towards growth.
Tyler Heun: Yeah, absolutely. Jim, taught half of the payment optimization equation which is obviously cost reduction. The section that I’m going to cover has more to do with revenue optimization or what we’d like to call in our industry authorization optimization. It’s just a fancy way of saying make sure that you can get as many transactions approved as possible with the least possible negative impact. That’s what authorization optimization is, and there are some select strategies that merchants can employ to give themselves the highest likelihood of a transaction being approved which obviously has an impact to your bottom line and helps you collect additional revenue, which is why we’re talking about that in this section.
The first lever that we work with all of our clients on that we recommend as low-hanging fruit that every single subscription merchant out there employs is a wallet cleanup strategy. All wallet cleanup means is look at your database of stored cars that you have on file, and determine which of those cards are dead. Meaning, they’re never going to be able to be updated and they will never ever get an approval on them. It could be things like cards that have been expired for years. It could be cards where the card has physically been closed by the card holder because they don’t need it anymore, or it was closed by the bank because it was suspected fraud.
Get rid of all of those cards is the first point, and then the second part of wallet cleanup is work with your merchant processor and your billing platform partner to employ a solution that we call account updater, or sometimes you’ll hear it called payment method updater. What that solution does is it allows the merchant processor to automatically reach out to the issuer on behalf of the merchant and basically say has this card been updated. If it has, they will send a response back to the merchant saying, here’s the new expiration date or here’s the new card number in the event that maybe there was a data breach somewhere like a large merchant and someone got a new card as a result of that.
By simply doing that, we’ve seen a significant boost to authorization approval rates and for a subscription merchant, this is a no-brainer. You do not want to have to call a cardholder and remind them that they’re paying you on a monthly basis to get a new card number from them. Leverage an account updater solution, so you keep that seamless flow of revenue coming in. Timing strategy is the next strategy that we work with all of our clients on, and all timing strategy means is you leverage data to give yourselves the most optimal likelihood of a transaction being approved. If you have a card, for example, that is a debit card leverage data to help you identify which cards are debit cards and why the transaction may have been declined on the first attempt.
If you see things like insufficient funds or credit floor decline, meaning the credit card is maxed out, don’t try it again later that day. The odds are the transaction is still going to come back as a decline. Leverage data, understand what type of card it is, why the transaction was declined, and try it in a time that has the highest likelihood for an approval. Again, going back to the debit card example, if there’s insufficient funds on the card and you ran it on a Tuesday, don’t run it again until Friday. Friday’s payday, and then run it on that day.
If you work with the sophisticated merchant processor, especially one that has an issuing arm built into it, they can provide enhanced data to show you down to the time of day to the minute when that transaction has the highest likelihood of being approved. Leverage data to build your timing strategy is the next thing we always recommend. Transaction messages can greatly affect whether a transaction has a likelihood of getting approved or not by the issuer because remember everybody, when it comes to authorization optimization, the party that determines if a transaction is going to be approved or not, it’s the issuer, the bank that issued the card is ultimately getting data and determining this looks like a valid transaction, let’s approve it.
That’s what an issuer does. For a transaction message, you’re just basically giving that issue or the data that gives them the highest likelihood of approval, and you’ll hear things talked about in the industry such as CIT, MIT which stands for customer initiated transaction or merchant initiated transaction. You’ll hear things like pass your recurring flag along on the authorization message. That tells an issue or when you submit a transaction, that it’s a recurring transaction, and a recurring transaction to a bank is always going to have a higher likelihood of getting approved because they see it as consistent behavior.
There’s a less likelihood of it being a fraudulent transaction. That’s what we mean by passing the correct transaction message along. Having a balanced retry strategy, it’s having a plan. Balance the cost and the effort that goes into trying to get a card approved with the benefit of getting that part approved. If you’re spending a ton of hours and effort trying to get a $10 transaction approved, it’s probably not worth investing a lot of your time and your energy into that particular portfolio of cards to make sure you can try to get those approved. Issuer idiosyncrasies, that’s a big word for just saying there’s a lot of issuers that have a lot of different algorithms out there to determine if they’re going to approve a transaction or not.
Some large banks like a Capital One, a Chase, a Bank of America, we have very sophisticated AI and machine learning in place that analyze every single transaction that comes through to basically give us an idea if we want to approve or decline a transaction. Not all banks have that level of sophistication. There’s smaller ones like credit unions and things like that, they don’t have the AI and machine learning capabilities that the big banks do. What you basically need to understand is that each bank has different things that they look at to determine if they’re going to approve a transaction or not, and that’s what we mean by issuer idiosyncrasies.
For the large global merchants out there, you can reach out to the issuer and engage in an issuer engagement campaign, and really try to analyze why was this transaction declined? What could have been done differently going forward, so we get these approved going forward? That’s had a meaningful impact off approval rates too. MCC codes, that stands for merchant category code. That is a 4-digit code that’s created by Visa that essentially tells issuers what type of business this is, and think of any type of business off the top of your head. Every single one of them has an MCC code.
There are high risk MCC codes think like cannabis sales dating and escort services, things like that, and then there are very low risk MCC codes like gas stations and subscription merchants, for example, are not viewed as high risk. Analyzing what MCC code you’ve been assigned by your merchant processor can really make a fundamental impact to what your likelihood of an authorization is going to be because a high risk merchant will always have a lower off approval rate than a low risk merchant. The thing to remember is MCC doesn’t just drive the authorization approval rate.
It also drives your cost of acceptance because there are special interchange categories reserved for providers of let’s just say like utility providers, where they get favorable interchange categories because they’re trying to entice the utility providers to take cards. Don’t just blindly switch to a new MCC code without investigating all possible ramifications. Tokenization is the next one, and what I mean by this is network tokenization. Network tokenization is a fairly new concept, and what it does is it takes the concept of tokenization a step further. Tokenization is just simply a merchant or a merchant processor taking a 16-digit card number that they have stored on file, and turning it into a token.
If someone hacked their database of cards, they’re getting an unusable token instead of a full 16-digit card number that they can go and sell on the black market. What network tokenization has done is it’s taken it a step further, and it has the card brand hold the token. Think Visa and MasterCard, it’s a network. They hold the token and that’s a universal token that can be used across acquirers and because it’s a token that was created and held by the card brand, the issuers inherently view that as substantially less risky because the likelihood of breaking into Visa’s database of tokens and getting that card are slim to none. That’s had a significant boost off approval rates as well.
Last two I’ll cover, the routing transactions to the best product. That’s a pinless debit essentially. Pinless debit as Jim you touched on a couple minutes ago, has a meaningful impact to cost of payments because the debit networks cost a lot less than credit card networks do to process the transaction, but it also has shown a positive impact to authorization approval rates. The reason why we believe is because the Accel, Star, Maestro, Pulse, Shazam, all the debit networks that are out there, they don’t have this sophisticated fraud algorithms in their systems. The transaction has a higher likelihood of getting approved as opposed to if it’s running over Visa’s rails for example.
Then the last one that has single-handedly the biggest impact authorization approval rates is international strategy. What this means is understand where your customers are and understand if it makes sense to operate locally in the market in which they reside, or to sell to them from let’s just say your US entity. If you have a customer in Brazil, for example, and you’re a US-based business, when you’re selling to that Brazilian card holder, the Brazilian issuer is going to look at it as a US business selling to a Brazilian card holder. Therefore, the likelihood of that transaction getting approved is pretty low because it’s viewed as high risk.
If you established a Brazilian entity though and we’re selling to a Brazilian card holder, now you’re a local business doing business with a local cardholder, and that single-handedly will have the largest impact to your off approval rates is establishing a local presence where you do business. We’re not advising that everybody set up a local business everywhere that you operate, but if you’ve got a significant amount of revenue coming from one country in particular, you might want to consider setting up an office there and getting some employees and trying to focus on that as an area of growth because it’ll also boost your off approval rates.
In summary, payment optimization is just simply balancing, getting as many approvals as possible with the possible negative side effects of charge and fraud backs going up and cost payments going up. You can leverage data to make optimal decisions, or you can find a partner to help with this exercise, but that’s payment optimization in a nutshell.
Dennis Wall: I think why we are partners is the ability for our customers to leverage the power of the J.P. Morgan platform integrated with our solution, which enables you to overlay rich workflows and add additional I guess data to that processing exercise to get really the optimal experience. Brad, from a billing perspective, monetization perspective, maybe you can share some of the growth strategies that we have seen that have been helpful.
Brad Sawaya: Sure. Yeah. First off though, I do want to second something that Tyler said, and that is around the account updater. That is super helpful. It’s really low hanging fruit to help authorization rates and avoid the need for manual intervention for your consumers to go in and update a card when it’s just a recipe for increased churn. That’s a really easy one that I’ve seen to be really effective, as well as leveraging the existing data to help operate authorization rates as well as helping you understand which customers if you can understand their usage data, understand which customers are at greater risk. That can be extremely advantageous in getting out ahead of that and avoiding perhaps negative pitfalls, as well as helping expand into existing opportunities.
Besides that, we’ve seen a number of different strategies implemented as ways to grow revenue. It’s really been fun to see companies seek to pivot their business and react to the current environment. For example, there’s a traditional car manufacturing company that’s mobilized a whole fleet of electronic cars to a provision as a service model where their customers with an app can easily pick a car in their neighborhood, and drive it from point A to point B, and only pay for what they use and how long they’re in the car, or how far they drive it.
That’s particularly helpful in this environment where consumers and businesses alike are struggling and reluctant to make large capital investments, and even more importantly for the companies themselves as they are seeking out opportunities to introduce new recurring revenue streams for both the near-term as well as the long-term ways to expand their business. Other things and most of you have probably seen many of this in the news and that gyms have needed to close, but in turn have launched new online training programs that as of last year were just unthinkable for them to go in that direction. Restaurants are now selling groceries and changing their menus to be more takeout and delivery friendly.
Enabling paying for food remotely has been something that they’ve had to figure out. Hotels have been repurposing space for not only overnight stays, but to help remote workers or people working from home if they need to come in and take a meeting for an hour or two, and charge them on an hourly basis. Airlines has modified their aircraft to fly as cargo planes. There are a number of examples that we’ve all seen and we’ve seen, and as companies are looking to leverage existing assets to find new revenue streams for the current state, as well as future state. Alternatives and options are always good as we expect companies to need more flexibility to repurpose those existing assets to monetize more effectively.
What does that mean when it comes to the pricing model? It’s quite interesting because there’s a number of different things that we just mentioned, and what does that mean as far as how they charge their customer? This evolution of dynamic pricing models has only become accelerated. Just to go through these here, flat rate subscriptions, that’s an easy one. You have a customer subscribing to your service and paying you on a monthly, quarterly, or annual basis. It could be the same amount every single period. A usage based model is a little bit different, where customers are paying you based off of a certain entitlement that they receive, or a certain unit of measures that they’re subscribed to.
It could be per gigabytes, per view, per transaction, or per minute. There’s a whole variety of things as you assess your business understand what value you derive to the customer as they understand that value, and come up with a pricing model that could be usage based. Of course, then you can tier that model into a structure where they pay more for the first block, and then we see discounts, the more they receive as their consumption goes up. That also could be flipped upside down, for example, utility companies that you actually pay less for the first block, and then more as it goes to the second or third block. Then you have a per user charge model or more sophisticated would be a per active user.
We charge them for what they use for the active users. Then of course, a hybrid of each one of these is something that’s fairly common and where it becomes even more complex. Something that we see customers doing on this note is also just trying to drive customer acquisition. If your business has the ability to acquire customers, that may not be paying initially. It can be advantaged to get them on your platforms, on your products, used to using them in perhaps free trial mode, or maybe a premium model. A premium is just where they have a limited set of access to whatever it is that you offer, and get them used to the product. Then as they increase usage or bring others on board, then you can start to charge them, whereas as times change for them in their business.
This of course leads to ships and products and packaging that can be complex to go to market with.
Dennis Wall: I think the one overarching takeaway I get from that is ultimately, especially when you start to talk about some of these disruptions that are going to be short term, is the idea of how do you leverage your existing assets more creatively, and do you have the operational systems in place that enable you to pivot very quickly because if you can’t react with speed, you’re essentially going to be either missing out on an opportunity, or not able to maintain pace with the peers that are within your market. Well, I think this transitions to our last topic to cover. We’ve talked about protection of revenue. We’ve talked about revenue growth, so now how do we support this growth?
Brad Sawaya: Yeah, Dennis, I think you’re exactly right. Each one of these things that we’ve talked about today requires what we call an agile monetization ecosystem, and what we mean by that is you have your people, your processes, and your systems working within an environment that is agile. By monetization, we simply mean the ability to make money, the ability to charge your customer and collect and retain that cash from your customer. One way to think about this is the opposite of an agile monetization ecosystem would be an old rigid system that becomes the bottleneck for making any changes. All of us have been there, and those are very frustrating.
What we’ve seen over the past several years is as companies shift towards this model, there’s been a couple of trigger events that have caused the shift. Some have been where companies are upgrading the existing ERPs or IT environment to a cloud-based environment, which as previously was mentioned is only more important now than ever as you have remote workers needing to work from home now, or in the past they’ve gone into the office every day, and perhaps worked on an on-premise system, working from home if they have the VPN onto the company’s network in order to access their system. That only bogs everything down. Having a cloud environment enables them to work more effectively and serve your customers more effectively.
Then the second trigger would be introducing new digital offerings, recurring revenue streams and again, we’re seeing customers and we’re seeing companies trying to enable that for their customers more and more often. What does this agile monetization ecosystem mean? Each function, and you’ve heard of the quote to cache process. Each function within that process, each of the systems are stitched together with an agile cloud-based system that are connected with friendly APIs. It’s important to note that these systems are not restricted to what they can do out of the box. They are flexible and configurable. When you’re implementing these applications or systems, you have your current needs, but keep in mind your future needs also needs to be built within the system’s capability.
Another thing about these systems is oftentimes and with the old on-prem systems, you would need to have an IT person or the vendor or a developer go in and make changes or customizations that need to happen. With these new agile systems, oftentimes end users can do that. The benefits are when you put this together, you’re going to be able to go to market with new products or shift in existing products much more quickly. In the past, sometimes these changes will take months or even up to a year to introduce a new offering. A story that I like to tell is, and I’ve experienced this in the past where you have a product manager that’s developed an application or has a new product that they want to launch.
Perhaps it’s an app that they’ve developed for a specific customer, and they develop a business plan and a model around this app. They go to IT team and they say, “Okay, we need to get this new product in our product catalog and launch this new product. Here’s how we’re going to monetize it. Here’s how we’re going to make money off it.” An IT person will react and say, “Well, our system doesn’t do that. It doesn’t do it today. It’s going to cause a bunch of customization and it’s going to cause X amount of dollars to make that change.” Well, the product manager will then go over to finance and say, “Hey, I need budget to make this change in our system to launch my new product,” and they say, “Well, how much is your new product going to make?”
They say, “Well, here’s our estimate, but we really don’t know,” and immediately finance, there’s risk involved and they don’t improve the budget. Then all of a sudden, you’re in a situation where your systems have stifled innovation for the company, and it’s really caused a bottleneck in your ability to pivot and shift the business in new directions.
Dennis Wall: Really, the punchline to that is with the combination of J.P. Morgan and BillingPlatform, we should be able to solve all the world’s problems.
Brad Sawaya: Yeah.
Dennis Wall: Well, sorry, and Tyler, maybe from your perspective what capabilities are you seeing most effective?
Tyler Heun: Yeah. In the essence of time, I’ll move pretty fast through this answer. From a payment’s perspective-
Dennis Wall: Sure.
Tyler Heun: …, it’s understanding where your customers are today, where they could be tomorrow, and making it as easy to pay and the method of payment and currency of their choice. As a merchant processor and as an issuer, we can provide data to help drive this exercise, and it’s not something that just Chase can do. Leverage a relationship with your merchant processor, ask for data, and we can show volume of card payments that you’re processing today that essentially show where those cards were issued. For example, if a USA merchant is seeing a high volume consistently come from a Mexican issuer or Mexican issuers overall, that USA merchant can dig in a little bit deeper and see why this is happening, and then try to target that region to try to grow revenue a little bit for it faster.
They can start presenting in local Mexican peso, and then settle back into US dollar or try to understand if there’s any other alternative methods of payment that the card holders there would prefer to pay in. Really by leveraging payments data, it can help drive your marketing strategy and your growth strategy because you can see where your customers are already at today, and try to target them more vigorously, and then make it easier for those customers to pay you. A great example as well would be China.
If you see a lot of Chinese card holders making purchase because your card processor can show data, that essentially shows where these transactions are coming from, you might want to start making Alipay and WeChat pay available for a method of payment on your website, and that one change alone can help you grow some revenue on those markets. The takeaway there is payment data is able to point out low-hanging fruit that can help you boost revenue right away.
Dennis Wall: Well, I think a few of the things that I guess are important to summarize here are adaptability and creativity along with the data that provides you with the right information to drive change are critical to success and frankly certainly, very critical in times of change, but also critical in everyday operation. With that, we’ll wrap up at least the discussion portion of this and again, I want to thank everyone for participating and being a part of our discussion today, our webinar today. Let me take a pause and first of all, I’ll reference you’ve got our contact information and email addresses should anyone want to reach out to us directly. Also, we’re going to take a quick pause here and I think migrate over to some Q and A, Kathy.
Kathy Greenler: Absolutely. First of all, great information. Thank you Dennis, thank you Jim, Brad, and Tyler. Really, really great information. I’d like to remind everybody please use the chat. We have the team monitoring the questions, and they’re feeding the questions over to us. I’m going to get started. I have some questions. I’m curious what are the industries that are performing the best right now during this crisis?
Dennis Wall: Sure.
Kathy Greenler: Brad, Dennis if you want to take that one.
Dennis Wall: Yeah, great question Kathy, and actually bear with me just one second. It’s been interesting that even on the macro analysis and surveys, that we’re seeing very much the same thing. Communications has had a tremendous upswing. We have customers very much like the platform we’re using today in the web conferencing space, you can imagine what a positive frankly as unfortunate as that might sound, positive impact that it’s had on that industry. When you start to move into the software space, you think about again not some of those customers in the web conferencing do migrate into software as well. You have software companies in the educational markets that have seen an explosion of activity.
I think it’s fairly intuitive to be able to understand just given how we are moving to a virtual environment, how that can negatively impact. I think if you were to think about what would be likely, it is actually what is happening and how the different industries are being affected.
Kathy Greenler: Yup, yup. Anything to add, Brad?
Brad Sawaya: No.
Kathy Greenler: Okay, that’s fine. We have a couple of international questions, so I’m going to ask J.P. Morgan, how do you determine if you should operate locally when selling internationally or simply selling from a US entity? This is a big question I hear all the time, so I’m not surprised that that’s a question that’s come up.
Tyler Heun: Jim, do you want me to take a stab at it?
Jim Cho: Yup, I’ll fill in. All right. Okay, go for it.
Tyler Heun: The first thing you want to understand before determining if you should set up a local entity in the market that you’re selling to versus just selling from your foreign entity, like a US entity for example, is what’s the likelihood of having enough revenue coming from that market to justify the expense and the effort of setting up a local entity there. To operate locally, for example, you can’t just set up a Regus or WeWork office space and list that as your address and say you have a local presence. You have to physically get a tax ID. You have to have employees in market. You have to have a physical address that can be audited, and you have to have basically a lot of steps in place before you can operate locally, but in the event it has…
Dennis Wall: Which is not a small amount of work by the way.
Tyler Heun: It is not a small amount of work at all, and that’s why historically, most large e-commerce providers used their one entity. Think of someone like an Amazon or a Jet.com or the major e-commerce players that are out there, they just used a local entity in the united states and sold all over the planet, but they’ve obviously addressed it and they’ve gone local in a lot of the regions that they market to. Some of the reasons that would drive that choice would be for one, certain markets that you operate in, if you don’t operate locally, your authorization approval rates are going to be virtually nothing. If you don’t have a local presence in Brazil, you’re never going to get a card holder transaction to go through in Brazil.
That’s just a tough market. Some of the other reasons you might want to have a local presence is simply to mitigate FX expense because if you’re going to have a European office and you have a need to have European employees, you might as well do Euro to Euro transactions and keep the revenue overseas, but really it’s just driven based off of need. Do you need to have a presence to either, engage with the local cardholder base and try to make sure those transactions go through, and do you have a reason to be there? Is there enough revenue to support that effort? If that’s the case, I would say set up a local entity internationally. If not, just sell from your US entity. Anything you’d add Jim?
Jim Cho: Yeah, I think a lot of companies sometimes evaluate immediately jumping into a local entity and obviously to tell this point, there’s a tremendous amount of benefit there, but I think the first steps we see a lot of companies take is really one localized content, right? That’s the first easy step, and then another one is localized currency. I think those two initial steps, you can still operate the US entity and start getting into new markets to evaluate whether it does make sense at some point in time to move fully into local acquiring.
Kathy Greenler: We have a question that’s come in, which is one that an old board member used to call creative friction within an organization. Brad, I’m going to direct this one to you. It says, can you Brad elaborate further on the concept you mentioned of IT stifling innovation?
Brad Sawaya: Mm-hmm (affirmative). Yeah. I may have gotten myself in trouble with that comment, but no, I think we may have all seen that in the past. What I mean by that is, and this is not specific to IT, but specifically any situation where maybe you have an old system that’s in place that people have been using for perhaps even decades, for 10 or 20 years, and they’re so used to that system, but that system or that process or whatever it might be might not be apt to change to current economic needs or current business needs, even more appropriately as you’re introducing new offerings or changing existing offerings.
IT can certainly be an enabler and an advocate for making the changes necessary in implementing ecosystems or environments that are required and are best suited to serve the business. It can come from a variety of different ways, and it’s almost more of a mindset than anything to say, “Hey, there’s a different way to do things these days. There’s a better way. Cloud-based applications oftentimes are so much better than what people are used to, especially from maybe bigger enterprises with more traditional on-premise environment.”
That’s just how I would elaborate on that comment, and the takeaway would be just help your organizations understand and perhaps now more than ever, how important flexibility and agility is when it comes to serving your customers and potentially new customers.
Kathy Greenler: Yup.
Dennis Wall: Yeah, I think the idea that there’s obviously something to be said for if it ain’t broke, don’t fix it, and I’ve said that a number of times myself. If you don’t challenge the status quo to some degree and understand what’s possible, you will ultimately find yourself falling to the back of the pack. It’s critical, everybody talks about needing to innovate, needing to innovate. I think even just needing to test your processes and test your operations to ensure that you can provide an optimal customer experience, as well as an internal user experience is critical.
Kathy Greenler: Mm-hmm (affirmative), mm-hmm (affirmative). Really, really good points. I want to turn this to authorization approval rates. Have a question here. I’m thinking Jim or Tyler, do you have any tips or tricks for improving the auth rates?
Jim Cho: I think Tyler can start off with that one. I think you covered a lot of that in your section. I think just to reiterate some of those points, right?
Tyler Heun: Yeah.
Jim Cho: One is enabling products like account updater, and then also really at the end of the day, it’s really just minding the data. I would say just be a data nerd and data geek and really just understanding what those data attributes mean all the way throughout, right? Getting mid-level details. We talked about issuer intricacies, like understanding what bins are getting the highest approval rates and what the data elements behind those are. Also, doing a/B testing, right? You can test various different MCC codes on certain transactions to see well you might get a better uptick there. Really just mining the data at the end of the day, understanding it, and then just testing with it. Tyler, I’m not sure if you want to add anything else.
Tyler Heun: No, everything you said was perfect, and I had covered that pretty in depth a little bit ago, where we talked about specific strategies that can be employed to boost off approval rates. The only thing I would add is that while it seems very complex, it’s really not. It’s not as complex as it seems as long as you’ve got the right partnership with the right parties. If you’re working with a really good recurring billing platform like obviously a billing platform or a strong merchant processor that can come in with data and help coach you and say, “We know that if you do this, it’ll have x results on your off approval rate, so let’s try it,” we can help guide those decisions for you.
You’re not just drowning in data and then not knowing where to go from there. Just find the right partners in the ecosystem to make this less scary.
Kathy Greenler: Good feedback. Do most companies build their own retry logic in house or do they leverage third parties to submit the transactions and retries?
Tyler Heun: It truly depends. It’s all over the place, and I think Jim will say the same thing. I’ve got large $50 billion annual revenue companies that don’t want to deal with data, and they just want a third party to do it on their behalf. Then I’ve got tinier or much smaller customers that have a team of payments experts that are 100 deep that want raw data, so they can pull all the levers themselves. It’s all over the place, and what really drives it for me is how into the weeds and how sophisticated the merchant is.
If it’s a smaller company that doesn’t have a payment’s organization and they’ve got a CFO managing their merchant processing relationship, they probably want to outsource it to a third party that’s going to use AI and machine learning and pull all the levers on their behalf, but they’re also opening themselves up to risk because if the wrong levers are pulled and chargebacks and fraud goes up. It can cause negative card holder experiences and lost revenue, and potentially fines from the card brand. It’s all over the place. It just depends on I guess how into the weeds the customer wants to get, and what type of resources they have available.
Kathy Greenler: Yup. I think that’s really, really good. I have I think one more question from… We’re going to take that’s in the Q and A, and then we’ll wrap things up here because we are getting to the top of the hour. If you have any other questions for anybody that’s in here, we will answer those questions for you. Get your questions in and we’ll make sure they are answered, but here’s the question. What are some of the reduction and revenue growth ideas for financial institutions in particular? Ways to save money or revenue growth. It’s a high level question. Anybody want to take that?
Dennis Wall: I’ll give one answer. Many of the financial institution the relationships they have with customers are fee based or percentage or revenue-based. We’ve seen some that have moved more towards, some either flat subscription models which is a pretty interesting departure, as well as some usage-based models that are somewhat unique that are designed to really demonstrate to the customer how value is being delivered on a daily basis versus some of the traditional models that have been used in the past.
Kathy Greenler: Mm-hmm (affirmative), mm-hmm (affirmative). Well, I want to thank everybody for your time today. I’ve got one question that I’d like to ask all of you, which is we’ve talked a lot today about a lot of different things and people have been listening to four very smart professionals, I’m curious of everything that we’ve talked about, what’s the most important takeaway that you would like people to leave with as we wrap this session up? I’m going to start with you Tyler and let you go, and I’m going to go to Brad, then Jim, and then Dennis.
Tyler Heun: Perfect. I would leave everyone with one statement. Payments are simple, but optimizing payments can be very complex. Find partners they can aid in this exercise because it has a significant implication to your P and L margins.
Kathy Greenler: That’s great. Brad?
Brad Sawaya: Yeah, and similarly on that front as a finance leader of the company, I’d encourage everybody to explore. I mean we’re all doing what we can to maximize every dollar that comes into the organization and maximize opportunities to bring in more, and exactly on that note, evaluate your current partnerships. What we’ve seen with our customers and what we’ve done with our customers and what vendors have done with us in strong communications and communicating value, evaluating those partnerships can’t be understated.
Kathy Greenler: Jim.
Jim Cho: Clearly, I agree with Tyler and Brad both. For the sake of not repeating the same points, I’ll say roll up your sleeves, be curious, dig into the data, call your partners, get that data, and really start understanding and evaluating it.
Kathy Greenler: Yeah, I like what you said earlier. You need to become a data geek.
Dennis Wall: Yup.
Kathy Greenler: Dennis.
Dennis Wall: Yeah, I would say to that end and to Jim’s point is I don’t think that you should be kicking the can any further down the road. I would say that the time is now. It is these meaningful disruptions that cause people to raise their head and acknowledge that there’s a problem, but then when that disruption if in fact it settles down and becomes quiet again, the problem never went away, and it’s going to happen again. I think that when there aren’t squeaky wheels, then there are not necessarily people going out of their way to make sure that they can improve upon them, and there is so much efficiency and actual real dollars that can be either preserved or captured that are not being identified as you start to think more about operational processes.
Kathy Greenler: Mm-hmm (affirmative). Great advice. Well, thank you all for participating today. We value your time, and we will see you next time on our next webinar. If you need to reach any of our experts today, you can see their information on your screen. Until next time, stay safe and be well.
