19 July 2019

Optimizing Card Payments: Smart Retry

See all blog posts

In the face of Subscription Economy, offering your merchandise in the form of a subscription-based service may seem an alluring opportunity: all in all, in recent years, the subscription market has been growing at an astounding pace of 100% YoY. Before you pivot, however, it is worth getting familiar with technology designed to make recurring payments more effective. Here comes Smart Retry: a solution aimed at increasing card authorization rate. How does it work and why should you implement it in your subscription business? Scroll down to find out!

What is Smart Retry?

There are two basic types of billing in e-commerce: one-off and recurring. Subscriptions, defined by InvoiceBerry as an agreement on the basis of which customers receive and provide payment for regular product or service delivery, fall into the second category.

Recurring payments may be executed at the beginning or at the end of each billing period.

  • In fixed-fee models, the customer pays a fixed fee in advance and payment is the condition of getting access to the service or product (as in the case of VoD platforms or press subscriptions).
  • In pay-as-you-go models, the subscription fee reflects the actual usage of the service or product and is charged after a predefined period (as in the case of telecoms).

There are literally thousands of payment methods available for customers to carry out their subscription payments with (Michał Jędraszak explains various alternatives in one of his entries). Nonetheless, as customer experience online depends heavily on the convenience of the checkout process, fixed-fee subscription services typically take advantage of card-on-file payments (statistics show that cards are the preferred payment method for app. 70% of consumers worldwide). You might know this one well from Netflix or Spotify. From the subscriber’s perspective, it consists of charging their credit or debit card automatically in previously predefined cycles. As card data is saved in the system and stored securely, there’s no need introduce it more than once. Cards are then automatically charged by the PSP without the customer lifting a finger. At the merchant’s end, it’s more complicated, though. PCI Security Standards Council established a set of standards with which card-on-file payments collecting must be compliant. Typically, it’s the PSP who holds a PCI certificate and thus is responsible for card data security. In such case, when the merchant wants to charge a card, they merely send a token to their PSP. Consequently, it’s the PSP who’s responsible for vaulting card details, not the merchant. If, by contrast, merchants don’t collaborate with PCI-certified PSPs, the responsibility is at their side, which makes the payment process even more complex for them. Unless it’s a large company with really big transaction volumes, it simply doesn’t pay off. Thus, the need to make use of a certified payment gateway.

Card-on-file payments require a valid credit or debit card configured to make online purchases – no surprise here. But, paradoxically, that’s where most problems stem from.

Reasons behind declined card transactions

There are several requirements the customer’s card has to fulfill to enable the merchant charging subscription fees successfully (it refers both to the initial transaction starting the plan and further recurring payments). If they’re not met, it gets declined and the transaction cannot be finalized in the given attempt. It is a situation to avoid because, as I will comment further, declined transactions generate financial losses due to unsuccessful collection of subscription fees and commission typically collected from each, even unsuccessful, transaction.

Selected payment gateways (such as the one provided by Straal) are configured to return information about an unauthorized transaction along with a decline reason code when the online card transaction is declined. These explain what kind of problem has appeared. There are plenty of reasons for this, yet, in the case of recurring payments, they typically come down to:

  1. insufficient funds: this problem occurs when the resources on your customer’s account associated with a given card are too few to fully cover the subscription fee;
  2. exceeded card limits: if your customer’s card is set to a limited number or quote of online transactions a day, it can get rejected when the limit is exceeded;
  3. expired card: according to Finextra, even 3% of cards expire each month worldwide; unfortunately, customers typically forget to introduce their new card data in your system and realize it only once you inform them that their subscription fee cannot be charged;
  4. technical errors: sometimes transactions get declined without the subscriber’s fault when technical errors occur at the PSP’s or card scheme’s side;
  5. suspected fraud: when the issuing bank’s, card scheme’s or PSP’s anti-fraud algorithms detect a suspicious transaction and mark it as fraudulent, it cannot be finalized as well and as online fraud is a rapidly increasing problem (Idology reports a 58% growth in 2018), those algorithms recognize ever more frauds.

When fraud is suspected by a PSP, the outcome is a hard decline which means that the transaction cannot be retried by this PSP (the merchant would have to contract another one) but if it’s the issuing bank or the card scheme that suspects it – it cannot be retried at all. However, the remaining reasons – expired card, exceeded limits, and insufficient funds – belong to the category of soft declines and in any of these cases transactions can, and of course should, be retried. Nonetheless, oftentimes, neither the first nor the second charging attempt proves successful. In such situations, merchants collect money only after several retries, which is undesired for several reasons explained further.

Reasons behind declined card transactions

Declined card transactions: why care?

Although it may not seem obvious, ineffective card charging affects your company’s finances directly.

  • First of all, when you fail to charge your subscribers, you don’t collect money from them, which basically means that you don’t generate a certain amount of revenue included in your financial forecast. It hampers your financial liquidity and introduces unpredictability into your operations based on financial planning.
  • What’s more, PSPs typically collect commission from every transaction they enable for your company, even when those end up declined. In other words, the more attempts needed to successfully charge a card, the higher your operational cost and the lower your CLTV (Customer Lifetime Value) indicator.
  • Additionally, transactions that have been declined several times may end up blocked due to a suspected fraud attempt. As a result, again, you don’t generate revenue from a given subscriber. The number of allowed retries is set by card organizations’ anti-fraud algorithms so, in order to comply with the rules of all card schemes, it is advisable to reduce the number of retries to the absolute minimum.
  • Last but not least, ineffective charging affects your customers’ convenience. Decline reason codes provoke frustration in subscribers and - believe me - they won’t investigate whether it has occurred on the side of your company, your PSP, acquirer or issuer (read about the roles involved in the payment ecosystem here). When it comes to customers’ comfort, there are seldom second chances: National Business Research Institute claims that there is even an 88% chance that a customer having negative experience will switch to one of your competitors.

Although in the first situation the number of retries doesn’t make so much difference, in the remaining ones it, indeed, does. Simple retries continue until a successful charging is executed which results in a double loss: of your resources due to commission collecting and your customers’ satisfaction. To avoid them, it’s absolutely necessary to retry declined transactions in sequences that take into account historical data of a given subscriber’s transactions (e.g. overall transaction success rate, dates of declined payments, acquirers linked with successful and unsuccessful transactions).

What is Smart Retry?

Smart Retry is an optimization tool aiming to increase the effectiveness of charging subscription fees from credit and debit cards after the first attempt proves unsuccessful. As mentioned above, you may apply it when dealing with a soft decline. According to Straal’s statistics, 100% of merchants making use of this tools increase the number of successful transactions. What’s more, they finalize approx. 20% more transactions (counting both the initial and Smart-Retry-driven ones) compared to those not applying Smart Retry. How does it work, then?

When you decide to collect subscription payments with the use of automated card charging, you need to inform your PSP about how these payments will be collected. In other words, you provide your PSP with a customized set of rules they will follow while collecting money from your subscribers. These rules define, among others, your subscription charging schedule, i.e. on what day of the cycle your customers’ cards will be charged (you can read more about it in Straal’s documentation).

However, as stated before, subscription charging is not always successful and to solve the problem, you might request your PSP to retry collecting payments after a predefined number of days. Sometimes it’s enough, yet there are cases when the transaction is rejected again, e.g. due to insufficient funds on the payer’s account (which is quite common: subscribers coming from diverse countries receive salary on different dates so applying the same set of rules to all of them may generate problems). It means that if you set the charging schedule to, for instance, the first day of the month, some of your clients may not have sufficient funds on their account yet. In such cases, it’s advisable to retry charging once the money has already been wired from their employers to their bank accounts.

Here comes Smart Retry. Most retry solutions depend exclusively on the general charging schedule applying to all customer segments provided to your PSP. In Smart Retry, by contrast, the retry schedule is adjusted to the specific requirements defined by your industry, vertical, target markets, customer segments and so on, building on historical data gathered by your PSP over time. Retry policies take into account factors such as: card brand, acquirers matched with the subscriber, retry days or retries number. The financial patterns of your subscribers are leveraged to perform retries when the chances for transaction approval are the highest - the outcome being a reduced number of unsuccessful retries, lower cost of processing, higher revenue predictability and, thus, financial stability of your company.

When you apply Smart Retry, the system retries charging subscriber X’s card once he can have sufficient funds to cover his subscription fee, e.g. only on the 10th day of the month (as in Poland, where a number of employees receive salary on that day). How does your PSP know about it? It’s simple – the historical data of subscriber X’s card charging shows that on most occasions, the fee is collected from his card only in the 3rd retry performed on the 10th day. With Smart Retry, the number of attempts is reduced to just two of them which saves your money and provides better experience for your client. A win-win situation!

Default retries vs. Smart Retry

Major benefits of applying Smart Retry

Unsuccessful subscription fee charging results in financial loss as well as subscriber’s frustration. Making use of Smart Retry brings measurable, tangible benefits such as:

  • higher revenue generated thanks to successful collection of subscription fees,
  • reduction of costs generated by commissions charged by your PSP for enabling unsuccessful transactions,
  • more accurate financial planning resulting from collecting payments successfully in predefined, or at least predictable, cycles,
  • reduction of operational time and costs generated by customer support specialists (e.g. when forced to contact subscribers directly when transactions cannot be finalized),
  • enhanced user satisfaction thanks to minimizing the number of ineffective retries.

Final thoughts on Smart Retry

As payment technology is rapidly developing, collecting money from customers shouldn’t hinder everyday business activities any more. Merchants, especially those operating on the subscription market, should search for payment solutions optimized for their business models (if you’re at the stage of looking for a subscription-friendly payment gateway, read Michał Jędraszak’s entry to learn what features to look for). Straal’s Smart Retry is a perfect answer to the challenges subscription merchants are facing. Contact our Sales Team to learn how to implement it in your business and enjoy all profits listed in this entry!

Tomasz Kobylarz

Vice President of Engineering

Tomasz is a professional technologist who brings over 8 years of experience to his role with a broad background in product development within the fintech, retail, and banking sectors. Owing to his expertise and profound stakeholder management skills, throughout his career, he has excelled in creating, certifying and implementing innovative payment systems in Poland, Australia, France, Central Europe and the US.

At Straal, Tomasz is accountable for strategic product development, integrating business with technology as well as managing and expanding Straal’s Engineering Team.

Before joining Straal, he spent several years holding leadership positions at Diebold-Nixdorf, AEVI International and Applause Inc.

You might also like...
TOP 5 FinTech Podcasts Worth Tuning In To
7 August 2020

Podcasts are considered to be one of the most impactful media of the digital industry. As of July 2020, there were over 850 000 active podcasts in more than 100 languages (!). It’s impossible to try out every single one, that is why we’ve curated the top 5 fintech-related podcasts with a solid “recommended by Straal” label, including FinTech legend's podcast Brett King's Breaking Banks, 11:FS experts and much more.

Read more
Merchants to follow #2: Cateringoo. A simply delicious business idea
31 July 2020

Get the inside look at the catering industry with our second 'Merchants to follow episode' preseting Cateringoo - a simply delicious business catering brand. Discover, how has the pandemic affected the online on-demand food delivery services market and what did the Cateringoo team do when, due to the lockdown, the number of orders almost dropped to zero?

Read more
Merchants to follow #1: Piesotto. Polish Pioneers of Pet Food Subscriptions
27 May 2020

Learn how Piesotto - a company founded by some true dog lovers out of genuine care for their four-footed “kids” - has become a leading subscription-based pet food supplier in Poland and one of the cutest brands we have ever seen.

Read more
Lexical functional programming — jargon and naming convention
18 May 2020

"Everything flows", said Heraclitus. The reactive paradigm followers like to say that "everything is a stream". The phrase attributed to Heraclitus is valid for both functional and reactive paradigms. In the first one, we have pipelines, in the second one - streams. That testifies to the significant similarity between these paradigms and shows that reactive programming (but more FRP) is, in fact, an asynchronous implementation of a functional flow.

Read more
C2B Bank Accounts. Filling the Missing Link to the Open Banking Revolution
29 April 2020

The Open Banking Revolution is happening right now. When it comes to online payments, initiating transactions via banking APIs is undoubtedly a gamechanger for the whole ecosystem. But access to tech-savvy corporate banking is limited. Fortunately, challenger banks come to the rescue. Here is what you need to know.

Read more
Ecommerce Management Issues Most Entrepreneurs Forget About: Part II
20 April 2020

In my previous entry, I listed several strategic ecommerce issues omitted by most mid-sized businesses when launching online sales. You already know that most of the starting-point mistakes result from treating an online shop just like another physical store. Here goes the second part where you’ll find even more topics to tick on your strategic to-do list.

Read more
Ecommerce Management Issues Most Entrepreneurs Forget About: Part I
6 April 2020

Ever more companies develop online sales channels, also in traditionally offline industries. Big players apply advanced ecommerce management strategies, which increase the chances of e-success, but smaller entities tend to neglect the strategic part. In this entry, I explain why it’s a mistake and what strategic issues to mind in the context of ecommerce management.

Read more
Choosing Payment System for MaaS App: What to Remember
3 March 2020

The MaaS market is one of the most prominent beneficiaries of the development of digital economy. MaaS apps have not only changed the way people commute but also how they pay for it. Increasingly often, payments affect the competitiveness of MaaS companies. What makes payment solutions so important for the MaaS industry, and what to mind while choosing a payment platform for a mobility system?

Read more
In Search of an International Payment Gateway
6 February 2020

The decision to start selling internationally is a big step for every company. There’s much more strategic planning involved in the process than it may seem at first glance. One of the technical challenges that online merchants face is the choice of an international payment gateway. How to pick the right one? What features matter most when selling internationally? I’ve listed them for you.

Read more
5 Subscription Business Trends to Watch in 2020
8 January 2020

2019 was another year of massive migrations to the subscription-based business model. The subscription market has grown substantially, taking over nearly all product and service categories one can think of. Nonetheless, it has not saturated yet, and every subscription business owner should keep track of the tendencies shaping consumer habits. What to expect in 2020? See our list of major trends!

Read more
5 Vendor Lock-In Strategies for Your Online Business
18 December 2019

Why do you keep using Android despite its common errors? Or not change your bank although its mobile app drives you crazy? The answer is simple: you’ve been locked-in. If you want to retain your customers with the same effectiveness, take a look at our 5 vendor lock-in strategies crafted for online businesses and take advantage of the lock-in effect and switching costs management!

Read more
How (and Why) Subscription Model Works
27 November 2019

You may have heard about the ongoing subscription boom. Every month, more and more subscription-based companies enter the market. Some of them change the rules of the game while other disappear in no time. Go through this entry to learn how to join the former: embrace the subscription business model with all of its pros and cons, and translate this knowledge into profitable decisions!

Read more
KYC: What Does it Mean in Online Payments?
5 November 2019

Once you have gone through dozens of websites explaining how to open an e-store, terms such as KYC or merchant onboarding may ring a bell with you. You will deal with them before jump-starting your online business, so understanding what they mean in advance is going to save you much time. What is KYC in the context of online payments and how does it relate to the merchant onboarding procedure?

Read more
Prepaid vs. Postpaid: Models Comparison
10 October 2019

Prepaid or postpaid: that is the question. Which payment model should you choose for your business to simplify user experience and boost the company’s revenue? Should your customers add money to an e-wallet and be limited by the amount paid upfront or be charged after every single use of your service? In this blog entry, I compare both approaches using the Mobility-as-a-Service industry as an example.

Read more
How to Prepare Your Website for Online Payments
18 September 2019

Online payments are a must-have in the e-commerce world. Period. The times when you gave the clients your bank account number are far behind us. Once you find your perfect-match payment service provider, you should prepare your website/application for accepting online payments. Why is it so important and what to keep in mind while getting ready?

Read more
What is One-Click Payment and How to Use it Smartly
26 August 2019

Reducing your online checkout process to a single click is tempting, isn’t it? In the face of phenomena such as the *mobile first* approach, demand for instant gratification among young generations of consumers, and conversions taking a matter of milliseconds, one-click payment might seem to be the Holy Grail of modern online commerce.

Read more
What is Subscription Management Software and Why You Need It
5 August 2019

Let’s face it: the subscription-based model provides you with loads of valuable customer data but, unless you hire a full-time data analyst, it’s impossible to make full use of them. Moreover, managing subscription plans of every single subscriber manually is a real nightmare. That’s why subscription management software has been created. What is it and how to make the most of it?

Read more
What to Look for in a Payment Gateway? Part II
19 June 2019

In my previous entry, I have proposed some basic questions an online merchant should ask before selecting a payment gateway. If you run a subscription-based business, you should get acquainted with several extra questions specific to your business model. A subscription-friendly payment gateway is a way to gain higher control over your business.

Read more
What to Look for in a Payment Gateway? Part I
10 June 2019

If you’re reading this, you’re probably searching for the best tool to collect payments from your customers and need to understand the differences between diverse solutions available on the market. Here’s a brief guide to selecting the right payment gateway for your online business.

Read more
Subscription Metrics to Track and Optimize
9 May 2019

Customer retention is paramount for companies operating in the subscription-based model. One should learn how to measure it and make the most of the statistics at hand. What subscription metrics to track? And how to convert them into actionable insights?

Read more
Predicting Your Subscriber’s Behavior
25 April 2019

Despite the uniqueness of every customer, the purchasing process they carry out doesn’t vary so much from one to another: they follow specific patterns. The marketing concept of customer lifecycle can help you improve your commercial effectiveness. Learn how to make the most of your subscribers' behavior analysis.

Read more
New Chargeback Thresholds – Don’t Panic. Get Ready.
15 April 2019

As of October 1st, 2019, Visa, the world’s largest card organisation, is updating its fraud and chargeback monitoring policy. Will it affect you? If you accept cards online – it certainly will. Should you be concerned? Not necessarily, if you have a well-thought risk management strategy. If, however, you do not yet have any fraud prevention mechanisms on board, you better hurry up in getting some.

Read more
Customer Transaction Costs and How to Cut Them
28 March 2019

Selling is all about addressing your customers’ needs. Offline or online, you seek to get to know your clients and offer them what they’re looking for. However, it’s a human thing that we like when things go quickly and effortlessly. On the internet, we can shop the way we like: saving our time and effort. But is it enough to let your customers buy online? Can you still make their shopping experience less absorbing?

Read more
6 Subscription Business Trends for 2019
30 January 2019

2018 was without a doubt prosperous for subscription businesses. The model has matured, evolved and boldly developed in a number of new industries and markets. Here’s a list of 6 trends that will have the greatest impact on companies operating in the subscription model in 2019: trends one cannot afford to overlook if they aim high on this promising yet ever more competitive market.

Read more
Anything-as-a-Service: the Future of Distribution
16 January 2019

Anything-as-a-Service (or XaaS) is a product distribution model, where companies shift from selling products to providing their value proposition as a service. Since XaaS can, quite literally, be anything, it isn’t hard to get lost in the jumble of buzzwords, jargon and concepts. This brief article will help you get an in-depth understanding of the new, service-based economy.

Read more
4 Tips to Win the Holiday Shopping Season
22 November 2018

Whilst Black Friday and Cyber Monday, or “Black Friday Weekend and Cyber Week” according to some experts, do not mean as much as, say, 2-3 years ago, the pre-x-mas shopping spree is still among the key determinants of the thickness of your top line. Here’s how to - in the realm of intangible merchandise - make the most of the daddy of all holiday sales.

Read more
3 Tips to Grow Your Online Business
15 October 2018

Simplicity of User Experience, efficient billing model and a well-thought risk management strategy. These are the keys to unlock your business potential on the ever more competitive market of digital services, as uncovered by e-commerce professionals at the very first edition of Warsaw Ecommerce Tech Sessions (WETS) – a new series of meetups powered by Straal and Business Link.

Read more
Your Business in the Face of Fraud
17 July 2018

Have you fallen victim to fraud? If the answer is "yes", I assume you have learnt your lesson and already thoroughly inspected what went wrong. The “no” answer does not exist in the case of fraud. It’s only “not yet”. Be my guest and let me invite you to explore the dark side of ecommerce.

Read more
Is the Freemium Strategy Right for Your Startup?
20 May 2018

Look at you, a fledgling entrepreneur at the threshold of international success. I bet it feels fantastic to see your idea come to life. So now that you’re inevitably positioned for success, give your product away for free - that's how the freemium model works. But is it really that simple?

Read more
When One Second Costs $2.5 Million
17 April 2018

Your customers won’t wait or engage in cumbersome processes to get your products and - if your competitors are able to provide the service faster – why would they? Straal presents the mathematics of instant e-commerce. Lean on these statistics to put your business in the fast lane!

Read more
The Essentials of Subscriber Experience
28 February 2018

In the times of flourishing sharing economy, we’re renting, sharing and getting access to everything we need. The line between products and services is becoming thinner and thinner, whereas possession is no longer guarantee for the customer satisfaction. What is in that case?

Read more
4 Reasons to Migrate to the Subscription Business Model
8 February 2018

Do you remember the first time you sold your product or signed a contract for your service? I bet it felt good. Do you know what feels even better? Becoming a trusted provider of your services and products to your loyal customers. That lasting feeling is what the subscription-based business model holds in store for success-hungry entrepreneurs.

Read more
3 Must-knows about the Role of Payment Solutions
16 January 2018

How do payment solutions chosen by your company influence your business performance? It's important to decide on such that will not only meet your current requirements but also support your development strategy in the long term and smoothly scale your business.

Read more
5 Things You Should Know about the Payment Ecosystem
30 November 2017

Fintech insiders oftentimes erroneously assume that consumers, let alone merchants, know much more about the payment ecosystem than they actually do. This might lead to disturbing misunderstandings, make companies miss business opportunities, consumers get a headache and vendors fritter away their marketing budgets.

Read more
Show more releases