The Hidden Opportunities in Failed Payments

Over the past few weeks, we (being Paypa Plane) have seen a spike in traffic (both direct businesses and white-label partners) coming to us because they want to offer systems that allow more connection to customers- not via email marketing, video calls or satisfaction surveys - but via their payment system.

They want to give their customers more information, more control and more comfort over the ongoing, scheduled or recurring payments that they make to the business. These businesses want their payment arrangements to operate on a more human level but conversely, with fewer manual administrative requirements - a reflection of the new value placed upon digitally-enabled (or enhanced) relationships that have become vital over the past weeks of lock-down (that phrase sounds so much like a futuristic dating service that I Googled it before publishing this...it’s safe)!
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"before we close the case though, consider what costs might be lurking behind these actions"

Recurring (or subscription or instalment payments) have been a crucial function of daily business for many years - decades in fact. The mind-set and metrics against which businesses and payment service providers measure the success of these payments have similarly been in place for all those decades  - and this is a problem.

Whilst the rest of the world is moving towards relationship-driven, relevantly automation and intuitive systems, recurring payment land has been preserved in time - a victim of its own early success and difficult legacy systems.

Common metrics of success in this space are - 

• How many declined payments occurred this month? 
• How many retries of declined payments were successful? 

These are valid metrics for sure… but in looking only at this data, something more impactful is missed. In only measuring ‘how many’ failed payments, the true cost of those well-counted failed payments is overlooked.

These dated metrics do not account for factors like - 

• How happy are our customers when it comes to their regular payments? 
• Does our payment system damage or enhance our customer relationships? 
• How much do failed payments (even if they are eventually successful) really cost our business?

These questions, though rarely asked, are critically important, because they relate directly to the state of the relationship between a business and a customer. 

The very fact that ongoing payments will be occurring implies that the relationship unpinning these payments is far more than fleetingly transactional. This is no tap-and-go situation- its a membership or an access plan or a loan payment or an insurance payment - this is a relationship that will continue for some time… so why isn’t that relationship reflected and prioritised in the way those payments are handled? 

This shift in values has been seen in other sectors - look at what happened when Indebted moved the debt collection process into a digital message flow driven by prioritising the customer’s preferences? If you have read Simon Sinek’s ‘Start With Why’ (recommended if you haven’t), you will recognise this as similar to the Bridgeport Financial Story - a debt collection agency started in San Francisco in 1994. In both cases, success is not measured by the number of the successful debt collections - though that is important - it is measured by how comfortable and even happy the debtor felt with the experience of setting up their debt collection plan. Once that is taken care of, the success of collection looks after itself. Bridgeport Financial started in 1994 and relied on ‘old-school’ systems, Indebted launched a few years ago in Australia and have been successfully delivering happy debtors to full payment via an entirely digital experience. Amazing - what a slight metric shift can do when enabled by a technology platform inspired by a different mind-set.

But, let’s rewind for a minute and go back to recurring payments. What no business wants to see is failed payments (the horror of lost cash flow!) and it’s even worse if those failed payments become a damaged relationship and a lost customer. 

There have been all sorts attempts at mechanically responding to a failed payment - setting up multiple retries until a successful payment is achieved, peeking inside the bank account to check the balance before making a payment attempt (this is about trying to prevent a failed payment), charging very high ‘late’ fees to discourage failed payments. 

These mechanisms vary in their success but the commonality is -  these are all things that happen ‘to’ a payer. At no point can a payer choose what happens next or control this process. 

I can almost guarantee that some business owners will have read that sentence and thought ‘good - the customer agreed to pay and that’s my cash-flow’. Fair enough...before we close the case though, consider what costs might be lurking behind these actions. 

Each time something financial happens ‘to’ a customer, trust is eroded. Yes, the customer agreed to pay and in almost all cases they will pay, but, by removing a customer’s choices, the relationship with the business takes a hit. Sometimes this hit becomes a total knock out and a customer churns and then, on occasion, that customer ends up owing more money and will need to be escalated to collections (and we are back to our friends at Indebted). 

All of this exacts a huge cost on the business. Trust is something that takes a long time to build and is intrinsically valuable to a business, one failed payment shouldn’t have the power to undo that.

There are more insidious costs to be considered though - by creating payment arrangements that are controlled only by the business, costs around payment compliance, administration and customer support all escalate - after all, if only the business controls the arrangement, of course, the customers will need to continually ask for support. 

Interestingly (though not surprisingly), this one-sided thinking actually causes more payments to fail - no customer oversight, no ability to make changes to prevent a failed payment… it’s almost inevitable.

Wouldn’t it just have been better to concede some control to the customer in the first place - to allow choices - choices that will actually work towards preventing payments from failing and then allow those same customers a choice of self-driven actions to remedy a failed payment. 

The cost savings for the business are tangible. I would even go so far as to say, that in this way, a failed payment can be turned into an opportunity for the business to build a better relationship with the customer.

When that awful feeling of having something happen ‘to’ you as a customer is replaced by a feeling of having some control over what happens next, imagine the loyalty and trust that simple mind-set switch generates for the business.

As for the cash-flow - it turns out that, on the majority of occasions, offering customers a way to self-manage a failed payment actually results in a faster payment recovery than the old brute force type methods (minus the side-serve of customer angst).

We need this kind of mutual respect between businesses and payers if we are going to sustainably move into COVID recovery. As the economy re-opens and businesses start thinking about turning their recurring payments back on, the question of the cost of failed payments will become more relevant and so will the need to be able to maintain a human-approach to managing recurring payments - without the hefty manual resourcing cost. A slight adjustment of mind-set, success metrics and payment systems… that’s all that it will take.