2024: The year for tackling involuntary churn

Typical efforts to manage customer churn overlook a key cause: involuntary churn due to payment failures. Here's how it can be addressed.

Churn, the bane of the subscription business, is often a key focus in strategy meetings. While typical efforts to manage voluntary churn—via customer satisfaction programs, surveys and new feature development—are crucial, there's an overlooked aspect: involuntary churn.

Unlike the high-effort management of voluntary churn, addressing involuntary churn is about preventing a specific event: failed payments. It's a binary, straightforward solution to a problem that's often silently eroding your customer base. This year, consider upgrading payment processes to effectively combat this silent churn.

Involuntary churn

Voluntary churn is intentional, a customer cancels their subscription because they’re not satisfied. Involuntary churn is unintentional, a customer's subscription is cancelled without their intent. On aggregate, 26% of total churn is involuntary churn due to failed payments. It occurs not out of customer dissatisfaction but due to payment issues, such as card replacement or insufficient funds.

We often call it "Silent Churn," because merchants receive no signal or warning, no button is pressed, the customer just disappears as you can no longer charge them. It can creep in and erode your bottom line without you noticing as a result of a failed subscription renewal due to insufficient funds, outdated card details, or other payment-related failures. Debit and credit cards simply weren’t designed for this purpose. Cards get lost, stolen, or they hit their limit. The life expectancy of plastic cards, usually 2-3 years, plays a pivotal role in this churn, as card replacements lead to failed transactions and lost customers​​.

The potential of addressing involuntary churn for subscription businesses

The potential increase in customer retention figures can have a massive impact on business success. According to the Harvard Business Review, increasing customer retention rates by a mere 5% increases profits by between 25% and 95%. As subscription businesses lose 1-4% of their customers monthly due to involuntary churn, this translates to substantial revenue losses over time​​. Addressing this loss presents a huge opportunity for subscription businesses that will be far cheaper than letting your marketing team expand their paid search efforts.

How to combat involuntary churn

Below are some of the most popular features of a churn management strategy, they don't demand constant development of offerings, perpetual customer surveys, or re-engagement incentives.

Utilise automated updates and notifications: Implementing services that automatically update payment details and notify customers of upcoming expirations can significantly reduce failed transactions.

Adopt flexible payment solutions: Introducing a variety of payment options, including bank-to-bank transfers, caters to different customer preferences and reduces dependency on cards. Trustly offers evergreen payment methods, mitigating silent churn by reducing reliance on traditional card payments.

Implement proactive customer communication: Regular communication with customers about their payment status and any required updates can prevent churn due to payment failures. Notifications ahead of payment attempts can help increase success rate, but might risk triggering voluntary churn instead.

Enhance payment security: Secure payment processes build customer trust and reduce the likelihood of failed transactions due to security concerns. Trustly's secure payment infrastructure builds customer trust and minimizes failed transactions due to security concerns, enhancing overall payment reliability.

Monitor and analyse payment data: Regularly reviewing payment success rates and identifying common failure points can help in taking preemptive action to reduce involuntary churn. Integrating Trustly allows businesses to monitor and analyze payment success rates, helping to identify and address common points of failure in the payment process.

The psychological aspect of subscription retention

In addition to technical solutions, understanding the psychological underpinnings of customer retention is vital. Customers value convenience, security, and trust in their transactions. By aligning payment methods with these values, businesses can foster a sense of reliability and ease, encouraging long-term loyalty.

Trustly Recurring Payments: A Solution to Involuntary Churn

While the methods above can mitigate involuntary churn, the most effective strategy is preventing payment failures in the first place. 70% of companies report that failed payments have negatively impacted their customer churn rates in the last year. The most cost-effective way to tackle this is by steering your subscribers towards Trustly Recurring Payments.

The incumbent methods of recurring payments are no longer fit for purpose. Traditional direct debit, with its 15% failure rate at mandate setup, and card-on-file systems, leading to 2-3% churn due to involuntary payment failures, are unreliable and prone to failure. In contrast, Trustly Direct Debit blends direct debit infrastructure with Open Banking capabilities to create error-free mandates and seamless payment plans, offering instant payments in a single flow. This approach ensures convenience for users and reliability for businesses with just one integration.

Trustly enhances conversion rates by offering a fully automated mandate creation experience verified by eID, eliminating manual entry and error.. Its Pan-European coverage combines unique Open Banking features with the strengths of regional direct debit schemes, all through a single integration. Adapted to various business needs, Trustly allows for the collection of payments on a variable or fixed cadence and verifies active account statuses, ensuring a smooth and efficient payment process.

“Trustly Recurring Payments remove the churn associated with recurring card payments when cards expire or are lost. This enhances the experience for our customers and drives down our costs.”
Hikmet Ego, CEO, Northmill Bank

Conclusion

If you take one thing away from this article, it should be an appetite to address involuntary churn in 2024. For too long churn management has been associated with high effort attempts to change user behaviour, which is known to be difficult, when managing the involuntary failures is the easier option. Churn is a critical factor impacting the sustainability of subscription businesses.

With market conditions evolving, especially for new media companies, balancing customer acquisition with effective churn management has become more crucial than ever. Trustly Recurring Payment is a potent solution, seamlessly integrating with businesses and ensuring evergreen, hassle-free payments. This approach addresses the immediate challenge of involuntary churn and aligns with the modern consumer's preference for quick, secure, and straightforward payment experiences.

More information on this innovative solution is available on Trustly’s Recurring Payments page.
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