Supporting Local Payments on a Single Global Platform





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Recurring pains or joys?


November.13.2014 0 Comments Thomas Huigens (CMO Ikajo)

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Smart processing for recurring billing.
Recurring payments business models have been part of e-commerce since it started. In recent years the market for recurring billing has exploded and covers a wide range of market segments, ranging from software to digital entertainment to multi-million dollar capital equipment to baby supplies. Enterprises around the world are using recurring revenue to expand their markets and maximize customer lifetime value.

 

Exactly What is Recurring Billing?
Ok, here is description what I mean when I say “recurring billing” – when a client agrees to have a specific amount charged to his credit card, or other payment method, for a pre-determined or sometimes open ended period of time, it’s recurring. Normally the recurring period is monthly or quarterly.

The obvious advantages for a customer are that they can finance their purchase over time, potentially commit for a shorter period to the service offered and of course accepting a recurring charge initiated by the merchant is convenient.

More and more retailers have embraced the recurring business model and the US market alone is estimated at USD 300 billion in 2013 according to Bain Capital. In this year number will be higher for sure J

 

Potential Problems
But as you can guess this money do not come alone – they bring some troubles that can sometimes cost you more than you are ready for.

There are a number of potential problems for merchants using the recurring business model.

Over the years we have seen a number of well organized, professional e-commerce companies stumble from one closed merchant account to another as a result of payment problems specifically related to recurring billing.

Declined cards
A number of your clients might have problems with the credit limits set on their cards, leading to a decline. And as well all know, getting a new client takes a lot more effort and investment in time and money, than keeping an existing one. So, losing new customer in recurring model is equal to losing of not one but many purchases!

 

What you can do?
Your systems need to be set up to react quickly once you notice a credit card decline on an existing customer. Contacting them immediately might give you an opportunity to keep them as a client. Maybe they have another credit card which they can use, maybe they were not even aware of the fact that they had reached their limit and after a quick call with their bank, solve the issue. Or use the card of their partner or spouse.

So you might turn a negative into a positive and keep your client loyal to your product or service, which is critical for subscriptions.

 

How we can help?
As a payment processor we have developed a number of tools and systems whereby we do our utmost to keep declines to a minimum. Dynamic BIN analysis and management, splitting transactions, delaying the moment between authorization and capture are just a few.

Chargebacks
Chargeback are the main reason merchant accounts are lost and financial penalties incurred.

When a customer disputes a payment, their bank will refund them and deduct the amount from your account. And if you are over a certain threshold, they might even close you down, charge you with hefty penalties and keep your reserve for good measure.

We have seen cases where merchants lost more than half of their processed turnover to such charges and penalties, so the risks are substantial and real.

Of course you have the opportunity to prove that the transaction was legitimate, but this is often difficult where Internet transactions are involved.

 

What you can do?
Chargebacks are part of e-commerce life, but still need to be reduced to a minimum. In our experience one of the best way to prevent chargebacks is predictive analysis. We spend a lot of time analyzing the payment data of our clients. And we do that before we start processing at all.

 

How we can help?
We identify payment flow patterns and on the basis of that we change the parameters on our payment platform to minimize chargeback risks for a specific merchant and business type.

Fraud Prevention
Another major merchant account killer is fraud. And fraud has many faces. Just to identify a few;

Clean fraud (nothing clean about fraud obviously) whereby fraudsters use unique card holder data to order products and services. As all the data used is “correct”, this type of fraud is not picked up by any system.

Friendly fraud (also there is nothing friendly about fraud) which is really nasty. Someone has bought something on your site, for whatever reason does not like it and wants their money back. Asking for a chargeback involves filling out forms, the bank might want the client to first try to resolve their issue with you and proof that to the bank, etc etc. So instead of asking for a chargeback, they inform the bank that the transaction was not authorized and therefor fraudulent. The bank will refund the money immediately and send a fraud notification through the system. Bad news for you and your business’ reputation.

Affiliate fraud. Most recurring merchants use affiliates to market their products. And most affiliates are reputable and professional organizations that want to service your business’ needs as well as possible. However there are those that are less scrupulous. They send you a lot of traffic, credit cards get charged, you pay them the affiliate fees (which is some cases can be a substantial part of your revenue). After a while, probably 6-10 weeks after processing their traffic, you get hit by a large number of fraudulent transactions. It takes time for fraud notifications to work their way up through the system. Issuing banks might only report fraud on a monthly basis, your acquiring bank might take their sweet time to tell you, etc.

 

So how we can help here?
Obviously we are connected to systems such as Ethoca and Maxmind. On top of that we have also developed our own internal fraud detection systems which is focused on recurring business models.

So we stop a lot of fraud before it becomes fraud. Much more important however it that we actively monitor the sources and origin of fraud that was not stopped and make sure that we can reduce it even more for your new traffic.

By active affiliate monitoring for instance or by analyzing if there is a relationship between origin and time of fraudulent transactions.

 

Smart Processing Sum-Up:
On the basis of continuous analysis of your traffic we alter the parameters constantly to optimize conversion and reduce fraud and chargebacks.

Obviously this is a never ending process, we constantly adapt to changing traffic conditions and payment behavioral patterns.

Our objective is to allow you as a merchant the maximum flexibility in your traffic origin and sources whilst at the same time making sure you stay within acceptable financial limits.

As overall result of our expertise application we can forecast possible growth of revenue you get from your recurring sales from 5 to 40%.

To get this result you do not need to move your entire business from your banks and payment systems, where you have already established relationship, to some new platform. Our smart data processing platform can do its job regardless of acquiring solutions currently in place.

Get in touch with us if you are curious how you can increase your bottom line revenues.

And of course we are very open for your ideas and suggestions on how we can improve what we are already doing now.