Payment retry strategies to combat involuntary churn

In today’s rapidly expanding subscription economy, having a robust payment retry strategy has never been more crucial for merchants.

Forbes projects the global subscription market to soar to $1.5 trillion by 2024, more than doubling its value from 2020. With this growth, businesses are increasingly handling Merchant-Initiated Transactions (MITs), making effective payment processing vital to preventing involuntary churn, increasing customer lifetime value, and maintaining steady cash flow.

However, MITs present unique challenges, including higher decline rates compared to Customer-Initiated Transactions (CITs). This makes it essential for merchants to adopt a robust payment retry strategy to recover failed transactions and minimize churn.

Keep reading to learn more about:

• Why MIT payments have a higher failure rate than CITs
• The pros and cons of various payment retry strategies
• How to identify the optimal retry strategy
• Alternative solutions to optimize recurring payments

Why do MITs fail?

Understanding the reasons behind MIT failures is key to developing effective payment retry strategies. 

The most prominent is payment failure due to insufficient funds. Our data finds that 56% of MIT failures are due to insufficient funds, compared to 18% when a customer initiates the transaction.

Customers typically use bank accounts or credit cards with sufficient funds when making payments. In contrast, merchants initiating the transaction cannot know if the account has a positive balance or if the card on file is still active.

Another challenge with recurring payments is the limited opportunity for customers to retry failed payments, as they are not actively engaged in the transaction. This means merchants often have to rely on a dunning process to contact the customer, which isn't the best customer experience and may not effectively prevent churn.

Optimal payment retry strategies 

When merchants encounter a ‘hard’ failure due to a stolen card or suspected fraud, their options for resolution are limited. 

However, they can retry the transaction for ‘soft’ declines—such as the 56% of failed payments attributed to insufficient funds.

Merchants' approaches to retrying these payments can vary widely. The key is to be mindful that card networks prefer to avoid a flood of repeated attempts in quick succession. 

For instance, trying to retry a payment repeatedly on the first and second days can result in penalties for the merchant.

A sensible strategy is to space out retry attempts, aiming to process the transaction once a day over a period of up to 14 days. This method balances persistence with compliance, increasing the likelihood of successful payment collection while minimizing the risk of incurring fines.

Some businesses prefer to spread the number of retries they make over a longer time frame.

One common strategy is to retry payments on days 2, 4, 8, and 16. 

The logic is that extending the retry period increases the likelihood that the consumer will have sufficient funds in their account by the time the next attempt is made. This approach allows for greater flexibility and a higher chance of successful payment recovery.

Geography can also play a role. In many European countries, people get paid at the end of the month, so it is a good idea to plan an attempt on, say, the first day of the month to make sure they have just been paid. 

In the US, many people get paid fortnightly, at the beginning and the middle of the month, so the same rule applies to timing retries to coincide with the first and the middle of the month.

Data-driven payment retry analysis 

While there’s no guarantee of success with any strategy, it’s essential for each merchant to discover what works best for their specific situation. For example, one company found their ideal approach was to implement 11 retries over a two-week period.

They arrived at this conclusion by conducting a thorough profit-and-loss analysis, identifying when additional retries become counterproductive—when the costs of further attempts exceed the potential revenue.

Many merchants are increasingly turning to AI tools to optimize this process. These software solutions can analyze patterns and learn what strategies yield the best results for various customer segments across different regions. They serve as an extension of the trial-and-error process, continuously learning and adapting. 

While not infallible, if a merchant isn’t leveraging AI, their payments team should actively experiment with different approaches to improve payment success rates.

The case for tokenization and APMs to optimize payment retries

As is the case in payments, prevention is always preferable to cure. While many merchants are concentrating on optimizing their retry strategies for MIT, there’s also a growing focus on exploring ways to prevent MIT failures from occurring in the first place.

Traditionally, merchants have utilized tools like Account Updater to ensure they always work with a customer’s most up-to-date payment credentials.

Now, innovations like Network Tokens are taking this a step further. They ensure that a customer’s card-on-file details remain current and are also proven to increase authorization rates and reduce fraud.

Learn more about network tokens.

Merchants are increasingly exploring alternative payment methods (APMs) to enhance the success of their MITs. 

Buy-Now-Pay-Later

For example, some merchants are turning to Buy-Now-Pay-Later (BNPL) services like Klarna. This approach eliminates the risks associated with card expiration or loss, as no physical card is involved in the transaction. 

Additionally, the likelihood of payment failure due to insufficient funds is minimized—unless the customer has reached their credit limit.

Open banking

Open banking is another promising option that merchants are considering. 

Like BNPL services, open banking mitigates the risk of expired credentials leading to payment declines. Furthermore, if a customer has an overdraft, payments can still be collected, significantly reducing the chances of failure due to insufficient funds.

In the UK, telco operator Virgin Media is actively exploring offering open banking payments to its customers.  

Final thoughts on payment retry strategies

There’s no one-size-fits-all solution to eliminating all failed payment attempts. 

However, by understanding the root causes of MIT failures and implementing tailored data-driven retry strategies, merchants can significantly improve payment success rates, reduce involuntary churn, maximize revenue, and enhance customer lifetime value.  

Start by analyzing MIT failure data, experiment with different retry strategies, and explore advanced payment tools and alternative payment methods.

Check out our case studies to see how we're helping the world's most ambitious business optimize their payment strategies.