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Optimizing Payment Operations for B2C Businesses

Zuora Staff

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How Are Payment Operations Different for B2C Businesses?

B2C payment transaction values are generally smaller than B2B transaction values, but transaction volumes are significantly higher. Consider Netflix, which reported 75M active subscribers (as of Jan 1, 2016) that each pay about $8.99 for a monthly subscription in the US. The cost to service such a large customer base each month (signup, service provisioning or delivery, invoicing, and payment collection) would far outstrip the revenue from each subscriber if those processes were not sufficiently automated. In this article, let’s focus on payment operations and automation, along with some nuances specific to payments for B2C merchants.


Automating payments addresses two major goals for B2C merchants:

  1. Minimizing the operational cost of servicing subscribers.
    • B2C businesses simply have too many customers to support manually, so automating each step of the customer lifecycle is crucial to success.
    • Automation also reduces errors resulting from manual processing, and drives down customer service inquiries, which are expensive to handle.
    • The most common payment methods that can be automated include credit or debit cards, Direct Debits (such as ACH in the US, PAD in Canada, or SEPA in Europe), and eWallets (such as PayPal).

  2. Reducing involuntary churn as a resulting from non-payment.
    • Churn is corrosive to all subscription businesses, as it has a negative effect on recurring revenue and will offset increases in new customer acquisition.
    • One of the key sources of lost revenue in the B2C world is involuntary churn, which occurs when a customer would have continued to use and pay for your service, but was deactivated because of a payment failure.
    • To cite a recent example, Netflix reported lower than expected net subscriber growth in Q3 2015 due to involuntary churn from the transition to chip-based payment cards in the US. ( Ref: Netflix Slips on Q3 "Involuntary Churn," Shares Take Hit )


How Can B2C Businesses Address These Complexities?


So what can B2C merchants do to address payment failures? Let’s take a closer look at three tools at their disposal:

  1. First, the merchant should always retry (aka recycle) failed payments if there is a reasonable chance of success.
    • Payments can fail for numerous reasons. Which gateway error codes should be retried?
      • Soft declines should be retried. A soft decline means the reason the card is being declined is usually temporary and subsequent attempts might be successful. Examples of soft declines include “insufficient funds” or “credit limit exceeded.”
      • Hard declines should not be retried. A hard decline means the reason the card is being declined is not temporary and subsequent attempts will likely not be successful. Examples of hard delines include “card reported as lost or stolen” or “account closed.”
    • What is the optimal number of retry attempts?
      • The optimal number of retries will vary for each merchant, but in general a normal decline rate is around 10% of total transactions. Merchants should analyze their historical payment transaction data to determine the percentage of successful and declined payments by attempt number. A pattern will usually emerge indicating the optimal number of attempts where the success rate no longer increases at a meaningful rate.
      • Merchants should balance the payment processing cost of each additional attempt vs. likelihood of successfully capturing the payment. Success rates generally diminish as the number of retries increases.
  2. Secondly, the merchant should contact the customer to obtain another form of payment.
    • Customer communication is required for hard declines for credit cards, or failures related to invalid direct debit account details, as the merchant should not retry either of those types of failures.
    • Automated email or SMS communication is preferred due to typically high volumes associated to B2C businesses.
    • The customer can also be alerted via messages in a self-service account management portal or through in-app messages on the service platform itself.
    • Customer communications should include include instructions for updating payment methods via self-service tools.
  3. Thirdly, and after exhausting the previously described options, the merchant may ultimately have to deactivate or suspend the service as a last resort.
    • This step is typically taken after a grace period, where the merchant has retried payment several times or has unsuccessfully attempted to contact the customer to arrange for another form of payment.
    • Automated deactivation of service is preferred due to typically high volumes associated to B2C businesses.
    • Losing access to the service may encourage some customers to re-engage and make another payment to get service restored. When notifying customers of deactivation for non-payment, merchants should always include instructions for customers to easily re-activate service by providing a new payment method.
    • Deactivation of the service will increase the merchant’s churn rates. Merchants should track this type of churn separately from customer initiated churns to better understand sources of churn.


Of course, it’s always better to anticipate and prevent payment failures before they ever happen. The most common and preventable reason for payment failure is expired credit cards. What can merchants do about cards with an upcoming expiration date?

  1. Merchants can subscribe to payment method updater services that can proactively and automatically update credit card data.
    • If the issuing bank participates in the account updater program, the account updater service can update expiration dates or even credit card numbers if a card has been replaced by the issuer.
    • This eliminates the need for customers to take any action, and can minimize potential service disruptions to customers related to non-payment.

  2. Merchants can prompt customers via in-app messaging to update expiration dates or provide new credit cards when customers log on to a self-service account management portal.

  3. Merchants can create reports to identify credit cards with an upcoming expiration date.
    • Merchants must then contact customers to request that they update the expiration date or credit card on file.
    • To operate at scale, the customer communication should be automated via email or SMS.


How Can Zuora Improve Payment Operations For B2C Businesses?


Zuora offers many features that can streamline payment operations. They include automatic payment retry rules for failed payments, integrations with payment method updaters to update expired credit cards, automated email notifications for events such as payment failures and expiring credit cards, and callout notifications to integrate billing and payment events to external systems for automated service provisioning and deactivation. If you have other great ideas to further optimize B2C payment operations, post an idea in the community!

1 Comment
Zuora Support Moderator

Great article, @davidhoang! I hope folks find it as useful as I did.