Americans ditching companies after experiencing failed payments

Direct bank payments dramatically reduce the rate of unsuccessful transactions, and new machine learning tools like GoCardless’ Success+ help businesses recover up to 70% of them

LONDON AND SAN FRANCISCO, APRIL 6, 2022 -- As consumer spending rebounds following the nationwide loosening of Covid-19 restrictions, it seems failed payments have become a common part of everyday life. New research indicates nearly half (49%) of Americans have suffered from at least one, and of those, one in five (19%) indicate they’re put off from using or buying from the same business again. Fifteen percent say they think less of a company after experiencing a failed payment.

The insights from GoCardless, a global leader in direct bank payment solutions, spell trouble for businesses, many of which are only just now recovering from the pandemic. For merchants on a recurring payment model such as those with subscriptions or invoicing, losing a customer due to one failed payment may mean a lifetime of lost revenue. Combined with the fact that businesses spend on average 11-15% of the value of a failed payment trying to recover it and that they see that the same proportion of failed payments turn into bad debt, it’s clear that merchants need to fight the failures -- fast. 

It’s against this backdrop that GoCardless has launched its newest product in the US, Success+. Success+ applies machine learning to data from the millions of transactions GoCardless processes each year to intelligently identify when each customer is most likely to have funds in their account and automatically retries failed payments on that day. Since its initial launch in the UK in 2020, Success+ has helped GoCardless merchants recover 70% of failed payments on average, with over $50 million recouped to date.

Duncan Barrigan, Chief Product Officer and Chief Growth Officer at GoCardless, said: “Businesses have long struggled to resolve the issue of failed payments, often relying on time-consuming manual efforts or simply writing down debt. But technology has moved on, and this means there are better solutions. 

“One way is to avoid failed payments in the first place by transitioning from collecting payments by card, which have a typical failure rate of 8%, to paying directly from one bank account to another, with some methods, such as GoCardless, dropping that rate to under 3%. And, if you do need to deal with failed payments, harnessing the latest technology to optimise your payment retries will save you valuable time, money and energy.”

Company growth

The launch of Success+ in the US comes as GoCardless continues along its strong growth trajectory in the region. The fintech saw the volume of transactions in the market grow by more than 24 times between January and December last year. It also increased its merchant base 63% year-on-year, including the addition of Klarna to its US client roster. GoCardless also announced numerous partnerships in the past 12 months, including a strategic agreement which will see GoCardless become a direct debit partner for PayPal.

To support its growth, GoCardless opened its second US office in New York City in February 2021 and increased headcount by 90% year-on-year. Notable hires include Vanni Parmeggiani, Director of Open Banking and Real-Time Payments; Lewis Turek, Director of North America; and Youssef Sneifer, VP Regulatory and Compliance. These three join GoCardless after holding leadership positions at tech and payment giants including eBay, Uber and Microsoft.

New funding round to accelerate open banking roadmap and US expansion

In February, GoCardless announced its Series G funding round of $312 million led by private equity firm Permira, valuing the company at $2.1 billion. New investor BlackRock Private Equity Partners also joined the round. The money will be used to expand GoCardless’ open banking footprint around the globe following the launch of its first open banking-enabled offering, Instant Bank Pay, in April 2021. This was followed by the introduction of Verified Mandates in the US, a feature within its global “bank pay” platform which combines open banking capabilities with ACH payments to stop fraud before it happens.