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Businesses with the wrong payment method are seeing almost 4x more payment failures

Last editedFeb 20223 min. read

There’s an odd phenomenon concerning payment failures. Businesses accept them as an inevitability, as something to write off as a part of doing business. And while it’s true that every business will see some payments fail, the payment methods you use, the quality of your payment experience, and your customers’ ability and willingness to pay all have an impact on your business’ failure rates.

Failed payments can hurt your business in seriously damaging ways, especially if the rate at which payments fail gets too high. When you’re collecting money you’re already owed, failed payments lead to bad debt. For subscription businesses, failed payments lead to involuntary churn, where an otherwise happy customer can’t make a payment and loses access to your service.

Here at GoCardless, we had a suspicion that payment failures are a bigger challenge for businesses than it’s given credit for. To find out, we analyzed the payment success data of 55,000 GoCardless customers, along with extensive surveys of external businesses using different payment methods. Here are some of the most compelling insights we found during our analysis:

Your payment method could result in almost 400% more payment failures

Not all payment methods are created equal. Comparing GoCardless data to an external survey of primary payment methods, we found digital wallets have an average failure rate of 11.5%. Even the ubiquitous credit card has an average failure rate of 7.9%. 

On top of this, a recent report for GoCardless by YouGov found that the appetite for paying via digital wallets is wavering. 

Just 15% of Australians want to pay for their digital subscriptions via PayPal, while in New Zealand consumers, approximately 1-5%, prefer to pay via PayPal, no matter the use case.

GoCardless payments (which are all collected using account-to-account technology like direct debit), have an average failure rate of just 2.9% globally. That's almost 4 times less than businesses collecting primarily with digital wallets. What payment method is your business using? And how much are you losing to failed payments because of it?

Big businesses are losing over $1million every year (and that’s even with low failure rates)

Enterprise businesses using GoCardless have average failure rates of just 2.1%, but with such high revenue volumes, the average enterprise business still stands to lose nearly AUD $1.65 million in uncollected revenue every year. 

Apply those same revenue numbers to businesses using digital wallets like PayPal for collection. If they’re seeing a failure rate of 11.5% (the average failure rates when using digital wallets as a primary payment method), an enterprise business' lost revenue would be over AUD $8.7 million every single year. If an enterprise business primarily collects with credit cards - and experiences the average failure rate of 7.9% - it would lose approximately AUD $5.9million.

And that doesn’t even take into account the cost of attempted recovery or the involuntary churn caused by otherwise happy customers unable to make a payment. 

In a recent Forrester and GoCardless report, data revealed a majority (52%) of ANZ payments decision makers are experiencing late payments of over 30 days. 

In addition to this, 70% reported more than 10% of failed payments have turned into bad debt over the last 12 months.

Read the full report here

A single payment retry can recover 32% of payments that fail

While first-time failure rate is an important metric, and a metric that businesses should try to reduce to as low as possible, some payments will always fail. So what should you do when a payment fails?

There are several ways of recovering payments, but some are time-intensive (calling customers to remind them), and some are bad for your long-term customer relationships (debt collection agencies). But a single payment retry will see your business recover an average of 32% of the payments that originally fail.

Apply that to the estimated AUD$8.7 million figure mentioned above. That single retry would result in AUD $2.9million recovered. 

Payment failure rates actually went down during the height of COVID-19

The original GoCardless payment success index analyzed payments between the 1st January 2020 and the 31st March 2020. In Australia and New Zealand many stay-at-home orders came into effect from March 2020 and are ongoing.  Despite the turmoil, and the fact that many businesses temporarily closed (or at least closed physical operations), the global failure rates of 55,000 combined GoCardless merchants fell to just 2.3% between the 1st April and 30th June 2020. This fell even further to 2.1% for the next three-month period. 

Want even more payment success insights?

These are just a few of the insights from the GoCardless payment success index, where we looked at the payments of over 55,000 GoCardless merchants. Get the full report, complete with breakdowns of payment failure rates by industries, business size, payment amounts, and more.