Businesses with the wrong payment method are seeing almost 4x more payment failures
Last editedNov 20202 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.
And 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%.
GoCardless payments (which are all collected using ACH debit), have an average failure rate of just 2.9% globally. That's almost 4x 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 $1.2million in uncollected revenue every year.
Apply those same revenue numbers to businesses using digital wallets 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 $6.3 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 $4.3 million.
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.
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 $6.3million figure mentioned above. That single retry would result in $2.1million 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 the US, many stay-at-home orders came into effect between the 22nd March and 12 April, while in the UK, a countrywide lockdown began on the 23rd March.
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.
The payment success index 2020
We analyzed 55,000 payments to bring you the most comprehensive insights on payment failure rates. Download the report and see how your brand compares.
*Enterprise businesses are defined as having annual revenue of over £250million (~$325million).