We recently analyzed the global payment success data from over 55,000 GoCardless customers, to better understand payment failure rates and recovery rates across all kinds of businesses that collect recurring payments.
The global report is available here, but we also looked at the data from our North American customer base to see how this region compares to the global outlook. This regional spotlight sheds a light on five of the most compelling insights from the North American market:
1. North American businesses have an average failure rate of 4.1%
The global payment failure rate for Q1 2020 was 2.9%, whereas in North America the payment failure rate for the same period was slightly higher at 4.1%*.
This means approximately one in every 20 payments that a North American business attempts to collect will fail.
2. payments with a single retry.
A business in North America that does not retry payments can expect to see a failure rate of 2.9%. However, when a business makes a maximum of one retry attempt per failed payment, it can expect to see a payment failure rate drop to just 1.6%. This represents a 44% drop in failure rates due to a simple payment retry.
[If you’re wondering why the failure rate for zero retries is lower than the overall North American payment failure rate of 4.1%, it’s because a small number of businesses retry payments three or more times, yet still have high overall failure rates.]
While there is no silver bullet for reducing payment failure rates, payment retries are a reliable way to start payments that would otherwise go uncollected.
3. ACH bank debit payments compare favorably to other payment methods.
GoCardless payments are all collected using bank debit (often referred to as ACH bank debit in the US). Other common payment methods for collecting recurring payments include credit card, bank transfer, and digital wallets.
In an external survey of 100 US businesses,* those collecting primarily with digital wallets have the highest failure rates (10.7%). When a business collects primarily using credit cards, they can expect to see 8.9% of payments failing
This is comparable with global failure rates across other payment methods. In every market, businesses primarily collecting with digital wallets had the highest average failure rates.
With the prevalence of credit cards in North America, it’s interesting that payments collected using GoCardless have much lower failure rates by comparison.
4. North American mid-market / enterprise businesses stand to lose almost $203,000 per year in uncollected payments.
When comparing businesses by their size,*** mid-market / enterprise businesses have a failure rate of 4.4%, compared to 3.3% for small businesses.
And the large payment volumes in a typical North American mid-market and enterprise businesses mean uncollected revenue quickly adds up. A typical business in this category will lose approximately $203,000 every year in uncollected revenue.
This all proves that businesses need to optimize payment experiences much earlier in their growth curve than is currently happening.
5. Payments between $250 and $500 are most likely to fail
In the global payment success index, there is a clear difference between the failure rates of low and high-value payments, with payments above $250 most likely to fail. However, in North America there is less correlation between payment amounts and failure rates.
Payments between $250-500 are most likely to fail, 5.7% of the time, while $50-100 payments are least likely to fail (2%).
Despite the lack of correlation in the North American market, the high failure rates for payments over $250 mean tailored approach to each failure is still warranted. A more automated approach to recovering failed payments may be a more appropriate strategy for smaller value payments.
Calculate your business’ failure rate
Your payment failure rate is calculated as:
Number of uncollected payments ÷ Total number of attempted collections = Payment failure rate [%]
How does your brand’s payment failure rate compare to the North American benchmark? And how much of your annual revenue remains uncollected as a result?
Chasing failed payments involves awkward conversations, which damage relationships with customers. And eventually, uncollected payments become bad debt you’ll never collect on. Payment failures also lead to involuntary churn, where an otherwise happy customer can’t make a payment.
As you can see, optimizing your payment experience has benefits for your brand and your customers. It’s never too early in your company’s journey to put in place a payment process you can rely on.
*GoCardless North American customers that have yet to be fully classified have been removed from the analysis, as they heavily skew the payment failure rate data.
**The external survey of 100 merchants only included businesses based in the USA.
***Small businesses are those with up to £10 million in annual revenue. Mid-market businesses are those with £10-250 million in annual revenue. Enterprise businesses are those with £250 million or more annual revenue.