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Navigating the World of Recurring Payments in 2024: Interview with Melanie Stout

In the dynamic world of recurring payments, each day brings new developments, challenges, and opportunities for subscription businesses! In this fast-paced industry, staying ahead of the curve is essential, especially when facing the biggest challenges of 2024. To gain a deeper understanding of these challenges and uncover actionable insights, we sat down with Melanie Stout, Head of Recurring Payment Strategy at Optimized Payments. 

 

Question: What is your name, title at Optimized Payments, and brief description of what you do? 

Melanie: “I’m Melanie Stout. I’m the Head of Recurring Payment Strategy at Optimized Payments. My team has worked with hundreds of merchants in the recurring space, and our main goal is to help prevent involuntary churn due to payments failures.  

We focus on improving authorizations and capture rates for our clients. We also evaluate our merchants’ tech stacks to make sure that every tool and tactic they implement is optimally engaged, so that they can improve their performance.” 

 

Question: Can you give us a brief introduction/overview of your journey in the payments industry? 

Melanie: “I graduated from college with a dual degree in Art History and International Relations. Paul Larsen (founder of Paul Larsen Consulting) hired me in the late ‘90s to work at a merchant called Synapse Group. At the time, we were one of the largest transactors of credit card processing in the U.S., and the primary focus of our payments division was to ensure that we never lost a subscriber due to payment failure. We also managed, mitigated, and reduced chargebacks. We worked closely with all our payments vendors and with the card networks to try and implement strategies and tools that would enable subscription merchants to succeed in their payments journey.  

From there, I went to WebMD, where I worked in direct-to-consumer marketing, but also built out a few different direct-to-consumer subscription businesses while there, which were responsible for everything from initial marketing and advertising all the way through to the operational aspects of the product, including the payments platform, pricing, and testing offers. Then, I dabbled in a bunch of other things. I was in IT healthcare analytics and head of global brand management. I eventually came back to recurring payments about eleven years ago in 2012 and have been doing that ever since.” 

 

Question: What is your favorite aspect of working with clients at a payment analytics and consulting company like Optimized Payments? 

Melanie: “What I love about working with our clients is that every day is different and unique. There’s always a different experience, a different challenge. While most clients have the same sort of framework, everyone wants to ensure that their payments are being captured at the optimal rate and they’re not losing subscribers. The specifics of each client are different. It (the client’s situation) could be based on the type of consumer they’re going after. Or maybe they launched a new offer on Facebook, for example, and they’re getting a different demographic in; that can change the whole payments flow.  

But in understanding each one of our client’s businesses, we engage with our merchants as if we are part of their team. We act like an extension of their payments team, or even become one, depending on their size and whether they have one in-house. Additionally, we get to work in many industries such as insurance, telco, streaming, consumer packaged goods, fitness, wellness, clinical, and more! There are a lot of different verticals we touch upon. Because of that diversity, we really get to learn in depth about what affects how each client does business.” 

 

Question: What are the top challenges that subscription companies are facing this year when it comes to managing recurring payments effectively? 

Melanie: “Effectively, the top challenges are always the same. Churn and fraud. Those two challenges are closely tied. When there are higher levels of fraud, there are also higher instances of false declines. Issuers then become more weary of approving transactions. Therefore, ensuring that the entire payments ecosystem can achieve reduction in fraud is very beneficial for all merchants who deal in card-not-present payments. 

 But what we’re also seeing now is a continuing trend from 2023: the increase in insufficient funds. More and more consumers are going into debt, extreme debt. As a result, credit cards are defaulting at a higher rate. The rate of bad debt now is higher than it has ever been in the history of credit cards in America. Because of this level of consumer debt, subscription merchants are really struggling with how to retain customers.” 

 

Question: With the rise of subscription fatigue among consumers, how can companies ensure customer retention and reduce churn rates in their subscription models? 

Melanie: “Subscription fatigue is a term that’s being thrown out quite a lot, but I’m not so sure if it’s necessarily reality. Now, one thing we do see that can give credence to subscription fatigue as a concept is that there is a proliferation of particularly over-the-top streaming services. At first, consumers were subscribing to everything as new services came out. Then, at some point, particularly in a down economy, subscribers start to see that they’re spending too much; perhaps they realize they don’t need to have every single streaming service and can do without some of the networks. They will then hone in and pick just a couple of services that they will use, cancelling the rest.  

We have also seen a lot of offer-hopping as of late. For example: depending on your telco provider, you might get free Netflix for six months, or free Disney+ for a year. Many consumers take advantage of that offer temporarily, and then switch to a different offer to avoid fees. That’s really a driver in what has caused the perception of subscription fatigue in the recuring industry – artificially inflating the number of consumers that were taking advantage of subscription offers. So, we do still see a lot of hopping in streaming services. Another example: if you want to watch a key sporting event, but the only way to do it is to subscribe to Amazon or Peacock, you’ll see many people signing up before the event, and then cancelling right after because they only subscribed to watch that particular event. 

Despite this perception of subscription fatigue, we’re seeing an uptick in many different types of subscriptions, particularly replenishment. Many businesses are now offering “Subscribe and Save” for products. Consumers are taking advantage of this because they’re able to get a discount for subscribing to a service. Consumers can save 15% or 20% by telling their subscription company, ‘Yes, go ahead and automatically ship me the shampoo next month, I know I’ll need it.’ This model is really driving an increase in subscriber behavior.  

However, one of the key elements that merchants will need to implement to really optimize that model and keep their subscribers on, both from an involuntary and voluntary churn perspective, is allowing flexibility in the subscriptions – particularly, in the frequency and the pricing. For example, when I subscribe to vitamins, they may tell me I’ll get my replenishment in 30 days. But I have flexibility to say, ‘No, I want it in 45 days or 60 days.’ I can go in at any point and change the frequency. Allowing consumers to have that flexibility is really a critical piece of success for merchants offering “Subscribe and Save.” 

 

Question: In your opinion, what emerging trends or innovations in the payments industry are likely to impact subscription companies the most in the near future, and how should businesses prepare for these changes? 

Melanie: “One of the biggest trends that are impacting subscription companies now are certain new payment instrument technologies. While wonderful for consumers, these are detrimental for a lot of subscription merchants. Many technologies are coming out that meet unbanked and underbanked consumers where they are by providing payment instruments like Cash App, Chime, and apps that you can load cash into. Consumers can load their paycheck into these instruments, but they’re not really credit cards, and they’re not funded on a regular basis.  

The convenience of these tools is great for a lot of consumers, but they’re also a double-edged sword for a merchant who is accepting them because they don’t really know when, or if, payment will be successful on that payment instrument. So that is proving to be quite challenging. It’s one of the biggest struggles that a lot of our clients are facing right now.  

The hardest-hit businesses in this group would be any merchant who offers a free trial or a low-intro trial. This is because we are seeing certain consumers, or gamers, using non-reloadable, prepaid, or single-use virtual cards specifically to game those types of offers. So that is becoming a much bigger challenge as well – that type of gaming fraud.” 

 

Question: Can you discuss the importance of optimizing the subscription billing experience? 

Melanie: “When a consumer’s payment fails, they tend to take it personally. They may feel offended, insulted, or confused, and that has a very negative impact on the perception of your brand. So, whether the payment failure is the network’s fault, or the issuer’s fault, or the consumer’s fault – or no one’s fault; If a payment fails, the merchant brand, where the consumer was attempting to transact, will be the one that gets hit with the negative cloud. Consumer sentiments such as ‘You insulted me by canceling my card’, or ‘You declined my card’ can be very damaging with enough frequency.  

So, by preventing card failures and reducing friction, you’re improving the overall customer experience and preventing them from leaving you and taking their business to a competitor. Anything you can do to mitigate false declines and prevent payment failures will have a huge benefit to your overall brand and will continue to boost your reputation.” 

 

Question: What specific features/capabilities of Optimized Payments’ solutions do you find are most beneficial for subscription companies, and how do these features address the pain points they face in managing recurring payments? 

Melanie: “Our Harmonize analytics are critical for our consultants to be able to help our customers, but also critical for our clients themselves to be able to self-diagnose and dig deep into managing their payments. To be effective in payments management, you must have rich, deep, robust data. What we have found over time is that processors tend to give snapshots of data, which can be great, but they don’t necessarily have complete dashboards built out that show trends over time and get into the nitty-gritty.  

And so, we have built – after decades of experience being a merchant ourselves – our Harmonize analytics platform. Harmonize knows exactly what data to look at and dig into so that merchants can see quickly and easily across all their payment providers, this is particularly useful for anyone who has a multiprocessor strategy. Clients can see their overall performance, drill deep into their data, identify areas for alarm or improvement, and recognize metrics where they’re doing great!  

And then we layer on top of that our Strategize consulting services. We have experts and data scientists on hand who are constantly looking at the data on behalf of our clients. We’re deeply involved in the workspace, working with all our clients to understand what value is out there, and staying ahead of all the tools and processes that are available for merchants to help them improve their processes.” 

 

Question: How do you see Optimized Payments’ services evolving to meet the changing needs and demands of subscription companies in the coming years? 

Melanie: “I see our team at Optimized Payments continuing to build out our Harmonize analytics in the coming years, making it even more robust. We’re looking at bringing in additional data sources – so top-of-the-funnel, where we’re looking at and focusing on the consumers themselves and their behaviors. We’re also potentially bringing in some fraud analytics. A lot of different areas within the big picture that can help inform the payments piece or our services are some of the key areas we are improving.  

We also have already invested and have beta products in artificial intelligence. So, we have those products being built in an incubator, and we’ll be rolling out some new analytics accordingly that will empower our merchants to target their retry strategy or their recovery logic to a much greater degree.  

We’re also looking at continued growth by hiring experts in the payments space to come on board as consultants, with product managers as well. We continue to expand our knowledge, our reach, and work on taking in more data from every source possible.” 

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