One of the most common, and understandable, questions we receive is "how many cards can I expect to be updated if I utilize the Account Updater service?"
We've written this blog post with data captured during the beta and public period of offering the service to help you with some broad parameters.
Firstly, a refresher. Spreedly's Account Updater is a service whereby we submit the credit cards in your vault to their respective card brands. If the card has changed, then we receive back new credit card details and update the card in your vault. Changes typically result from cards expiring, accounts closing, or lost and stolen cards getting replaced. Today, the service is North America focused, with some issuing banks participating out of the UK; there is talk that eventually Visa in particular will expand to cover much of Europe. We submit all the cards in your vault twice per month, but you only pay a fee for those cards that are actually changed.
That's important to remember. You don't really worry about the size of your vault when it comes to economics; you just want to make certain that the retention benefit of an updated credit card compensates for your expense. How does Account Updater fit into your business? The number of impacted cards in your vault depends on what type of business you have, and whether it's a first time run or ongoing maintenance of your vault. There are 3 main factors:
Are you a recurring/subscription based business? Are you an e-commerce repeat/additional sale based business? What is the mix of North American/UK users amongst your overall customer base?
These businesses tend to have the "cleanest" vaults. That's because you're typically trying to charge a credit card every month, so you know the status of the card quite regularly. In a way, there's a manual, end user driven account updater process happening.
This reduces the number of cards you're likely to see impacted by using the account updater service. That means this type of customer usually sees the smallest initial cost when running Account Updater for the first time.
In this model you store the customer's credit card to make any future repeat or additional purchase easier, thus removing a friction point and driving up conversion. This can vary a lot by business and user, but typically these cards are not used each month. This means that when we first run Account Updater on your vault, we're going to be submitting cards that have been stored for an extended period of time. This increases the success rate of impacted cards as a percentage of your overall vault.
Given that Spreedly's Account Updater only covers Visa, Mastercard, and Discover cards in North America and parts of the UK, the number of credit cards updated initially, and on an ongoing basis, will be dependent upon the mix of users you have in those regions.
Merchant Type First Time Run Ongoing Monthly Rate Repeat E-commerce (US/UK based) 15 - 20% 4 - 5% Recurring/Subscription (US/UK based) 12 - 15% 3 - 5%
Again, repeat e-commerce most likely has slightly higher run rates due to the timing of our vault updates vs. the timing of the subscription renewal runs by our customers. One can safely assume that for our repeat e-commerce cards, many cards are added during the month and are not transacted against again. In the subscription model, some percentage of the cards added will fail a renewal test and get updated before they get a chance to get passed to AU.
We are seeing initial run percentages as low as 3% and 4% and ongoing monthly at 0.5% to 1% for customers. But based on the fees for Account Updater, the economics still work here: You're only charged for cards that are modified in some way.
There are two ways to think about ROI as it relates to Spreedly's Account Updater:
Firstly, the number of "saved" transactions. Each business is different, but your rough formula should be: (Number of updated cards) x (Average ticket size per card per charge/subscription) From that, you have to apply your internal formula based on what you know about your service and its stickiness today. Ie. when cards fail, what percentage of your customers abandon your shopping cart or let their subscription expire vs. what percentage re-enter their credit card? If 75% of customers are manually reentering their card data upon failure, then you would take the above amount and multiply it by 0.25 to get the total amount of revenue you can truly retain.
The second area to think about is reduced support costs. What does it look like for you when a card fails? This is especially pertinent to subscription and recurring businesses, but can also apply to e-commerce apps too. At one end of the scale, you have one or more full time employees in a customer service role whose job it is to chase down existing, or soon to expire, credit cards on file. At the other end of the scale, you can track tickets in your support application to see how many your team handles each month around a failing payment method and updating it.
For example, if your average support ticket cost on a failed payment method is determined internally to be $30, and an updated card via Account Updater is a fraction of that price, then each successfully updated credit card saves you $30 in a support ticket chasing down that customer/subscriber.
For Spreedly customers, that first run of the Account Updater vault can feel costly, especially if you're an e-commerce application with a large, long-term vault in place. Yet once you get past the initial run, you can expect to settle into an ongoing rate of 3 - 6% of your monthly vault. Even if your rate is much lower than that, it still makes sense to join because there is no fixed cost and you only pay for updated payment methods.
Whether it's cost effective to you as a business will depend on what you believe the overall stickiness of your service is, and how much you value the cost of supporting customers when their payment methods fail.