What It Is & Why It Matters
Many of us can remember our introduction to the power of compound interest at a young age. Maybe it was a grade school math teacher narrating the rice and chessboard fable or an early financial literacy course scaring you into saving for retirement by quoting Einstein: “Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn't pays it.”
Today, another powerful concept that businesses the world over look to understand and harness is recurring revenue (sometimes referred to as “sticky” revenue). Companies that earn and grow it get rewarded with capital and high valuations. The concept, like compound interest, is simple: revenue that is highly likely to repeat at intervals in the future. Examples include subscription streaming services, your dog’s quarterly veterinary prescriptions, or your daily Keurig cups and razors that you reorder online. In fact, you may have noticed how all sorts of businesses, from landscapers to the non-profit organizations you support, try to guide you away from single transactions toward subscription contracts or recurring donations. They are turning one-time revenue into recurring revenue.
The engine that drives recurring revenue across the economy is credential-on-file capability. This is when you store your card information with your Amazon or Netflix account or provide any merchant or software platform with payment information that they keep on hand. It makes shopping experiences hassle-free with one-click purchase or allows payment to take place without you ever having to worry about it (hello, subscription diaper services). A 2019 Mastercard report cited card-updater services leading to a 30% increase in customer retention for Netflix. It is a clear win-win for merchants and customers alike.
This model depends on keeping payment information up to date and that is why we at VGS are excited to introduce Account Updater functionality to our suite of Payment Optimization features. If a card expires or is lost and is subsequently reissued, Account Updater (referred to as Card Refresher with American Express) allows VGS to update card information automatically in partnership with the card networks and issuing banks. While many Payment Service Providers (PSPs) may have some level of functionality here, VGS does it better for two main reasons:
- A Single Call to the Card Networks is all it takes for VGS to update card information across your entire payments ecosystem. Relying on a single PSP to reach out to the networks is expensive and only updates card information within their purview. We take that up a level to save you time and money with a single update anywhere card-on-file information exists.
- Pull & Push Updates mean VGS can both make calls to the networks to request updated card information and proactively push updates from the networks to your payments partners. Just like keeping card-on-file information fresh with merchants and customers, this means a seamless and easy update experience for you and your customers. Push updates mean proactive notification to merchants when an update is available - likely making pull updates obsolete in the long term.
The reality is that when customers see a declined transaction due to stale payment information, they may abandon an entire shopping cart, discontinue service, or just indefinitely put off the trouble of typing out 16 new digits, a CVV, expiration date, zip code. That means damaged customer confidence, lower sales, and losing the magic of recurring revenue.
A Mastercard case study cited card updater services leading to increased approval rates for card-on-file transactions at 2.5%. Who would say no to a revenue increase of 2.5%? Hopefully not you, dear reader.