Involuntary churn: everything you need to know

Andy Tweddle, Payments writer
5 Sep 2022
Phone UI showing a recurring payment screen

Customer churn is the rate at which your customers stop buying your services or your subscribers cancel their subscription. It’s a key metric for SaaS, ecommerce and financial services brands that rely on recurring revenue, and high churn can slow down or entirely wipe out growth, even when you’re consistently acquiring new customers.

There are several reasons for customer churn. Most of these are caused by customer dissatisfaction. But involuntary churn is too often overlooked, and it results in the loss of customers who are actually satisfied with your brand. They are simply unable to make payments to your business.

This article defines involuntary churn, explains how it differs from other kinds of churn, as well as practical solutions for reducing your involuntary churn rate.

What exactly is involuntary churn?

Involuntary churn is simply what happens when your customer or subscriber loses access to your services, but they didn’t voluntarily choose to end the relationship with your brand. They lose access because they were unable to make a payment to keep their service active. This type of churn can lead to happy customers — even advocates of your brand — no longer being customers, so it’s potentially a very costly problem.

And while those customers might have been perfectly happy with your product or service, there’s no guarantee they will return to your brand after their subscription lapses. While there are tactics to win customers and subscribers back who have churned involuntarily, it’s best to stop it happening altogether.

Involuntary churn accounts for about 20% to 40% of all churn, so it’s a major problem if left unchecked.

What’s the difference between voluntary and involuntary churn?

Voluntary churn is where your customer chooses to end their relationship with your business, be it by cancelling their subscription or simply by choosing not to buy from you anymore. There are many reasons for voluntary churn, but they all boil down to some kind of dissatisfaction with your service. Indicators that a customer may churn voluntarily include low NPS scores, complaints to customer service, and poor online reviews.

Involuntary churn, on the other hand, doesn’t necessarily mean the customer is dissatisfied. They could leave good reviews and NPS scores, but when their payment fails, their access to your service is soon revoked — sometimes immediately.

What causes involuntary churn?

At the core of involuntary churn are failed payments. Payments fail for various reasons, so it’s important to look at why a payment failed and the customer churned:

Lost, stolen and expired card payment details

Approximately 5-14% of card payments fail, and a common reason for that is down to expired card details. If a card is lost or stolen, and the owner cancels the card, those details will no longer work. And cards typically expire after three years, meaning if you’re collecting recurring payments from a repeat purchaser or subscriber, the card details they have supplied will eventually stop working.

Lack of funds

Sometimes, a lack of funds is unavoidable due to a customer’s circumstances, but other times it’s simply a matter of timing. The average person in the UK has 2.8 bank accounts, and people regularly use different accounts for different reasons. If you try to collect a payment near the end of the month, for example, your customer may not have moved money across from the account they collect their monthly salary, and the payment will fail.

Strong customer authentication issues

Strong customer authentication (SCA) is an important fraud prevention process designed to ensure a customer is the rightful owner of a card and/or bank account. While SCA helps reduce card-not-present fraud, it can sometimes cause legitimate payments to fail. For card payments, 3DS2 was built to improve the SCA experience, but as many as 22% of payments fail when authenticated using 3DS2.

How do you calculate involuntary churn?

Involuntary churn is calculated in the same way as overall churn rates. Take the number of customers that involuntarily churned in a specific time period (we’ll use a month in this example), and the total number of customers at the beginning of that period:

(Number of customers who involuntarily churned in a given month / total customers at the start of the month) x 100 = customer churn rate

So, if your subscription service has 1,000 customers at the beginning of August and 20 customers churn due to payment failure throughout August. Therefore, the calculation looks like this:

(20 / 1,000) x 100 = 2%

If the company lost 50 subscribers to all types of churn, the overall churn rate would be 5%. You, therefore, also know that 2 out of 5 — or 40% — of all your churn is involuntary.

Ways to reduce involuntary churn and increase customer retention

There are two ways to reduce involuntary churn. One way is to prevent payments from failing before churn happens. The other is to rectify a failed payment and reinstate your customer’s access to your service. Specific ways to reduce the likelihood of involuntary churn include:

Offer alternative payment methods

As referenced, card payments fail up to 14% of the time. And while they're a popular payment method, including for recurring payment use cases, there are many other options. Direct debit is a popular alternative for subscription payments, with lower failure rates than cards, but they also take up to five days for a payment to settle. Open banking payments — often referred to as instant bank transfers — also have low failure rates, baked in SCA and seamless UX — are growing in popularity. In the UK, there are now 6 million active open banking users.

Use card account updaters

As card expiration is one of the most common reasons for failed payments, some card issuers offer account updaters. These updaters are designed to automatically update the customer’s card details when one card expires and they are issued a new one.

Send in-app or email reminders

If your customer needs to update expired or incorrect details, and you have not been able to update them using card account updaters, then it’s time to reach out to them directly. If your service or subscription is delivered via an app, in-app messages are a good way to reach out to that customer. Alternatively, a friendly reminder email could work.

Retry the payment

If a payment fails due to lack of funds or over-zealous fraud protection, the solution can be as straightforward as retrying the payment a few days after the initial attempt. Payment service providers (PSPs) like Stripe have ‘smart retry’ functionality, which uses machine learning to retry the payment at the optimal time.

Remember, even if a payment does fail, don’t remove your customer’s access to their service or subscription immediately. Doing so could accelerate the involuntary churn, as it could prompt them to search for an alternative from one of your competitors.

Can TrueLayer help prevent involuntary churn?

Instant bank payments, powered by TrueLayer, are built on open banking technology. One open banking application programming interface (API) that banks in the UK are required to build is called variable recurring payments (VRPs).

VRPs allow businesses to ‘sweep’ payments, transferring money between two accounts belonging to the same customer. And, crucially, many banks are choosing to go beyond this requirement and allow businesses to take VRP from their customers for utility bills, subscriptions and more.

Along with real-time settlement, lower transaction costs than cards and the elimination of chargebacks, VRPs also reduce churn. VRP doesn’t require re-authentication or re-authorisation, and since payment consent is tied to a bank account, it doesn’t expire until it’s revoked by you or the user.

TrueLayer is the first organisation to deliver VRP for both non-sweeping and sweeping use cases through a single application programming interface (API).

Find out more about VRP, part of our all-in-one Payments API.

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