January 5, 2011 | Authored by: Vindicia Team
Payment Ecosystem Myths – Part 3
Happy New Year! Last month we posted Parts 1 and 2 of the Payment Ecosystem Myths series in which we highlighted topics ranging from being the “Merchant of Record” to the customer buying experience.
We have a few more myths to slay in this latest installment…
“There is no way to keep my chargeback rate below the 1% limit imposed by Visa” – This is a myth from companies that have a naturally high chargeback rate, such as gaming and dating, and that haven’t been able to control their chargeback rates in the past. This is simply not true and is a symptom that the company has limited resources and an incomplete knowledge of the possibilities afforded today by technology. As a reference point, we consistently help our clients stay under 1%.
“I don’t have a chargeback problem, our rate is at 0.2%” – On the flip side, many merchants have taken the opposite approach and dedicated resources to eliminating chargebacks altogether. This approach is also flawed for digital goods merchants. For a company with a cost of goods sold that is nearly zero, it makes no sense to turn potentially good customers away — the “false positive” problem of unwittingly turning away customers who could generate significant long-term value. The cost of turning a good customer away — their lifetime value — often far outweighs the cost of a chargeback.
“Customers don’t like _____________ (virtual goods, virtual currency, automatically recurring subscriptions).” – Companies regularly make decisions about their business models and customer experience based on incomplete knowledge or stories gleaned from bad past experiences. As many have advocated, testing is the best way to find what really works for your community. The examples given in the title are encountered often and deserve special mention.
- Virtual Goods / Virtual Currency – Virtual goods are a proven method to engage and monetize communities and the market is estimated to be worth several billion dollars, and virtual currency is the best method to date of enabling virtual goods purchases. Virtual currencies are ideal for many digital businesses and should be considered as an option for online monetization.
- Automatically Recurring Subscriptions – In the same vein, many companies are afraid to offer subscriptions. Subscriptions come with their own set of complications (managing them requires additional thought and solutions), but they are the best method for monetizing digital goods and content that is available. Subscriptions work very well standalone, or in conjunction with a virtual goods business and create a fantastic and predictable revenue stream. Some companies are timid about making their subscriptions renew automatically, but the most common feedback from customers is that they are thankful to not bear the burden of managing their payment.
This list, spread over three posts, spreads some of the knowledge we’ve learned while helping digital goods merchants become successful. We’re always happy to chat with you further about these or other issues — just let us know if you have something else that you’ve always wondered about digital goods or payments.
Which billing platform is right for B2C subscriptions?Download