A guide on how to immediately reduce the amount of failed payments in your membership
Failed payments are an absolute headache for membership operators. There’s no feeling like watching your hard-earned revenue drop due to an unsuccessful credit card payment.
Below I’m going to give you a simple and effective way to immediately reduce the failed payments inside your membership.
The Statistics:
- Up to 30% of a membership’s total churn can be attributed to failed payments alone.
- Once a failed payment occurs, there’s only a 3% chance it will be recovered before the membership lapses.
🚀 The Action Plan:
Your Stripe settings will significantly influence your failed payment risk. Use the guide below to minimize this risk and reduce the amount of failed payments in your program.
📘 Table of Contents
Failed Payments: The Background
The rate of failed payments within membership is increasing. Payments fail for a host of reasons, however, with skyrocketing fraudulent activity across the online landscape during 2023, credit card issuers are tightening their controls.
Your Merchant Category Code (MCC) Matters
MCC codes simply classify the goods and services offered by a business. When a Stripe account is opened, this code is assigned (often arbitrarily) based on info provided during the Stripe setup process.
Considering online fraudulent activity, it’s not surprising that MCC codes for business categories such as “digital goods, blogs, online gaming” communicate substantial risk to the card issuer, as those categories are laced with fraud.
So naturally, during times (like the present) of tightened controls at the card issuer level, customers with vague/questionable MCC codes attached to their business will see the most instances of failed payments.
Therefore, it’s crucial that you set an MCC code that’s not only low-risk but in alignment with your business.
Below, I’ll show you how.
Determining Your MCC Code
You must be strategic when classifying your business in Stripe. The goal here is to choose a category that’s the least-associated with fraudulent activity while also aligning to your business.
🚫 CATEGORIES TO AVOID AT ALL COSTS are:
- Entertainment and recreation
- Travel and Lodging
- Transportation
- Food and Drink
- Digital products, if possible. (If this classification cannot be avoided, ensure one provides the specific type of digital product being provided)
- Clothing and Accessories
- Regulated and Age-Restricted Products
✅ Categories TO USE (these are associated with lower instances of fraud)
Note: Be sure to all select the proper subcategory for the categories below.
- Professional Services
- Membership Organizations
- Education
Setting Your MCC Code in Stripe
Once logged in, navigate to Settings > Business Settings > Business Details
- Click the Edit Icon.
- Enter business details along with Product Description. Ensure Product Description aligns with chosen industry and clearly states that charges are recurring (if applicable).
- Save and Exit
The Takeaway
Failed payment risk cannot be eliminated, but it can be dealt with. Your MCC code is Stripe is your first line of defense against the occurrence of failed payments. Ensuring this code aligns with your business and falls within low-risk business categories will ensure that you minimize failed payment risk within your membership.
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