Acquiring new customers is expensive, anywhere from five to 25 times more expensive than retaining an existing one. This stands to reason that keeping an existing customer happy costs less in time, budget and resource than landing a new customer. Therefore, maximizing customer retention and minimizing attrition and churn is critical.
It’s especially important in the video gaming industry. In recent years, video gaming companies’ business models have shifted from one-time purchases, to a model powered by recurring revenue. Mobile games drove this trend initially with the ‘freemium’ model. The free to download mobile game Monster Strike is a prime example. The game has surpassed over $7.2 billion in gross revenue worldwide since its launch. And in 2015, it reportedly generated over $4 million per day in revenue.
This business model has since moved into other areas of the industry — and is sometimes referred to as ‘Gaming-as-a-Service' due to it's similarity to SaaS payments. The Ultimate Team mode in the FIFA and Madden franchises — which offers gamers the opportunity to purchase ‘coins’ and ‘packs’ to improve their squads — generates nearly $1.5 billion in yearly revenue for EA Sports.
This shift towards a business model built around recurring revenue will continue. According to research from Juniper, video game subscriptions are set to grow at an average rate of 9% per year for the next three years. And to capture this growth opportunity, video gaming merchants will look to optimize their interactions with players, which of course includes payments.
Here are three ways that video gaming merchants can use their payment strategy to help drive long term customer loyalty:
When video gaming merchants are working to optimize their recurring and subscription payment processing, they often come up against the Goldilocks problem. Friction in the payment process must not be too much or too little, but just the right amount.
Too much friction — where the checkout process requires too much effort for customers to complete their purchase — negativity impacts conversion rates. For example, gamers may quit the checkout process if it's too long or complicated by poorly implemented strong customer authentication requirements. This results in more lapsed subscriptions and lost revenue.
Too little friction — where customers can complete their purchase with very little or no authentication — typically leads to more fraud. This includes so-called 'friendly' fraud when a legitimate customer denies participating in a transaction, third-party fraud via stolen credentials, account takeover and so on.
Checkout conversion rate = the percentage of customers that convert from a potential customer into an actual customer when visiting your checkout page.
Payment acceptance rate = the percentage of transactions accepted by issuers.
Enabling card-on-file payments is one way to reduce payment friction. Customers authorize the use of stored payment details for subsequent in-game or recurring subscriptions. Having a customer’s card on file also opens up the possibility for merchants to offer ‘one-click’ payments where appropriate should players wish to quickly make additional in-game purchases. From what we see at Checkout.com, card-on-file payments have an 8% higher authorization rate on average compared to non-card-on-file payments.
"Over the past two years, we've focussed on optimizing our payment performance. We've made big improvements, but we know we can go even further. We're aiming to generate hundreds of thousands of Euros in revenue by continuing to optimize Ankama's payment conversion and acceptance rates in 2021."
Johan Meurin, Chief Financial Officer, Ankama
A good gaming payments gateway can offer implementation advice to best fit your business model and processes. This includes the latest strong customer authentication requirements now effective in Europe around cardholder-initiated transactions (CIT) and merchant-initiated transactions (MIT).
Merchants can also optimize payment acceptance by monitoring card expiration dates to avoid unnecessary declines. Your PSP may be able to help by offering an account updater service. This automatically updates card details before the billing date, if cards are expired, lost, stolen or upgraded.
Good retry logic can help avoid interrupting player engagement. Issuers need to trust your retry logic and a good PSP can typically offer best practices and guidance. Too many retries and you could see higher declines and even incur fines from the schemes.
Payment retry best practice
Multiple factors impact the success of retries. These include, but not limited to:
The timing of the payment
The product or service being purchased
The value of the purchase
Generally, you should look to retry a payment between two to five times — this is considered best practice across most industries. You must also be careful not to request more than 15 retries per card, as this behavior can incur fines from Visa and Mastercard.
Creating a good impression starts as soon as players engage with your platform and it's reinforced at every touchpoint. When it comes to the registration process, we suggest ensuring that it’s easy and integrated into the gaming experience.
Knowing your customer demographic is critical. Who's playing? And how do they want to pay? Gaming has broad appeal — including many players under 18 and those without bank accounts. Unlike more traditional eCommerce retailers, who may only need to offer a few, traditional payment methods to successfully convert sales, video gaming operators must offer more ways to pay that suit their player demographics and location.
Younger customers tend to prefer and trust alternative payment methods. These are local, often non-card, payments — everything from PayPal and Venmo in the US to cash-based options, such as Boleto and OXXO in South America.
"Your payment method offering is a great marketing and business development driver. Allowing gamers to choose from a wide range of payment methods is a powerful way to attract and convert gamers while reducing churn."
Lucie Pica, Payment Manager, Ankama
Research the ways your customers and prospects want to pay. Assess the coverage of different payment methods by customer segment, being mindful that preferences may vary by geography. The last thing video game operators want is to turn customers away because they cannot accept their payment.
A good payments partner will offer various local payment methods through a single integration and should be able to advise the merchant which payment types to offer based on customer demographics and geography, helping to reduce complexities for the merchant.
Payments may fail for unavoidable reasons, such as the customer having insufficient funds available. However, customers getting unnecessarily declined is the worst possible outcome. This can occur when merchants set their risk parameters too tight. We advise and help gaming merchants perform the balancing act of ensuring good customers are able to make payments and fraudsters get turned away.
"At Ankama, we have a strong focus on providing our gamers with the best possible experience. And payments are a crucial part of that. The payment experience is at the heart of our 2021 strategy."
Johan Meurin, Chief Financial Officer, Ankama
A certain amount of 'proactive churn’ — where customers make an active choice to cancel their subscription — is always expected. But avoiding 'technical churn’ — when a recurring payment fails or the customer is not charged and the subscription lapses — is critical. Understanding which payment paths are getting the best approval rates for each type of transaction and intelligently routing payments to maximize approvals can make a big impact. This can be achieved by leveraging a smart routing solution and cross-provider monitoring tools.
A global full-stack payments partner can help optimize the authorization messaging to increase acceptance with issuers. They should also be able to provide granular data for each transaction at every stage of its journey. It's not just about capturing the data but also integrating and displaying it in a useful way. A good PSP makes it easy to view, manage and plug payment data into other parts of your business so that you can get the most out of every financial engagement.