How Loop Crypto automates dunning flows to ensure successful payments
TL;DR: SaaS businesses are missing out on $500B in lost revenue due to issues related to processing payments. A good dunning process can reduce this lost revenue and is important for merchants that want to grow their revenue with stablecoin and crypto payments. Loop offers all the tools needed to ensure merchants get paid on time and retain their customers.
Introduction
As we talk to merchants, both those unfamiliar with crypto and those deeply embedded in the ecosystem looking to add a stablecoin and crypto payment option, we regularly answer questions about how the dunning process works for stablecoin and crypto payments. As a new and fast-growing payment method, merchants are looking to understand how stablecoin and crypto payments can fit into their existing flows.
So we’re all on the same page, "dunning" is the process of methodically communicating with customers to ensure the collection of accounts receivable. An effective dunning process can help reduce involuntary churn by sending reminders and escalating the follow-up process. Every Software-as-a-Service (SaaS) business with a recurring payment model knows the challenges of dealing with ongoing payments. Acquiring customers is hard, so once you have a customer onboard it’s essential to keep that customer - regardless of how they choose to pay.
A good dunning process combines automation with personalization to recover revenue while maintaining positive customer relationships. The good thing for merchants is there is a lot of low-hanging fruit when it comes to reducing churn. According to one source, anywhere from 20-40% of all churn is involuntary, meaning the customer intended to keep using your product, but the payment method failed so the customer canceled rather than continuing their subscription. This could be due to an old credit card on file, issues with an ACH pull from a bank account, or in the case of stablecoin and crypto, a low wallet balance. The best payment providers are proactive in trying to address these potential issues and offer capabilities that attempt to address and resolve payment issues both before and after they occur.
In this article, we look at how the dunning process is handled for the 500 million stablecoins and crypto holders in 155 countries and explain how Loop offers automated dunning flows to address this challenge of “involuntary churn.”
What is a dunning flow?
Unless you’re a nerdy payments professional, you’ve probably never heard the term “dunning flow” before. Dunning flows are automated processes used by subscription-based businesses to reduce churn related to payment issues. These issues could be due to issues like credit card expiration, insufficient funds, fraud or insufficient credit-related declines, or incorrect payment information. These flows typically involve a series of communications and actions aimed at recovering lost revenue and retaining customers. In the context of subscription payments, dunning flows can begin with a pre-authorization before the payment, and then continue when a payment fails.
A typical dunning flow might go as follows:
Pre-authorization on the payment method - To detect any issues with the payment method
Depending on your provider, this step may only occur on the first payment or when there has been a history of payment issues
Notification - Alert customers that a payment is about to be processed and raise any potential issues with steps to resolve. This may happen once or multiple times
Automated retry schedule - Strategic retry attempts (typically 3-5 attempts over 1-2 weeks) with gradually increasing urgency
Auto-cancellation - After pre-defined attempts to collect have been exhausted, the customer is automatically canceled and the payment is marked “uncollectable.”
The communication channel may vary based on your customer base, but it can include multi-channel communication like email, SMS, in-app notifications, and phone calls.
For example, a SaaS company might send an initial email notifying the customer of an expired credit card, then follow up with reminders every few days, offering options to update payment information or providing alternative payment methods. Some dunning systems also incorporate automatic retries of failed transactions.
The term "dunning flow" originates from the 17th-century English verb "dun," which means "to demand payment of a debt." Of course, back in the day, dunning tactics were a tad more aggressive than a series of emails. Nonetheless, this process of addressing missed payments is a critical need for digital businesses today. Globally, businesses are losing $500B in revenue due to involuntary churn. That’s a massive missed revenue opportunity!
Loop’s automated dunning flows
Loop is a stablecoin and crypto payment processor. At Loop, we help merchants like Helius, Neynar, and Privy accept millions in stablecoin and crypto payments. Our belief is that stablecoin and crypto payments should fit into existing systems, not require entirely new ones. That’s why Loop integrates directly into existing billing systems like Stripe, Chargebee, Quickbooks, and OpenPay and has APIs for customized billing solutions.
Loop’s APIs provide billing systems with all the tools they need to manage a stablecoin and crypto dunning process, from endpoints to retrieve pre-authorization status to widgets to add new customer payment methods and help resolve payment issues. Additionally, Loop offers out-of-the-box dunning solutions, including emails and automated cancellations.
Crypto autopay and stored payment methods
At Loop, we deeply understand the challenges of managing recurring payments. We designed Loop specifically to abstract away the complexities of stablecoin and crypto recurring payments and ensure that businesses can offer crypto autopay to their users. For those unfamiliar, other solutions, like Coinbase Commerce, only offer a series of one-time payments, forcing your customers to return to your site and manually pay month after month. When you dig into the benefits of autopay, the numbers are staggering. Merchants see a 15% increase in customer retention when enabling autopay and a delinquency rate of 6% compared to 17% for manual payments.
Loop’s technology allows customers to save a payment method on file that can be auto-deducted month after month (or at whatever frequency you choose for your subscription). As an aside, Loop’s ability to store payment methods yields benefits for merchants with repeat customers as it allows for a more seamless checkout experience for these loyal customers.
With autopay enabled, Loop takes a proactive approach to ensure a customer’s payment method (wallet) has a sufficient balance and adequate authorization (spending limit) for a successful payment. In fact, this functionality saves merchants fees compared to credit cards as there are no chargebacks and no payment declines. Loop will proactively see if a payment will be successful before it occurs, checking every few minutes, and only charging a customer’s payment method when a payment will be successful.
With this visibility, we are able to take a multistage approach to addressing potential payment issues before they occur. Loop provides this visibility through our APIs and acts on this information with our out-of-the-box dunning process. This functionality is important for payment processors and subscription management platforms that integrate Loop via API to enable stablecoin and crypto payments within their systems that may already have dunning flows built out. Loop can be used alongside any pre-existing dunning flows the platform may already have deployed as well.
Here is what our out-of-the-box dunning process looks like. You can use this to build your own process on top of our APIs or simply turn on our process.
Notification cadence
First, we send an Upcoming Payment email approximately a week before the payment is due. In this email, we let the customer know the date of their next payment, amount, item(s) purchased, and then flag if there is an issue with the upcoming payment. We provide immediate solutions for the customer, including directing them to our Customer Portal where they can increase their authorization and notifying them if they need to add more funds to their wallet.
Next, 48 hours before a payment is due, we check again to make sure the payment will be successful. If it still has issues, we send a Potential Missed Payment email, notifying the customer again of their upcoming payment as well as steps to resolve the issue. We will do this again 24 hours before, sending our final Potential Missed Payment email if there is still an issue.
If a payment is unfortunately missed, 5 minutes following that missed payment, we will send a Missed Payment email letting the customer know they missed their payment and their subscription may be canceled. Merchants can configure the number of days they would like to give the customer to resolve the payment issue before the customer is automatically canceled. To learn more about our notifications, please refer to our documentation.
Payment retries
One other major advantage of crypto is that we check the payment method’s status every few minutes and only process the payment when we know the payment will succeed. This is in stark contrast to traditional payment companies that attempt retrying at regular intervals, usually at most daily, without visibility into the potential success or failure of the underlying payment method.
This can become costly for merchants if they are charged per retry, and it can potentially hurt a merchant’s standing with payment processors. With our system at Loop, we only retry and initiate an on-chain transaction when we see a sufficient balance and authorization. We also retry immediately, so if we see the balance has now been topped up, we will go ahead and retry within a matter of minutes. There is no waiting for fixed retry periods that could be spread across several days.
To complement all of this dunning automation, Loop offers merchants a dashboard where they can monitor a customer's payment method status. Additionally, we have a series of webhook notifications that merchants can listen to in order to hear about late payments and upcoming cancelations. You can learn more about our webhooks in our documentation.
Conclusion
When it comes to managing upcoming payments, we have highlighted how important it is to have a dunning flow strategy, especially as you consider adding a new payment method. Crypto and stablecoin payments have unique characteristics that improve the success of the dunning process and allow merchants to grow their revenue. Unlike credit or debit cards, there are no chargebacks with crypto and stablecoin payments. This removes many of the challenges of dealing with disputed payments. In addition, the on-chain visibility means that we can be proactive in identifying and rectifying potential payment issues before they occur. This eliminates the guesswork of whether or not a card or bank payment will succeed. Tackling involuntary churn offers a massive opportunity to reclaim missed revenue from clients who want to pay. With Loop’s proactive dunning flows with built-in automation, we give teams the tools they need to collect recurring crypto payments.
If you are a merchant looking to add stablecoins and recurring crypto payments or a payment processor exploring integrating crypto as a payment option, let’s talk. Loop makes it easy to implement crypto payments and helps merchants grow revenue from a global customer base.
FAQ
What is a dunning strategy?
Building an effective dunning strategy involves automating payment retries, optimizing communication with personalized reminders, and offering flexible payment options. Streamline payment updates to make it easy for customers to correct expired or incorrect information. If necessary, escalate accounts to trained collections agents. Regularly review analytics to refine your strategy and ensure compliance with data privacy laws. This approach helps recover failed transactions while maintaining positive customer relationships.
What is the difference between dunning and bill collection?
Dunning is a proactive, preventative process that focuses on recovering payments before they become seriously delinquent. It typically involves sending automated reminders to customers about upcoming or slightly overdue payments. The goal is to encourage prompt payment by using a series of escalating communications and offering various payment options to make it easier for customers to pay. This approach aims to resolve payment issues early and maintain positive customer relationships.
Bill collection, on the other hand, is a more aggressive process that occurs after payments have become significantly overdue. It involves pursuing seriously delinquent accounts, often 90 days or more past due, using third-party collection agencies or internal collection departments. Bill collection employs more forceful tactics to recover the debt and may potentially damage customer relationships in the pursuit of payment. The key difference between dunning and bill collection is that dunning aims to prevent accounts from becoming seriously delinquent, while bill collection deals with accounts that are already in a state of significant delinquency.
How do you manage recurring payments in crypto?
It is important to select a crypto payment processor that has built automated dunning flows. These dunning flows include things like automated payment reminders, late payment notices, and retries. Loop Crypto’s platform offers this automated suite of features to ensure you collect crypto payments with the highest possible success rate.
