This TechCrunch piece speaks to a funding round for a San Francisco-based 2020 startup fintech named Butter. Butter provides software for subscription, membership, and e-commerce companies to eliminate “accidental churn” in payments, which they estimate costs companies $443 billion in lost revenues each year. So these are situations where payments are dropped due to an error in the message or some local rule in cross-border payments situations.
‘In his subsequent roles at Dropbox and Scribd, Menon realized the problem of accidental payment churn was not exclusive to Microsoft. It was a challenge that plagued all B2B subscription and SaaS businesses… “Every subscription company deals with this black hole,” he said… Payment failure, in fact, is the among the biggest causes of customer churn and represents nearly half of all subscription churn. Even more alarming, Menon came to understand, the companies weren’t even aware of what was happening… False declines are estimated to be a $443 billion problem by the end of this year, according to Cardinal Commerce), resulting in millions of lost subscribers…
The accidental churn is often not just due to problems with renewals, where people get frustrated by failed attempts to charge their credit card, for example. It is also largely a problem at the sign-up process, especially in countries outside the U.S., where charges are often falsely declined due to being attempted in another country. To Menon, it was a massive market severely underserved by traditional payment service providers such as Stripe who are strong domestically, but in his view, were poor at clearing international payments in growing markets like Brazil, India and Mexico. Menon estimates that on average, 4% of subscription customers are lost monthly to legitimate payments failing.’
Given the early success of this relatively new venture, it seems that there is an active demand for this type of service. If the previously stated failed payments value is anywhere near accurate, this is a double whammy, since it costs money to get these customers in the first place, especially B2B versions. To waste that acquisition investment on often unknown revenue leakage is a tough blow to cash health, something that is front and center in times of supply chain woes and inflationary pressures.
‘The San Francisco-based startup has raised $7 million, largely from Atomic, to tackle the problem. In a year’s time, it has also signed on about a dozen consumer subscription companies, including some large names (which he declined to reveal publicly), doing $10 million to $500 million in revenue — many of which have an international user base. It claims that it helps these companies find, on average, $1 million of revenue per year…
Its revenue-sharing model is designed to align incentives with those of its customers. It charges a percentage of what it saves for its customers. For example, Menon estimates that a $100 million ARR company would be able to see $1 to $4 million in ARR lift which is a lot, and a $500 million ARR company, around $2.5 to $5 million… An economy increasingly reliant on subscription models places new challenges on existing payment systems that are typically out of date, complicated, vary by country and constantly changing based on new fraud rules, according to Menon.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group