Give Me Some Credit

August 5th, 2008 Chris Posted in Financial | No Comments »

Every few months, a few buddies and I head off to a city for a couple days of good food, drink and (no comments please) shopping. This time, we were off to Montreal – just a couple of hours down the road. If you’ve never been – it’s a fantastic city with some of the best food and most fun nightlife in North America.

One of the logistical challenges of such an outing is figuring out who owes what. We have long given up trying to “split” the bill every time we have a drink or something to eat. At 1am when the bar bill comes, it’s simply too complicated for us to haul out our credit cards and calculate the split. And it’s cruel and unusual punishment to ask the bartender/waitress/waiter to do it.

So we have a system, we all randomly pay for things throughout the weekend and keep our receipts. Taxi’s don’t count but hotels, meals and drinks do. We make sure we use credit cards so we have a record of our expense.

At the end, we simply assemble our credit card receipts and figure out who owes what. In the past, it’s just been a big spreadsheet that we enter data into although recently we found a really cool tool. OK, my friend Eric (the MacGyver of high tech – remember the iPhone?) found a really cool tool that does all the heavy lifting for you. Everyone just enters your expenses at expensure.com.

Of course, none of this would be possible if it weren’t for the credit card. Cash is just too complicated and too easy to lose track of. And of course, you don’t get travel points for cash.

Credit cards are, likewise, critical for our business too. It is what really makes continuity programs (aka subscription services aka membership programs) possible. A small monthly charge each month to participate in Colleen’s sales coaching program is convenient for the client and convenient for…not so fast!

Credit cards, while a key enabling technology because they are convenient for the client, are a huge pain in the butt. There are many reasons for me to make sure a bold statement:

• Pain to set up as a merchant – especially if you are not an American company yet have half you business in the U.S. You need a PhD in payment systems to sort it all out. More on that some other time…
• Pain to manage – with the advent of PCI regulations from the credit card companies, data security has reached new heights and it makes it very difficult to manage. Want to know what credit card number you have on file? I give up – cause I can’t tell… More on that later too.
• The one that really has got me frustrated is the ongoing management required to deal with declined and expired credit cards. It is expensive and time consuming. Allow me to elaborate…

We use a the typical collection of shopping cart, merchant account and payment gateway – nothing too exotic. Clients who sign up for Colleen’s sales coaching program pay a very reasonable fee each month via credit card. At the time of enrolment, we check the credit card for validity and off we go. Each month a very reasonable membership fee (surely an under-priced and amazing value!) is charged.

And that’s where all the problems begin. I am amazed at the number of declined and expired credit cards we get. No exaggeration – every month 5% of cards we have on file bounce. Every month!

For every problem card, we start calling. And calling. And calling. Everyone’s busy and returning a call about a declined or expired credit card just isn’t at the top of anyone’s radar. My guess is that for those that eventually we do speak with, it takes an average of five calls to get a hold of them. That is a lot of time and effort.

We’ve actually have begun to automate some of the processing of these declined transactions:

• If it’s declined, we try a client’s card another four times, waiting three days in between. The rationale being that sometimes people max out their credit cards and need a bit of time to pay them off.
• With each decline, our system automatically sends the client a note asking that they contact us with updated card information. The notes get a bit more insistent each time.
• After the third decline, we start calling three times a week.
• After a month, we don’t have any choice but to stop their membership.

For expired cards, we actually start sending notes every week starting four week prior to their card’s expiry, along with phone calls starting a week before it expires.

We’re also trying to figure out a self-serve card update capability but with the PCI security requirements, it’s quite painful as we can’t access customer credit card information in our own system!

All in all – a major pain. But what are you going to do? As I’ve often said, business would be much simpler if we could somehow get rid of the customer…very simple.

C.