Butter Raises $ 7 Million to End ‘Accidental’ Customer Unsubscribe Due to Payment Failure – TechCrunch

Vijay Menon, a statistician by training, began his career at Microsoft.

It was there that he realized that there were an incredible number of subscriptions that could not be renewed or even executed to start due to payment issues. He became intrigued by the problem, and solve it. In the end, in 2016 alone, he helped the company win over 10 million Xbox Live subscriptions, which brought in over $ 100 million in revenue.

In his later roles at Dropbox and Scribd, Menon realized that the problem of accidental payment attrition was not unique to Microsoft. It was a challenge that plagued all B2B and SaaS subscription companies.

“Every subscription company is dealing with this black hole,” he said.

Payment failure, in fact, is one of the leading causes of customer churns and accounts for almost half of all churns. More alarmingly, Menon realized that the companies weren’t even aware of what was going on.

False declines are expected to be a problem of $ 443 billion by the end of this year, according to Cardinal Commerce), resulting in the loss of millions of subscribers.

Accidental attrition is often not just due to renewal issues, where people get frustrated with failed attempts to charge their credit cards, for example. This is also largely an issue during the registration process, especially in countries outside of the United States, where charges are often falsely denied due to an attempt in another country. For Menon, this was a huge market severely underserved by traditional payment service providers such as Stripe, which are strong nationally but in his opinion were poor at clearing international payments in emerging markets. growth like Brazil, India and Mexico. Menon estimates that on average 4% of subscribed customers are lost each month due to failed legitimate payments.

Consumers outside of the United States can click Submit for a given transaction, but if they use a card form configured for the United States, they can be rejected and “no one really checks what happens after checkout. user ”. said Meno.

Thus, in 2020, he joined forces with the Atomic venture studio to found Butter, a startup aimed at helping businesses retain existing customers and recruit new ones by preventing this accidental payment churn. Using machine learning, Butter aims to end churn by preventing loss of legitimate payments.

“We are focusing on two issues that can affect any subscription activity, namely ‘how can I verify a payment in advance and make sure the payment is made?”, Menon told TechCrunch. “The other part is, what do we do when a payment fails? “

The San Francisco-based startup has raised $ 7 million, largely from Atomic, to tackle the problem. In a year, he also signed a dozen mainstream subscription companies, including big names (which he refused to reveal publicly), making between $ 10 million and $ 500 million in revenue, many of which have a base of business. ‘international users. It claims to help these companies generate, on average, $ 1 million in revenue per year.

Its revenue sharing model is designed to align incentives with those of its customers. He charges a percentage of what he saves for his customers. For example, Menon estimates that a $ 100 million ARR company would be able to see $ 1-4 million of ARR increase, which is a lot, and a $ 500 million ARR company, about 2.5. to $ 5 million.

An economy increasingly dependent on subscription models poses new challenges to existing payment systems that are typically outdated, complicated, vary by country and constantly change based on new fraud rules, according to Menon.

“Even big companies like Netflix and Spotify that have invested significant internal resources – payment engineering teams – into this problem, are struggling because the payments landscape changes so frequently,” Menon told TechCrunch. “Butter’s payments intelligence platform was designed to explore obscure payment networks to find what is wrong. “

Image credits: Butter

Butter plans to use his new capital to do “top-of-the-funnel optimization,” according to Menon. When a consumer checks out, there are around 128 different pieces of data that can be presented with each payload, he said.

“We are investing in the capacities that will be able to make decisions [around those elements] in real time so that those people entering through the funnel have a much higher probability that this payment will be made, ”he added.

In the long term, he said, the company aims to create an AWS, or operating system, for payments.

“Were trying to build a connective tissue for the entire payments ecosystem. We’re above what we call payment service providers, so we’re not Stripe, we’re not Braintree, we’re sitting above them, ”Menon explained. “We want to work with any business, regardless of your payment stack. “

He also plans, of course, to do more hires. Recently, Bill hoppin joins the company as co-founder and COO. Butter plans to have around 50 employees by the end of the first quarter of 2022.

Jack Abraham, CEO and Managing Partner of Atomic, described Menon as an “exceptional” founder with unique first-hand experience within the payment systems of some of the world’s largest consumer subscription companies.

“We co-founded Butter with Vijay and the team to solve some of the most critical conversion and churn issues facing any business, big or small, and a short time in the company is an incredible start,” he said. he wrote via e-mail.

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Elaine R. Knight