Credit Card Churn Crimps Cash Flow At Netflix

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Yesterday Netflix released its latest quarterly sales results and growth in the United States was lower than forecast.  Netflix blames the slower growth on credit card churn. 
   “Our over-forecast in the US for Q3 was due to slightly higher-than-expected involuntary churn (inability to collect), which we believe was driven in part by the ongoing transition to chip-based credit and debit cards.”   -Source: Netflix Letter to Shareholders Q3 
    Credit card churn is increasingly a problem for vendors who primarily take credit cards as payment for service contracts, subscriptions and other non-swiped transactions – especially those vendors who have automatically recurring charges.  Netflix may be the first major company to publicly admit it.  
   Over a hundred million credit cards have been stolen in the last couple years and as those cards are updated with new numbers, new expiration dates, new CVV codes – the old ones become unusable to vendors.   Then comes the time consuming and frustrating process of trying to get cardholders to log in and update those subscriptions.  
  After one of my credit cards got stolen earlier this year, I wasted hours logging into sites and trying to update my data.  Most of that time was spent trying to remember what my user ID and password might have been –  two, three or five years ago.   Of course, I re-evaluated my spending while doing that – and at least half of my subscriptions I let fall by the wayside.   
   What has been a very stable business model for an incalculable number of merchants for decades – from my local newspaper to giant enterprises like Netflix – now is becoming much less stable.    Many of us live in “set it and forget it” mode.   We make a decision and then leave it alone.  When a particular credit card is stolen, we are then faced with  analyzing the purchase decision all over again.  Often, we decide to let that subscription lapse and not spend the money.   (Except of course when some mega-sized company gets a credit card processor to try to slap that old unpaid subscription charge on a new credit card number.  I call it “dead card charging”.  It’s bad behavior on the part of the credit card industry and needs to stop.)
   I used to worry about the Internet going down for a few weeks and knocking ten or twenty points off our GDP for a quarter or two.   ATMs being off-line, etc.   It hasn’t happened.  I’m probably not going to stop worrying about it, but I am beginning to think that a lapse in consumer enthusiasm for credit cards could be a reality.  I know I’m fed up.  
    When credit cards are stolen, the entire experience makes cardholders nervous – and this may be the biggest problem of all.
I probably worry too much – but, at the same time, I have lost confidence in the credit card system. game of thrones  I changed all my credit cards in the last year, and I’m using them much less than I did a year ago.    If there’s one more major hacking that compromises one of my cards,  I’ll probably switch to ApplePay almost exclusively, and cancel three out of my four credit cards.  I am tired of the aggravation and I don’t feel assured the card issuers and processors have things under control.  More government oversight and guidance could be very helpful for the next few years.
Putting on my vendor hat, as a merchant,  the current credit card model I’ve used is disintegrating before my eyes. I will switch to doing more ACH charges and taking more company checks.  Probably more Paypal transactions as well, since it’s less paperwork for me to set up a subscription, and if the credit card needs to be updated, well, I don’t have to reach out to the client for the number and then key it into Quickbooks as a recurring transaction – the client can just update the Paypal account without me.  (Full disclosure – Paypal went public recently and I bought some Paypal stock.)
    While as a consumer and merchant I’m certainly caught up in the mess, I doubt the world is going to end.  One thing I’m going to increase, is my use of Netflix!  It’s an incredible value.   I’m busy watching season 3 of OITNB (Orange Is the New Black).  I need to get caught up with House of Cards too,  but I’m sure I will, because it’s going to be a long winter until either Game of Thrones comes back, or my confidence in the credit card system returns.

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