Why Payment Leakage Is a Problem—And How to Stop It

Here’s why lost revenue from broken payments, once seen as a cost of doing business, are now a strategic priority.

Many chief financial officers assume failed payments are an unavoidable cost of doing business. In reality, a significant portion of that lost revenue comes from customers who want to stay and are pushed out by preventable friction.

CFOs, it’s your responsibility to ensure payment systems are accurate, operationally aligned, and ready for long-term growth and success. That’s why it’s crucial to see payment leakage for what it is: a strategic priority—not a simple backend, technical issue.

When neglected, payment leakage quietly erodes retention, distorts performance metrics, and limits long-term growth. Discover what you can bring to the table by tackling payment leakage with a collaborative, big-picture approach.

Though payment leakage has only emerged as a critical, top-of-mind issue relatively recently, it’s always been a silent threat for subscription and usage-based businesses; they were just unaware of it. Payment leakage was simply undetectable until technology caught up. With the right machine learning and large data sets in place, businesses can now uncover previously hidden revenue lost to failed payments, data gaps, and involuntary churn.

According to Boston Consulting Group, 45% of surveyed leaders describe payment leakage as an occasional problem for their business or as an ever-present issue. Yet awareness alone doesn’t change the outcome. CFOs need to understand payment leakage to minimize it as much as possible, optimize customer-retention spending, and gain an outsized advantage over companies that still treat leakage as a technical issue.

Safeguards

Offering convenient payment options is essential for any business, but there must be due diligence before a payment type is rolled out. For example, if you accept prepaid cards for your subscriptions without any caveats, it’s only a matter of time before payment leakage will set in.

In fact, we recommend that subscription brands avoid prepaid cards altogether, as by design they inevitably fail, leading to subscriber churn. However, if a large segment of your customers prefers or relies on prepaid cards, you must implement safeguards to improve forecasting, attract and retain customers, and increase your revenue.

Industry benchmarks show that approximately 15% of payment transactions fail. That failure doesn’t always mean lost intent. This is where predictive analytics becomes essential. Instead of waiting for payments to decline, businesses can use historical transaction data and customer behavior to identify subscriptions at high risk of failure—then intervene early with card update prompts, alternative payment options, or tailored outreach.

Predicting problems before they happen shifts recovery from a reactive process to a proactive growth strategy.

Businesses should design experiences around customer preferences and recovery success. The user experience (UX) should include clear, actionable error messages and thoughtfully timed follow-up communication across channels, such as SMS, voice, or email.

The more a company understands the root causes of payment leakage—expired cards, insufficient funds, outdated information, or higher failure rates on certain payment types—the better it can reduce the risk of churn. Tracking key metrics, such as total churn rate, failed payment rate, recovery rate, time to recovery, and revenue recovery, provides a clear operational view of retention performance.

Beyond Failed Payments

Taking a siloed approach can also leave your business in a vulnerable position. Payment leakage is rarely owned by a single team, and that’s part of the problem. It’s essential for Finance, Product, Marketing, and Customer Operations to know when customers leave and to understand the reasons for their exits.

Here are some common questions you’ll face: Did the customer love the product, but their payments suddenly stopped working? Did they achieve all they sought from using the product? Was the marketing or positioning misaligned—leading them to realize it wasn’t a great fit after signing up and taking it for a spin? Is the product faulty, confusing, or missing a key need?

Thankfully, as CFO, you’re in a unique position to bring all of these teams together. Once you have shared visibility across multiple teams and full oversight, you can make sure the right department is aware of the problem.

CFOs are trained to focus on costs, but costs alone don’t tell the whole story. For example, let’s say it costs you 3% to accept credit cards and 1.5% to accept debit cards. But then you look at your data and see credit card payments have been successful 100% of the time and debit cards have been successful 80% of the time. That “savings” on fees may be quietly costing you 20% of your profit margin.

Costs don’t reveal whether different payment methods lead to different behaviors and different lifetime value (LTV). Most companies and CFOs aren’t looking at LTV by payment type—and that’s a missed opportunity. When you use a product that helps you predict and detect payment leakage, you can increase your LTV per payment type by 5% to 10%, resulting in a material ARR lift.

This transforms the issue of payment leakage from preventing revenue loss to increasing top-line revenue. It’s worlds away from simply predicting costs.

With deeper insights and visibility across teams, CFOs can turn lost revenue into a strategic advantage. Smaller firms gain cash flow and stability, while larger firms strengthen retention and LTV. Payment leakage is no longer just an operational concern. It’s a financial priority hiding in plain sight.

—Charles Rosenblatt is chief executive at Butter Payments