In mid-2022, I became the design lead for a new product team dedicated solely to customer retention. Ladder had traditionally prioritized customer acquisition over retention for various reasons, but mainly because it was more important to secure customers than to ensure they didn't switch to a competitor or cancel their policy after purchase. Recent data trends, however, indicated that we needed to start focusing more on retention, prompting leadership to spin up a new team.
Our team focused on several areas, one of which was reducing customer lapse. By examining our data and gathering qualitative insights from our customer support team, we found that payment failure was a major contributor to customer lapse. Put simply, users who miss a payment—whether their first or a subsequent recurring payment—will lose their coverage after purchasing a policy.
We decided to prioritize addressing payment failure first, as it was the most straightforward issue to tackle, yet still had a meaningful impact. Our goal was to prevent customers from missing their first payment.
We looked at the data to gain a better understanding of the opportunity and impact of reducing first payment failure (FPF). We found that approximately 2.5% of all new customers who purchase a policy fail to make their first payment. Of that cohort, only 38% manage to resolve the issue. Although 2.5% may seem small, it accumulates to a significant number of policies that are ultimately cancelled.
Drilling into the data further helped us to understand how users fail their first payment. Users can pay for their policy with either a credit card or by connecting their ACH bank account. All FPF occur for users who connect their ACH account, as they often don't have enough funds in their account to cover the first month's premium.
To solve for FPF, we decided to design a system that can both prevent a FPF from occurring in the first place and intervene when it does happen.
The first payment occurs right after a user accepts their policy. The user journey will typically look like this:
To avoid a FPF, we decided to run a balance check on a user's ACH account when they connect through Plaid. If the balance check reveals that the user does not have enough funds to cover the first month's premium, we would notify them and give them the option to pay with an alternative payment method.
