How Master English reduced its chargeback rate by 55% in two months by partnering with Paddle

The company

Master English Ltd believes there’s a better way to learn a language. Leveraging AI, Master English optimizes the pace of learning and tailor exercises for individual customers. The app uses AI to recognize mistakes made by a user and give feedback, allowing lessons to be fully customized to the user’s needs.

The challenge

Master English Ltd is based in Finland and as the team was preparing to launch Master English, it recognized that there would be significant tax and compliance issues to consider when selling internationally.

“We were a small team and really focused on making our products the best they could be, so we wanted to spend as little time as possible on administrative tasks.” Lauri Leinonen, Chief Marketing Officer, Master English

This is where the value of Paddle was immediately appealing.

With Paddle now taking care of Master English’s complete payments stack, this single source of revenue truth uncovered an issue with chargebacks.

A chargeback is when a consumer disputes a transaction with their bank and has the funds returned to their account. They typically occur when the customer believes a transaction was fraudulent, unauthorized, or unsatisfactory, but – as in Master English’s case – they can also be the result of failing to provide certain communications with customers, such as pre-billing notes, receipts, and information on the published refund policy.

Chargebacks can be a significant burden for businesses as they result in financial losses (having to repay an amount plus a chargeback fee), are time-consuming, and can increase the risk of fraud.

“We had really focused our efforts on product development, we hadn’t made it a priority to monitor our chargebacks manually. We had doubled our retention over the past year and had an average rating on the Apple App Store of 4.9 out of 5. Based on our 10+ years of experience in different markets, we didn’t consider there might be an issue around chargebacks, so we were very surprised when Paddle brought this to our attention.”

The solution

With help from Paddle’s risk team, Master English began work to rectify the situation.

“We took a data-driven approach to unpick where the issue was coming from. First, we did a lot of manual data analysis to understand the specific customer segment that the chargebacks were coming from.”

Master English looked at certain regions those customers were from, their subscription product, and when they started their subscription to see if there were any common denominators.

“One of our hypotheses was to do with our short session times. The app would sign users out if they were inactive for more than 14 days. We believed this increased the chargeback risk, especially if the user had forgotten their password.”

To address the issue with chargebacks, Master English:

• Extended the app session length from 14 to 90 days.
• Increased pre-billing notifications to four days and two days before the payment came out.
• Updated statement descriptors to be more clear so that the transaction was recognizable to the customer.

On top of this, Master English sent out a series of emails to all active subscribers in the problematic segments.

“First, we sent an email from one of our customer support associates to ask customers if they needed any help with their program or subscription. Then, we sent information about our refund policy, reminding customers that we are here to offer them a great service, but, if they are not happy, we will refund them within 30 days of a transaction.”

The results

• In just two months, Master English reduced its chargeback rate to a very healthy 0.53% from 1.12%.
• Chargebacks from its most problematic segment (US Visa customers) were reduced by 55%.
• The chargeback count for all customers came down by 54%.

While the actions taken led to an initial rise in the number of refund requests, Lauri believes it was a positive for the business overall.

“This process actually cleaned up our subscription base and made it healthier. It means we are less likely to get chargebacks in the future.”

Data also revealed that chargebacks were more likely to occur with an annual renewal or any renewal where the period was longer than one month. By moving towards selling only monthly subscriptions in some segments, Lauri expects to reduce the number of chargebacks even further.

“By selling monthly subscriptions only, we get the same or even better return on advertising spend (ROAS) than with our previous model. It will take at least a year for the test cohort to accumulate enough data to be sure. What’s more, the chargeback rate is significantly lower. As a result, we are now pushing over 90% of our new customers in the USA to a monthly subscription option.”

Final words

Lauri believes more attention should be given to the issue of chargebacks and is keen to continue raising awareness of it with similar businesses.

“When scale-ups go to the international market they are not thinking about chargebacks. It’s not a priority for founders and tech leaders, who are focused on their team, product, and growth, to monitor it properly.

But if they begin selling subscriptions, especially with annual renewals, they might not know there’s a problem until a year in. It’s time chargebacks are spoken about more freely. Monitoring them should be a part of any company’s performance marketing activity."

Paddle has a single-minded goal: maximizing our customers' revenue by taking care of the operational and financial obstacles. Find out more about partnering with Paddle and why SaaS businesses are switching to Paddle.