How edtech companies can recover subscription decline, optimize growth

Amid the woes of the pandemic era, many online learning platforms and educational technology (edtech) companies saw a boom in new learners and subscription growth. And for online bootcamp and on-demand style learning platforms, that growth has continued.

However, some study help services and massive open online course (MOOC) providers have experienced a decline in subscribers as students have returned to in-person learning. And many of their subscriptions are shared between students, causing revenue loss and reducing new sign-ups.

Further, edtech companies that use a subscription business model face high chargeback rates from friendly fraud disputes. To minimize risks and optimize their revenue growth potential, these companies need to understand the fraud risks most prevalent on learning platforms and evaluate opportunities to expand services and offerings.

Understand the top 4 fraud risks for online learning platforms

From account security to criminal fraud, online learning platforms and edtech companies face expensive fraud issues that lead to revenue loss and hinder growth from new sign-ups. To recuperate losses, these companies need to address the industry’s common fraud risks.

1. Account sharing causes revenue loss, reduces new sign-ups
Account sharing is a common issue with online streaming fraud, so it’s no surprise that learners often share their online learning platform accounts with friends, family, and colleagues. This practice seems harmless to the consumer, normal even.

However, this practice can be detrimental to businesses that rely on subscriptions for revenue growth. For example, say an edtech company charges a $20 monthly subscription for access to its online courses. If a group of five friends shares one account, that business misses out on $80 of monthly revenue. Over time, that can add up.

But say hundreds of people are sharing accounts with their friends and family. That revenue loss could be thousands of dollars per month.

2. Account takeover attacks allow fraudsters to sell cheaper subscriptions online
Account security is a huge risk to any business that enables subscribers to create an account where they can store payment information. Like with online gaming fraud, fraudsters go after online learning platform accounts for resale.

Typically, fraudsters acquire account credentials through a data breach or purchasing them and programming bots to test them. From there, they can break into accounts to steal payment information or sell the entire account online.

This practice can reflect poorly on the business, making it appear they lack proper account security. It can also hurt revenue if account holders dispute unwanted subscription charges with their banks. Meanwhile, fraudsters pocket the revenue.

3. Friendly fraud results in high chargebacks
Since many edtech companies offer subscriptions, they’re at high risk of subscription billing fraud. Essentially, learners commit intentional or accidental friendly fraud by disputing charges for the learning platform subscription.

In most cases, learners forget they signed up for the service or don’t recognize the subscription re-bills on their statements. But sometimes learners sign up and don’t want to pay for the service, so they try to dispute the charges to get the service for free.

Unfortunately, these disputes can lead to high chargeback rates. And if businesses exceed fraud and chargeback thresholds, credit card companies will place them in a Mastercard or Visa monitoring program, which can cost hundreds of thousands of dollars.

4. Criminal fraud can increase payment authorization costs
In addition to friendly fraud chargebacks, edtech companies see rising chargeback rates from criminal fraud, wherein bad actors use stolen credit cards to sign up for subscription services. Once the cardholder sees the unauthorized charges on their credit card statement, they file a dispute with their bank.

This type of chargeback fraud can also increase payment authorization costs. And combined with chargeback fees, it can become expensive quickly. Businesses have to manually review chargeback disputes, which takes time away from helping legitimate learners.

And if fraudsters are creating multiple accounts, it looks like the business is gaining new customers. But if those new signups result in chargebacks, the business winds up wasting money to acquire new customers.

Explore new services and offerings to increase revenue growth

While some MOOC providers have seen a continuation of growth in student enrollments, others have noticed a significant decline. Some students are entering the workforce instead of continuing their online education or are returning to in-person classroom learning. As a result, many edtech companies need to reevaluate their offerings.

1. Evaluate current offerings against consumer demand
Some online course platforms and study help services may offer services limited to particular fields of study. They also may lack a variety of offerings, such as workplace learning courses and language study.

Providers would be wise to start evaluating their offerings now that student enrollments are waning. A couple popular learning platforms have started expanding into other areas of the education market to provide additional study help tools and service tools that give learners a more personalized experience and keep them engaged with the platforms.

2. Evaluate current subscription models for areas of improvement
Most online learning platforms and services use a subscription payment model to bill students for services. Typically, students pay a monthly subscription fee to access the platform’s educational tools and materials.

With subscription growth declining, now is the time for providers to evaluate what services their subscriptions should offer and if the subscription models they have are reaching the right audiences. It may also be time to provide additional services to long-time subscribers.

One textbook provider recently launched an app offering all its titles to US students for a monthly subscription fee. In one semester, the subscription fees will likely be less or equivalent to the cost of one textbook, saving students hundreds of dollars.

Mitigate fraud risks on online learning platforms, improve revenue

Edtech companies face various challenges that impact revenue growth. Fortunately, Kount’s online learning and education solutions prevent chargebacks, stop revenue loss, and more.

In 2021 alone, despite having a very aggressive ruleset, one edtech company received over 11,000 chargebacks with fraudulent reason codes. They had an average decline rate of 20.39%, which caused a lot of friction for their customers.

Many of the fraudulent transactions came from automatically generated email addresses with various locations connecting the digital persona with a bank and IP address. Fraudsters were creating tons of fake accounts and hiding their true location and bank information.

After implementing Kount’s chargeback protection solution, the company could set policies to flag this pattern of suspicious behavior and decline the orders automatically. As a result, the company reduced their chargeback rate by 39%.

Similarly, another edtech company experienced a number of friendly fraud disputes and implemented Kount’s Dispute and Chargeback Management solution. Since implementing the solution, this company has deflected over 6,000 disputes.

Additionally, from October 2020 to September 2021, the company was able to reduce their chargeback rate by 71.8%. Today, their rolling six-month average chargeback rate is 83% less than their chargeback rate in October 2020.