Netflix is blaming its lower-than-expected US subscriber growth to changes to Americans’ credit cards.
In a letter to shareholders, the company said its over-optimisitic estimates for its third-quarter results were “driven in part by the ongoing transition to chip-based credit and debit cards.” In other words, the company is claiming that the number of US subscribers to Netflix didn’t meet what the company had expected for the third quarter in part because, well, fewer people than expected paid up.
“I read this Netflix quote and I scratched my head and thought, ‘What?'” says Ken Oros, a senior associate at The Strawhecker Group, which focuses on the electronics payments industry.
I read this Netflix quote and I scratched my head and thought, 'What?' Ken Oros, The Strawhecker Group
In the past few months, credit card issuers have been transitioning from cards without chips to ones with them, known as EMV technology, to help curtail credit card fraud, which you may have noticed. Card users have been receiving these new cards in the mail as banks rushed to meet the October 1 deadline. Since then, new liability rules have taken effect that now hold merchants who don’t switch over to the new technology liable for credit card fraud.
To industry experts watching the country’s shift to EMV, Netflix’s statement is somewhat surprising. After all, while brick-and-mortar businesses have had to update their processing systems to account for the new cards, the way we pay at digital businesses remains pretty much unchanged.
“It sounds like a bunch of customers received new cards at once and their old cards on file were inactive,” says Forrester analyst Sucharita Mupuru-Kodali. “Most people may not even realize all the things they need to change for autobilling and they forget until the next time they use Netflix.”
Regular users, however, would likely soon realize if they weren’t able to sign into their accounts because they hadn’t paid their bill or if their cards were no longer active. “I can’t imagine it’s meaningful and, even if it is sizable for one quarter, I’m sure people will realize soon enough,” she says. “Anyone who churns out probably wasn’t using the service much in the first place.”
The statement is especially perplexing because credit card companies have been sending users new cards for quite some time, and many users won’t actually have their numbers changed. Even if users do get new cards, some old cards remain active in the interim, meaning that the information they gave to Netflix wouldn’t necessarily automatically be void.
“Right now the larger issuers are leading the way with card reissuance, and many of these have the ability to tie old card numbers to reissued cards,” says Aite Group’s retail banking research director Julie Conroy. Many issuers will also continue to approve recurring charges for a period of time, she adds, because they know that card holders may forget to update their credit card information with merchants.
“I don’t think a significant customer churn could be blamed on the chip migration,” she says.
When pressed on the issue during the earnings call, Netflix chief financial officer David Wells clarified the statement from its letter about why US subscriber growth may not have met expectations. “We think it’s a contributor,” Wells said of the chip-card transition. “It’s likely multi-factored, there may be other things going on here, but certainly the transition to the chip cards is not helping and that has to be a factor.”
He went on, “Any interaction where you have to update your payment method and are presented an opportunity not to do that, it just means there’s more noise introduced.” In other words, Netflix doesn’t want to give subscribers any opportunity to even briefly reconsider continuing to pay their monthly bill. Especially not after that third season of House of Cards.Go Back to Top. Skip To: Start of Article.