Netflix blames low US subscriber growth on chip card transition

Netflix blames low US subscriber growth on chip card transition
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Netflix blamed it smaller than expected subscriber growth in the United States partly on the U.S. adoption of microchip-embedded credit cards.

In its third-quarter earnings report, the company noted that its forecast was off because of its inability to collect automatic payments from some current customers because they had transitioned over to a new card — something called “involuntary churn.”

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The company’s stock price fell by more than 8 percent Thursday morning after the earnings numbers were released a day earlier. 

“For us as a reoccurring merchant where we really want to reduce the friction of renewal and reduce the friction of having any sort of interaction where you have to update your payment method,” said David Wells, the company’s chief financial officer. 

The transition over to the more secure credit cards, meant to help prevent cyber crime, has brought frustration from physical retailers, which were forced to update their hardware to accept the chip cards. 

Many other parts of the world have already adopted the technology. 

The U.S. mandate went into effect earlier this month, and those retailers out of compliance could now be held liable for fraudulent charges. While the transition was initiated by credit card companies, some retailers are appealing to Congress

Netflix, however, said it was affected by credit card companies that continue to issue new cards to customers. Sometimes those cards have different numbers, and the automatic payment from current subscribers is temporarily cut off.

Credit card companies are only about one-third of the way through; some customers will not receive a chip card until next year or later. 

Netflix gained 880,000 U.S. subscribers in the third quarter, but it was lower than the 1.15 million predicted. 

“It’s likely multi factored, there may be other things going on here, but certainly the transition to the chip cards is not helping,” Wells said.