The push back comes a day after the streaming video giant said it added 880,000 U.S. streaming subscribers, about 270,000 fewer than it had previously forecast. The company said the move by U.S. banks to replace hundreds of millions of credit and debit cards with new computer chip-enabled cards this year has created payment processing problems that led to involuntary service cancellations.
On Thursday, Netflix provided more detail, saying in a statement that up to half of its users must update their billing information when their cards are upgraded.
But those in the payments industry say their systems in place should prevent any such billing disruptions.
Henry Helgeson, who runs a company that processes transactions for small businesses, described the Netflix explanation as “curious” because other merchants haven’t complained about such a problem.
“I would be surprised if this was an issue in the industry right now and we’re only hearing about it from Netflix,” said Mr. Helgeson, chief executive of Boston-based Cayan, which was formerly called Merchant Warehouse.
Other payment industry experts also expressed doubt that the new cards were the root of Netflix’s disappointing subscriber numbers.
“If this was an issue, it would be affecting every subscription-based business and it isn’t,” said one card-industry executive at a large financial institution.
The new chip technology, rolled out in the wake of a barrage of data breaches over the past several years, is meant to enhance security by creating a unique code for each transaction and making it harder for thieves to create counterfeit cards.
Merchants can take measures to mitigate disruptions by participating in programs offered by payment networks Visa Inc. V 0.88 % and MasterCard Inc. MA 0.49 % that automatically update expiration dates and security codes when customers receive new cards.
That way, customers need not update their card information with merchants that automatically charge them each month—whether it is for a gym membership or a utility service.
Netflix has participated in the Visa and MasterCard programs, people familiar with the matter say.
In its statement, Netflix confirmed that it participates in the Visa and MasterCard programs but said between one-third and half of subscribers’ cards aren’t part of such programs. It further noted that not all the Visa and MasterCard cards issued by banks are part of those programs, and it’s up to the banks to opt in to participate.
“In those cases, we rely on subscribers to update their payment methods manually,” the company said. “When you’re processing recurring payments for some 42 million people, there can be a discernible impact on net additions even though it’s quite small relative to the size of our US subscriber base.”
The chip cards usually have the same account numbers as the original cards, eliminating the need for consumers to alter any card data that they have on file with merchants. Card-issuing financial institutions typically only issue new account numbers if they believe a consumer’s card has been exposed to fraud in a data breach.
Morgan Stanley analyst Ben Swinburne said some investors are skeptical of Netflix’s claims regarding credit card problems as well and are wondering whether the downshift in subscriber growth is a sign the U.S. business is maturing faster than they were expecting. Netflix executives on Wednesday brushed off such concerns and said they still believe the company can eventually sign up 60 million to 90 million domestic customers.
Netflix shares fell 8% Thursday as investors digested the third-quarter results.
Nomura Securities analyst Anthony DiClemente said other factors, such as macroeconomic softness or seasonality, may have contributed to Netflix missing its forecast for customer additions.
“It’s all going to the fact that there may be, over a longer period of time, a slowdown in U.S. subscriber growth because the base of subscribers is scaling to such a large degree that it becomes difficult to keep up” with the prior rate of U.S. additions, Mr. DiClemente said.
Netflix has added roughly 5 million to 6 million U.S. customers each of the last three years and is aggressively expanding internationally.
Some analysts said Wall Street isn’t overly concerned, for now. A year ago in the third quarter, the company reported a slowing of U.S. subscriber growth that shook investors and caused shares to fall drastically.
But the company then beat expectations in the next few quarters, and Netflix stock has soared this year, gaining 107% compared with a 2% contraction for the S&P 500.
“The fact that Netflix had a similar issue last third quarter and then handily beat fourth quarter guidance also helps defuse this situation,” MoffettNathanson analyst Michael Nathanson wrote in a research note Thursday.
The bulk of the issues surrounding the new chip cards have been in physical locations, not in online transactions. Unlike traditional cards that are swiped at a checkout terminal, the new chip cards must be dipped into a slot at the bottom of the machine.
The card must stay in place until the transaction is complete, leading to initial confusion among some consumers who are accustomed to just one swift movement.