Designing a perfect payment method for the subscription economy: The seven dimensions of recurring payments

In support of his presentation at the Digital Innovation Summit next week , Siamac Rezaiezadeh of GoCardless gives his perspective on the seven dimensions of recurring payments.


The subscription economy is booming. According to McKinsey & Company, the US subscription e-commerce market has grown by over 100 per cent each year for the last five years; while in the UK, 89 per cent of Brits subscribe to at least one subscription service, according to YouGov.

Subscription revenue is ideal since it's predictable and accumulates over time. Less ideal is the pain of collecting it. B2C businesses typically use recurring card payments or digital wallets, while many B2B businesses rely on one-time bank transfers.

Neither is optimal. Cards can be expensive and unreliable; bank transfers require the customer to remember to pay you each time.

Bank to bank payments methods, such as Direct Debit, go some way to solving those problems - they?re automated, cost-effective and reliable. But, even they aren't perfect (yet), with a complex global footprint that can make life difficult for global businesses.

So, what does a perfect payment method for recurring payments look like? That depends on the business. A business starting out might want to optimise its payments for conversion, whereas a business that's expanding might want to optimise for coverage. A business that's mature, however, might want to prevent churn. Whatever the aim, it's likely to care deeply about one or more of these seven things.

  1. Coverage: In how many countries can I collect payments with this payment method??
    Cards are known for their global coverage, while bank to bank payments have typically been regional and disconnected. However, the bank to bank payment landscape is changing: GoCardless is connecting Direct Debit schemes in different countries to create the first global network for bank to bank payments. With this in place, global subscription businesses will be able to access multiple schemes in the future without having to deal with different providers or forge their own local banking relationships.
  2. Preference: How popular is the payment method with my customers?
    Preference is highly localised, but consumers are typically accustomed to paying by card and usually expect this option, which some equate to mean strong preference. Bank to bank payments are popular in European countries, such as the UK, where 74 per cent of regular consumer payments are made through Direct Debit.
  3. Conversion: What is the customer experience of setting up payment and what percentage of visitors complete a payment?
    When setting up a recurring card payment or Direct Debit, the payer must have certain card or bank account information to hand to complete the purchase. Digital wallets optimise for conversion by storing details on set up.
  4. Risk: What is the security of the payment method for me and my customers?
    Fraud and chargeback risk on cards is historically high. Efforts to mitigate this include new regulation around Secure Customer Authentication (SCA), but while making the payment process more secure has clear benefits in reducing risk, it can negatively impact conversion.
  5. Cash flow: How quickly do I receive the funds?
    Card payments usually clear within 24 hours, while Direct Debit payments typically take a few days. We?re looking at how to pay customers sooner, including, for example, using the Payment Initiation Service created by PSD2 to process instant payments when a customer requires it (for example the first payment of a new subscriber). If Direct Debit authorisation is given at the same time, we could continue to process future recurring payments seamlessly through Direct Debit.
  6. Churn: How reliably can this payment method collect recurring payments over time?
    For subscription businesses, the impact of customer churn compounds over time. Complex infrastructure means card payments are prone to failure - anything from five to twenty per cent of the time. With fewer intermediaries, payment success rates with bank to bank payments like Direct Debit are higher (up to 99.5 per cent). By combining the power of Direct Debit with new account aggregation mechanisms available through Open Banking, such as the Account Information Service, payment success rates will get ever closer to 100 per cent.
  7. Cost: What are the overall costs of this payment method (e.g. transaction fees and admin time)?
    Card payments typically cost 2-5 per cent and may also charge businesses an account fee. By shortening the supply chain, bank to bank payment methods like Direct Debits are typically more cost effective.

Hear more from Siamac at the Digital Innovation Summit next week, and find out what GoCardless is doing to make bank to bank payments better across these seven dimensions

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