The Rise of the Subscription Economy

The Future Of E-Commerce Is Recurrence-Based

Written by Rebekah Moss 22 May 2020 - 6 minutes reading time

The subscription economy was already a considerably popular market with the rise of Netflix, Disney Plus, Spotify, Audible and Hello Fresh. Whilst it’s likely that most adults are either subscribed to or piggyback (64% of Millenials) onto at least one of these services, the subscription economy is part of a broader range of recurrence-based payment models that are finding truly demonstrating their value in the wake of coronavirus lockdowns.

Through recurrence billing within these popular sectors, alongside financing programs and repayment models popularly used with IVA and debt management sub-sectors; it’s no wonder that even prior to lockdown measures, the subscription market was already growing; with a value set to increase from $4.1bn USD in 2020 to $7.8bn by 2025. Further, in 2019, 19.8% of remote transactions were made via recurrence-billing models.

However, with these measures only contributing to the increasing rate at which this value is met, consumers are now turning to subscriptions to replace what they’d usually buy frequently in-store; and merchants are looking at how to adapt their businesses to a recurrence-based model.

Case studies performed by pymnts.com revealed that new sectors are now turning to subscriptions to generate the retention and trust that they once relied on an in-store customer experience to create.

For example, 59.7% of surveyed vacationers said that they would be willing to book more trips if flexible repayments or recurring payment options were made available. Additionally, studies found that 78% of all consumers subscribed to at least one service - up 6% from 2019.

The rise of the subscribe and save economy (not to be confused with Amazon’s subscribe and save model) affords a new demographic of millennials with the foresight of managing their finances with flexibility through instalments and versatility.

The Effects of Lockdown

Where mainstream subscription services such as Netflix and other digital sectors have seen growth; with the streaming service adding more than 15.8 million new subscribers in Q1 of 2020 alone, subscription-based services on a whole have seen an increase in use since the beginning of lockdown measures - seeing a 22% rise in subscription services regardless of their vertical.

In a perfect demonstration of providing a service that caters to convenience whilst acting in favour of money management; the act of impulsivity is dampened when a customer can see the next 12 months of their payments laid bare before them.

As society is being categorised as ‘essential’ and ‘non-essential’ how are consumers categorising their lifestyles?

Where there’s room to grow:

On average, the UK consumer will spend £60 a year on subscription services, but subscriptions that fall into broader spectrums of recurrence-billing models can still learn from the success of these more popular models.

In exploring customer churn and retention, the infrastructure of recurrence-based models - regardless of their use-case, paints a picture for the changing consumer landscape and the need for efficiency in an increasingly competitive market.

The customisation of user-centric packages in mainstream subscription services can be used to inform the broader scope of recurrence-based models with the intent of utilising recurring revenue as a means of automation and viability for a business; with the aim of redefining ‘user-centric’ to minimise churn through effectiveness and efficiency.

What is churn?

Recurring payments face an involuntary and voluntary churn of customers, wherein a customer can no longer keep up or make a payment.

As studies reveal that 55% of retailers say subscriptions increase customer retention and loyalty, automation is clearly a key informant of a service’s viability.

The level of this automation can lend itself to reducing cancellation risks and friction in all forms of recurrence-based payments, wherein 7.3% of subscribers plan to cancel their plans within the first year.

Voluntary churn (60-80% of losses):

Expectation

Cost

Payment Preference

Security

Involuntary Churn:

Do Not Honours

Bank-side Security

Insufficient funds

Outdated information

Human Error

Bad Payers

How Total Processing helps:

Pay by Link: Customised and branded pay by link services that can be fulfilled by Apple Pay, Google Pay, Debit/Credit Card, or IVR Call Flow - sent manually or automatically by merchants to both register or take payments.

All payments are taken securely using 3D secure 2.0 and any registered cards are tokenised for future recurring payments.

Rebilling Tool: When a payment fails to be taken from the usual scheduled service, Total Processing’s rebilling tool automatically reattempts to take payment until the request is satisfied. However, merchants can also use pay by link services to manually request this payment. The rebilling tool securely deactivates where a payment method is unserviceable - in scenarios where a card is stolen and merchants can use pay by link or e-terminal services to safely acquire payments.

Optimised Payment collection times: Involuntary churn is reduced through our optimised payment algorithm that analyses historical payments in real-time and determines the optimum payment collection time - depending on the consumers issuing bank.

Account Updater: Our account updater automatically updates payment information using information from issuing banks via Mastercard and Visa - reducing up to 10% of involuntary declines, and churn. This tool saves merchants from needing to re-register client information.

Customised Scheduling: Total Processing can build bespoke payment schedules to suit whatever service; whether it be utilised for debt management CRMs or integrated into an API to auto-generate tailored schedules for linear subscription services - our payment schedules allow recurring billing to be shaped to a bi-weekly and four-weekly basis, as well as be scheduled for the last and first working day.

Payment Breaks: Regardless of the service or product you’re looking to offer, our payment schedules can be customised to offer one-click payment breaks without the need to re-register a consumer to a subscription.

In order to further help consumers manage their service, repayment amounts can be tailored and added on an individual basis to suit flexible and ever-changing circumstances.

51.7% of customers profiled by pymnts.com - amounting to 14.2 million consumers - would pause a subscription over cancelling it, when given the option.

Mitigating Risk: Through Total Processing, Merchants can access our Total Defence services, where through to the end of June 2020, they can access free chargeback alerts and additionally, can access an in-platform chargeback defender scheme.

Where the chargeback alerts are aimed at warning merchants of a potential chargeback before they can evolve into a dispute, our in-platform defender successfully compiles rebuttal documentation - submitting it alongside transactional data from our payment gateway to the acquiring bank - going the extra mile in tracking all defence outcomes.

Total Processing is a leading provider of recurrence-based payment solutions, tailoring to a diverse market of merchant-focused and end-user experiences. Where merchants need to choose recurring billing tools with the tactical richness to be viable, consumers need a service that provides both foresight and flexibility.

Whilst subscription e-commerce has already been on a trajectory for significant growth, with a value that has exceeded 100% more than it was in 2016; 71% of adults in 12 countries now hold at least one subscription.

Total Processing easily caters to the demands of both merchant and consumer through the dynamic functionalities of our recurring payment tools.

Get in touch today to learn more!

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