How Do You Pick the Best Recurring Payment System
The subscription business model requires automatic recurring payments to make it easy for customers to use your products and services. It comes with the need for charging customers at regular intervals, so finding the right payment processor for recurring payments is essential.
The subscription economy grew more than 350% over 7.5 years and it’s predicted that by 2020 50% of the world’s largest enterprises can expect that the majority of their businesses will depend on their ability to create digitally-enhanced products and services.
We all live in a technologically-advanced, subscription-based economy, so your payment solution should be convenient, easy-to-use, and transparent, if it’s going to stand a chance at meeting customers’ evolving expectations.
Imagine what would happen if you kept asking your customers for the same data over and over. This wouldn’t be the kind of seamless user experience everyone expects, right?
How Recurring Payments Work
Recurring payments let customers pay for goods and services on an ongoing basis, based on a single payment authorization. Payments happen automatically, which significantly saves time and costs. Plus, payment regularity and predictability make planning the next business steps easier.
The two most common types of recurring payments are fixed and variable payments. A fixed recurring payment is when a customer is charged the same amount at regular intervals, for instance, every week, or month. And with a variable recurring payment, the amount can change from payment to payment and it usually comes with usage-based charges.
To process recurring payments, you need a merchant account or a payment processor for recurring payments (which is more convenient), who could help you get a merchant account. Moreover, a recurring billing service will handle all aspects of your payments—processing, security aspects, your payouts, etc.
Types of Businesses That Can Use the Recurring Payments System
What’s great about subscriptions is that they are available across a variety of product types and services. Subscription business doesn’t only mean newspapers, fitness clubs or sports season tickets any longer. Today, all that’s changed and recurring payments are especially worth implementing for businesses with products or services that people tend to buy regularly. It’s not only about groceries, beauty, or a gym subscription—there are still many niches to fill.
There’s a number of use cases for recurring payments and the most common ones are as follows:
One of the most popular subscriptions are streaming services and subscription boxes. Today we can see an explosion in subscription box businesses—anything you can imagine is at your fingertips. Plus, SaaS products that charge fixed price at monthly intervals, for instance, a WordPress subscription, are increasing in popularity.
The most common ones are gym memberships, but a membership fee paid regularly is also popular in social clubs or coworking spaces.
Recurring payments are convenient when it comes to utility bills, taxes, student loans, etc.
Retailers can also consider running a business that is a hybrid of one-time purchases and a subscription model.
What Are the Benefits of Subscription Payments?
As you charge customers at regular intervals, you know that you’ll receive payments on time, so your cash flow is more predictable. It’s much easier to estimate income and plan ahead when you know what you can expect during a specific timeframe.
The solution is time-saving for both you and your customers. You don’t have to manage payments manually, as all transactions are made automatically, which helps to save a significant amount of time and money. You collect customers’ information once and then the payment process flows based on your business needs.
Recurring billing is a convenient way to automatically charge your customers every week, month, etc. The payments via credit or debit cards are triggered automatically so, once initiated, they don’t require any extra effort. It’s a real win-win.
Your customers can subscribe to multiple plans simultaneously, which will help you improve your business performance and increase conversion.
This one comes with benefits for both merchants and customers. As payments are processed regularly, merchants don’t have to send out a bill every month, allowing them to focus on their business. Whereas, customers don’t have to remember due dates, meaning that they don’t have to worry about late fees.
A reliable recurring payment system helps you build strong and lasting relations with customers. In the subscription-based model, you have an established relationship with customers, so it’s more likely they will stick with your service for longer.
Know the Difference Between a Repeat Customer and a Lost Opportunity
Although a recurring payment system is a great way to keep your revenue on track, there are also some drawbacks to this kind of payment such as hitting spending limits, expired cards, declined authorizations, etc. All of which can lead to revenue loss.
The good news is that you can increase your customer retention rate and minimize card declines by reducing active and involuntary churn. This is possible if you work with a recurring billing service that provides you with an automatic customer account updater and similar tools that lead to a decrease in declines.
So, search for a payment platform that delivers solutions, such as an account updater that will let you set up logic to minimize declines and make customers more loyal to your service. This way, if a payment fails, it can be automatically retried at specific intervals, or when a customer’s card is declined, you can charge another one of their assigned cards.
How to Pick a Recurring Payment Provider
The first thing you need to do is defining your needs. Consider what is more viable—developing an in-house solution or finding a payment processor for recurring payments. While an in-house system would give you complete control, it may be time-consuming and too expensive to develop. If you only need recurring payments for your website, it’s better to choose a payment system that specializes in such services.
So, how do you pick the best recurring payment system for your online business? Here are 12 questions you should ask yourself to make the choice easier.
1. Which types of payments do you need?
It’s a good idea to first determine which type of payments you need to be able to seamlessly run an online business. Do you want to only process recurring payments or also charge the customers for one-time purchases (e.g. for specific or extra items).
For instance, you may want to charge your customers regularly for a subscription and offer them bonus items that they can pay for with one click.
2. Does the recurring payment system work in your country?
The location of your business matters, as payment gateways usually provide a list of countries they work with. This is usually due to banking regulations (SecurionPay, for example, is focused on businesses incorporated in Europe). So, if your company is registered in a European country, it’s usually better to connect with a European payment provider that is backed by European acquiring banks.
But, of course, this doesn’t mean that when you’re incorporated in the EU, you can’t sell globally. Simply, find a payment gateway that offers the possibility to accept payments in multiple currencies.
3. How long does the integration process take?
This one can’t be ignored either. The integration process has to be fast and extremely simple, regardless of whether you have developers on board or you’re a non-technical person. Find a payment processor for recurring payments with a clean and robust API. One that doesn’t require weeks of setting up before you can start charging your customers.
A reliable payment platform can work wonders for your business, so, from a technological perspective, you should focus more on your payment provider’s APIs, as they’re able to give you full control over your customer’s behavior. Moreover, they let you manage transactions, create charges or assign customers to certain subscriptions.
4. Is setting up a payment scenario easy?
Check if the recurring payment system you are considering is flexible. What does flexible mean in this context? For many business owners, subscriptions equal making the same charges to the same customers regularly for a specified period. But, you should also think about a variety of plans or a hybrid plan which will be more convenient for your customers.
This usually requires a little backend work, but, if you choose a payment partner wisely, you can always ask a recurring service provider for help.
When you choose a payment provider that enables customization, you can make an unlimited number of plans to improve customer retention, so you have the possibility of offering a variety of billing cycles with flexible time periods and multiple pricing levels.
There are a few types of well-known payment schedules based on a required number of payments for a certain period, such as:
Does a provider offer the possibility of modifying the billing frequency? Does the system allow you to update the subscription amount? Can you change the card details in running subscriptions, e.g. because of the expiration date?
Compare your needs with the features a payment provider offers to be sure that you have everything you need in the future. Generally, you’ll need a solution that enables you to build your own payment scenario and customize the way your business works. Also, ask for extra features, such as payment tracking, payment reporting or fraud management tools.
5. Is the number of plans limited?
Plans are how you describe your rebilling strategy, they describe at which intervals and at what cost you want to charge the customer.
It’s much easier to run a successful subscription business when you can freely modify and set plans that meet all your needs and requirements. So, when a recurring billing service allows you to make an unlimited number of plans, you can offer your customers a more extensive number of options.
6. Is it PCI compliant?
Being PCI compliant is a must when you store, process or transmit credit cards. The good news is that you don’t have to go through the entire compliance process. It’s better to choose a recurring billing service that meets all the PCI requirements, so you don’t have to manage it on your own.
7. Are the payments secure?
This one links to the previous point. Note that security issues are as important as the entire payment experience for your customers. Give them the most secure solution possible to ensure that they don’t have to worry about the safety of their data. For this reason, it’s crucial to choose a recurring payment processor that provides data encryption and stores the credit card information securely.
8. Is the pricing transparent?
When you try to find the best payment processor for recurring payments, you need to keep in mind that payment providers offer various fee structures. Many payment gateways don’t charge extra fees for the recurring payment option and usually, you are charged per transaction. But, check it closely before signing a contract to make sure that there aren’t any additional fees (such as set up or monthly fees).
When it comes to recurring payment credit card fees, it varies by provider, but typically, this is a small percentage of the transaction plus a per-transaction charge.
Moreover, when you process a high volume of transactions, you can try to reduce expenses by negotiating fees with the recurring payment provider.
9. Does the recurring billing service provide retry logic?
Accepting recurring payments has its drawbacks, i.e., expired cards, declined authorization, spending limits, etc. Nonetheless, merchants can count on reliable payment providers who offer solutions, such as an account updater and the possibility to set up retry logic in order to minimize declines.
10. Does a recurring payment system support free trials?
Free trials make it easier for your customers to make an informed decision. They allow them to use your product or service for a certain period of time before deciding to subscribe. Usually, customers are charged automatically after the free trial period ends, unless they resign before this time.
Offering customers a sample of your product before they buy the full subscription plan also improves their loyalty and trust. As users don’t have to make purchasing decisions before they use your product or service, they are more willing to try it.
11. Does it work on mobile devices?
The number of mobile consumers is growing year by year. When you choose a recurring payment system, make sure it supports mobile payments. Check whether it’s well-optimized to provide your customers with a smooth experience.
12. What about tech support?
Before you choose the best recurring billing service for your business needs, make sure that it offers responsive and helpful customer support. When it comes to online payments, you need to be 100% sure that there’s someone who will react quickly, if any problems occur.
The Bottom Line
The subscription model is high on the agenda across various industries. Your choice of billing system can impact the success of your company. So, before you start your subscription business, seek a payment processor for recurring payments that gives you freedom of customization.
Latest posts by Sandra Wróbel-Konior (see all)
- What to Consider When Choosing a Payment API - February 3, 2021
- Visa Rules for Enhanced Risk Performance—What You Should Know - January 20, 2021
- Credit Card Chargebacks: Merchants’ Rights - November 10, 2020