Subscription Merchant Account—Keep Your Business on Track
Selecting a credit card processor is not the easiest task, and the same goes for providers that offer a subscription merchant account. When do you need a recurring merchant account, and what are the benefits of having one?
The subscription economy grew more than 350% over 7.5 years, and one of the most common reasons why is that it saves us time and hassle. According to the SUBTA’s 2019 State of the Subscription Commerce Economy Annual Report, the global commerce subscription economy accounts for 18% of the $41 trillion credit card processing industry.
Businesses that run recurring payments are more likely to predict their revenue because of a higher customer lifetime value. But to let your customers pay for goods and services automatically on an ongoing basis, you need a reliable subscription merchant account.
Who needs a subscription merchant account?
Businesses use subscription merchant accounts to process recurring payments based on a single payment authorization. Such businesses fall into two categories: physical products or access to content. The most common segments of the subscription ecosystem are companies based on memberships, subscription boxes, subscribe-and-save models, digital subscriptions, SaaS, or media and streaming subscriptions.
Many business models that process payments through recurring merchant accounts are considered at a higher risk for chargebacks, so they usually need a high-risk merchant account. The risk of chargebacks is usually bigger for non-essential goods and services.
The recurring agreement and subscription process starts right after a customer makes their first transaction. Then, a certain amount is taken from the customer’s account on a scheduled basis, and the customer regularly receives their product or service.
How to apply for a subscription merchant account
Before you apply for a subscription merchant account, you should consider several things to make sure your choice is tailored to your business needs.
One of the fastest ways to apply for a recurring merchant account is by submitting an application with supporting documents on a recurring payment provider’s website. It’s free to do with no obligations. Then, you’ll go through the underwriting process—this is when you’ll be asked for details about your company, processing history, and bank statements. Your processing history is important here because it’s a factor that can give you better rates. Get ready for due diligence run by risk management experts who will decide whether your business qualifies for a subscription merchant account.
Keep in mind that both onboarding and the integration process must be fast and extremely simple, regardless of whether you have developers on staff or you’re a non-technical person. Find a payment processor for recurring payments with a clean and robust API.
Finally, before you sign a contract, check it closely to make sure that there aren’t any additional fees (such as set up or monthly fees).
Benefits of a subscription merchant account
One of the biggest advantages of running a subscription-based business is the relative predictability, which means that you can estimate your revenue. But this advantage also depends on the payment processor you work with, its security solutions, and how it can prevent you from involuntary churn.
Another reason for offering recurring payments is to keep the long-lasting relationship between the merchant and consumer. Plus, you can use the insights from such a relationship to offer cross-sell or up-sell opportunities and improve the customer experience.
Find a payment provider that will offer you a subscription merchant account with the ability to support complex monetization models, flexible pay periods, multiple pricing levels, an unlimited number of plans to improve customer retention, trials, and discounts. It’s also good to work with a provider that has an extensive network of acquiring banks so that you can accept online transactions from the global market.
Another thing that can help you run a successful subscription business is partnering with a recurring payment processor that provides data encryption and stores credit card information securely. You should look for a solution that will provide you with strong fraud protection.
Even though recurring payments are a convenient way to pay for goods and services, there are also some drawbacks to this kind of payment, such as hitting spending limits, expired cards, and declined authorizations. All of these issues can lead to revenue loss.
To limit losses, put a recurring disclosure in place that includes clear information and details regarding recurring payments, such as the amount, date, and method of communication. When it comes to recurring payments, the customer’s credit card is charged continuously until they take action to opt-out.
Some customers may forget to cancel their subscription (sometimes it’s because of unclear terms and conditions). As a result, they may file a chargeback with their back. This reality is part of the nature of such payments.
A subscription merchant account can also be targeted by so-called friendly fraud where users request a refund for the entire subscription or membership plan. To limit such situations, we highly recommend using 3D Secure authentication to verify customers.
What you, as a merchant, can do to win your customers over is disclose the recurring payment terms clearly on your checkout page, along with the cancellation procedure (you can also place them next to refund policy), and reduce payment friction. Search for a payment processor that follows all technological advancements in the industry.
Is your subscription business on the right track?
To get a subscription merchant account for credit card processing and keep your business away from chargebacks, look for a merchant account provider who knows the ins and outs of recurring payments—a payment partner who will help you establish a better, more transparent relationship between you and your customers.
Make sure you work with a provider that values speed so that you can charge customers at regular intervals with flexibility and financial security, resulting in predictable revenue.