Signing customers up for an ongoing monthly subscription can provide a business with much needed consistent and predictable income. Unfortunately, recurring billing comes with two key challenges. Consumer perception and increased risk of chargebacks. For subscription companies this adds up to the need for a recurring billing, high-risk merchant account.
Within the very recent past, consumers held an unsavory perception of being involved in a recurring billing situation. They viewed it as somehow getting ”suckered in”. Like that protein powder that keeps showing up even though you haven’t even used the last one you got!
Businesses Enjoy Predictable Income with e-Commerce Subscriptions
But times are changing, and quickly! Consumers are leaning more and more towards what is being dubbed a “subscription society”. What with subscriptions for everything from razors and toothbrushes to pre-planned meals and wine. And let’s not forget the ever-popular streaming services.
Nobody has basic cable anymore. It’s all about Amazon Prime, HBO, Spotify, and YouTube. Heck, Porsche even has a car subscription. There is almost nothing you can’t subscribe to these days. And this so called “subscription economy” is growing more and more each year, even faster than S&P 500 companies.
There are many types of products where monthly recurring billing is necessary, not only necessary but appropriate. Society is moving towards more access, and less ownership. Today, opportunities for ongoing or recurring billing subscription products go way beyond one’s monthly product subscriptions. Companies need to bill for things like retainer fees, gym memberships, Amazon Prime membership, streaming services. Likewise, even the landscapers who come tend to your lawn each month have you on a subscription service. The list goes on…
Memberships and recurring billing benefit the merchant and the consumer.
Nowadays, the subscription model fits with the needs of the consumer. The attitudes of consumers are changing as Millennials and Gen Z begin to influence the marketplace.
It is not so much that they want to own and collect items anymore; they want continuous access. In addition to continuous access, they want to be able to customize the access to their needs. The subscription model offers peace of mind for busy consumers already overwhelmed with business decisions and obligations.
Subscription services allow consumers the ability to simplify their life a bit. They can enjoy the convenience of having exactly what they need when they need it. They don’t have to remember to shop or make a trip to the store.
Now, instead of that razor being just another item on the grocery list, it feels like a present that just showed up on the doorstep! All shiny and new.
For businesses, the benefits of recurring billing customers are many.
Subscription services allow for the focus to come off the product and return to customer service. Not only does this help to increase brand loyalty, but it also helps increase repeat customer base. Additionally, having a clear idea of how much a business will sell each month allows it to better calculate future cash flow. And because recurring billing generates automatic payments, it all but eliminates late payments. This only adds to a business owner’s ability to better manage cash flow.
There is a certain sense of financial security and peace of mind that comes with the knowledge and certainty of an almost guaranteed income. That ability to forecast future income can help business owners solidify plans for growth and expansion too. Showing guaranteed future income makes a business much more valuable to a lender, a potential investor, or a potential acquirer.
Recurring Billing and Subscription Payments for e-Commerce yield a net positive for all parties involved.
Steps to Recurring Billing and Subscription Payments
Merchants have many choices when deciding to set their business up with recurring billing for customers. Setting up the subscription plan and recurring billing properly is almost more important than offering a subscription model in the first place. Will you go with the solutions offered by your current merchant service provider? Or use a third party billing service or app that will need to integrate with your current processor?
Fusebill and Chargify are examples of third party apps that allow businesses to accept recurring payments by integrating with its current processor. When using a third party to gain access to recurring billing, you may end up with additional charges on top of your processing fees.
Third party apps sometimes charge a per transaction fee or even a percentage of the volume processed. This would be on top of the processing fees you already pay your Merchant Service Provider for payment processing. For this reason, it may be more cost effective to partner with a merchant service provider who offers recurring billing as part of their payment processing services.
Adding Subscriptions to your e-Commerce Store
If you’re just setting up your business or looking to add subscription services to an existing business, you must consider your data portability.
As your business grows and changes, the current billing solution may no longer work best for your business. But how do you get all of that customer information and card payment data over to the new solution? Especially without having to trouble each and every one of your customers for their information again! This is where data portability comes into play.
It is extremely important to consider working with a processor that offers data portability. You’ll be pulling your hair out if you started with a solution that doesn’t allow data portability. Merchants must always keep future growth and adaptability in mind. Even if you don’t think you need it now, you must consider a time when you will need to do it.
Businesses involved with monthly subscriptions are also not all “one size fits all”. Each has their own situation and level of needs depending on the size of the company and the diversity of product. Some simply need to bill customers each month for the same amount. Others may need multiple payment gateways or require customized integration.
Some businesses benefit from the ability to update plans, prorate payments or update customer credit cards automatically when they expire or get reissued.
Subscription Payment Merchant Accounts
While most businesses needs will indeed be individual, Automatic Card Updating is a feature that can benefit any merchant. With Automatic Updating, the provider works directly with card issuing banks to automatically update card information as needed. This not only allows for continuous service for the customer but also decreases the incidence of card declines due to expired card information.
Once a card has expired, it can often take a customer months to go in and re-enter new card information to keep a subscription going, if they even do it at all. This can often give a customer an excuse to discontinue service or look for another product. Payment Updating functionality may cost the merchant additional money though. It’s important to work with a processor who specializes in recurring billing and has solutions for different business types.
Many processors include the ability to process subscriptions right in their base merchant account pricing. Others treat it as a special service. They’ll charge substantial fees to set up the feature, as well as additional fees for each transaction.
Offering Free Trials is High Risk
Free trial offerings prior to an ongoing subscription are a whole other ball game. Many acquiring banks (the merchant account provider) view free trial programs as “high risk”, which means these businesses have a few more things to think about, and a few more hoops to jump through, when opening a merchant account and getting set up for their recurring billing.
There are new rules that card brands such as MasterCard adopted earlier this year for communicating with the consumer, notifying the consumer and verbiage merchants must use on the website.
For a deeper dive into the new free trial regulations read “MC’s Free Trial Policy A Hassle For eCommerce Merchants”. These merchants will also find themselves paying higher processing rates than subscription companies who do not offer a free trial.
How will declines be handled?
If a recurring payment is declined what protocols are set in place to follow up? Will it notify you as well as the customer and offer an alternative way to complete the payment, or possibly retry at a later time?
Does the recurring billing service integrate or communicate with your current accounting software or apps? Accounting and reconciliation are just part of a successful business model and you want to make sure that you are not adding extra work in order to transfer data needed to complete the task.
As you can see, there are a few important things to consider when choosing a recurring billing service or processor. At Bankcard Brokers we are experienced in the intricacies of all forms of eCommerce, card not present, payment processing. In addition to recurring billing, features such as suspicious transaction screening, electronic invoicing, tokenized customer vaults and Level 111 processing with extended transaction data allow merchants to process ongoing payments with confidence.
For the most competitive rates built on transparency, credibility and our dedication to exceed client’s expectations in order to create a successful, long term business relationship call Bankcard Brokers today and experience the “Bankcard Brokers Difference!”