'Generation subscriber' demands next generation payments

An iPhone beside a laptop.
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The Covid-19 crisis forced companies to adapt and try new business models. One way some businesses pivoted was to launch their own subscription services. From Pret-a-Manger and Pizza Pilgrims, to businesses which facilitate the regular delivery of flowers or dishwashing tablets, it seems there’s now a subscription plan for almost anything.

About the author

Colin Neil is UK Managing Director of Adyen.

As a result, the subscription economy is booming. In fact, the Royal Mail’s recent report highlights the UK subscription box market is set to be worth £1.8 billion by 2025, on top of that, streaming services such Spotify, Netflix and Disney+ boast millions of new users each quarter.

The benefits of a subscription model for businesses are fairly obvious – regular, predictable income. While that looks easy on paper, the truth is it requires a lot of planning and the right infrastructure. So, what are the key considerations for businesses looking to adopt a subscription framework?

A smooth and flexible checkout process

The first part of the puzzle is to ensure the online checkout process is as frictionless as possible. This is particularly vital at the point a customer signs up, as it’s their first direct experience of the brand. At this point they also need clearly signposted information such as terms and conditions, how charges are made and cancellation policies. Brands need to get the ‘buy in’ and confidence of the consumer right from the off.

For subscription businesses, who are often trying to quickly build a base of loyal consumers, payments must be quick, easy and secure.

It’s vital that consumers can select from a variety of different payment gateways. Customers usually have their own preferences, including debit cards, credit cards, bank transfers and other local systems such as PayPal, Klarna and SEPA Direct Debit in mainland Europe.

Subscription businesses also have considerations around recurring payments. In some markets, such as Indonesia, it’s less common to set up periodic payments and payments can be missed with banks due to connectivity issues – a challenge that Spotify has overcome by allowing its customers to pay each month using bank transfers or with cash at local convenience stores.

Minimizing churn

Involuntary churn – where customers unintentionally have their subscription cancelled due to payment failure – can be a huge source of frustration.

It often occurs when cards expire, are lost, or changed for other unforeseen reasons, triggering a decline in the next payment. Often this happens without the business or customer immediately realizing it.

To keep up with their customers, merchants need instant visibility on these changes, no matter how often, or not, they return. Major card schemes now provide such updates in real time at the moment of payment, preventing significant involuntary churn without disrupting the customer experience.

Real time account updates are especially easy to use when paired with tokenization. Rather than storing sensitive card details, a merchant using tokenization will store and make payments with a unique ‘token’ number linked to the customer’s card.

Tokens will remain the same, irrespective of any new payment card details. This means fewer false declines and a lower churn rate – with no integration or maintenance required. It also results in the merchant being completely protected against reputational and monetary damages from card breaches, while the payments process is made as simple and as seamless as possible for the customer. Everyone wins.

Protection against fraud

E-commerce-based, subscription businesses are more susceptible to several types of fraud than other merchants: including card testing and reseller fraud. Card testing is where fraudsters test stolen details to see if they can be used to make subsequent transactions. Reseller fraud is where fraudsters sign up for trial periods and then sell them on to unsuspecting consumers for small amounts of money. In addition, fraud cases can also occur as a result of discount or promotion abuse, using duplicate or false details, or bot attacks. This delivers a negative customer experience and damages brand perception in the process.

The traditional approach to combating fraud is stopping suspicious transactions. But the consequence of doing so often means potentially blocking ‘good’ customers at the same time as ‘bad’ ones.

Instead, subscription businesses should look to use a payments system that can analyze consumers and their spending behavior in real-time, in order to minimize false positives.

In conclusion

With a broad range of businesses following the entertainment sector’s lead, we’ll see subscription business models become increasingly mainstream. Customers today demand quality, speed, security and – most of all – an uninterrupted, continuous experience. This applies not just to what they buy, but how they pay for it. Simply put, Generation Subscriber demands next generation payments.

Colin Neil is UK Managing Director of Adyen.