Making the Most of the Recurring Payments Model

08/01/24 • 11 min

As a reliable revenue stream, recurring payments help both organizations and their consumers by giving them the option to “set it and forget it.” However, ensuring that these recurring payments run smoothly can be a challenge when businesses face returns or declines due to errors, outdated payment information, insufficient funds or even fraud. With the right partner, a subscription model can help businesses run smoothly while ensuring sustained cash flow.

In a recent PaymentsJournal podcast, Suman Chaudhuri, global vice president of revenue growth at CSG Forte, spoke with Don Apgar, director of the merchant payments practice at Javelin Strategy & Research, about how businesses can take advantage of recurring payments.

Building the Model

When Dollar Shave Club first launched its direct-to-consumer subscription model, the company garnered attention by combining a higher level of brand engagement with competitive pricing. This shift from one-time to recurring payments highlights a growing trend among businesses, bringing much-needed stability to their cash flow. That stable income allows them to forecast more accurately, allocate resources more efficiently and invest in growth opportunities with greater confidence.

A good example would be what has transpired in the car wash industry.

“When you look at a business like a car wash as something that’s heavily weather dependent and has extreme revenue swings from day to day or week to week, to be able to stabilize the revenue with the membership and recurring payments is tremendous,” Apgar said. “A business like a car wash was 100% card present, and the migration to a subscription model is moving that payments activity from card present to card not present. From a processing perspective, it presents additional challenges, and the businesses that are making that transition may not be ready for card-not-present transactions.”

There are broader benefits, too. Businesses can leverage data from subscription payment models to gain insights into customer behavior and preferences, enabling them to tailor their offerings and enhance customer satisfaction.

Customer retention is another key advantage. Subscriptions can help create an ongoing relationship between a business and its customer, increasing the likelihood of long-term loyalty and ensuring their ongoing business by automating the repeat purchases.

The Autopay Revolution

Whether from retailers like Costco or Dollar Shave Club or from utility and insurance companies, customers expect to see an autopay option at checkout.

However, it’s important to note that recurring payments can fail for various reasons. Customers might get a new credit card due to fraudulent activity, or they might have insufficient funds in their bank account. Such declines and returns can cause cash flow issues that put extra stress on customer service teams to contact customers and retry payments.

Businesses that experience declined card transactions can consider using an account updater solution, which automatically updates the cardholder information for Visa, Mastercard or Discover. When these cards get replaced or reported stolen or lost, the updater ensures you have the new payment information, reducing the chances of failed payments. Businesses can also automate sending payment reminders ahead of time, so customers are reminded to update their account information or ensure their accounts are funded for the upcoming payment.

Failed payments can lead to service cancellations, which ultimately cause customer satisfaction issues. An experienced payment provider can guide the business through these challenges and offer solutions to automate payment retries, alleviating the burden on the customer service team.

While it might sound counterintuitive, businesses also need to make it easy for customers to cancel their recurring payments.

“We’ve all worked with a business that has their cancel payment button buried seven layers deep inside their website or their application,” Chaudhuri said. “That can be very frustrating, because when a customer makes up their mind to cancel their payment, they will find a way to cancel that payment. If you don’t make it easy for them, you’re increasing the burden on your call center and customer service teams because the customer will fire off a ton of emails or make calls to your call center.”

The Mechanics of Recurring Payments

Credit cards, debit cards and Automatic Clearing House (ACH) payments are all well-suited for recurring payments. However, ACH offers several advantages over credit cards. For one, accepting ACH payments usually costs the business less. Additionally, account numbers typically change far less frequently than credit or debit card numbers. An...

Building the Model

A good example would be what has transpired in the car wash industry.

The Autopay Revolution

Whether from retailers like Costco or Dollar Shave Club or from utility and insurance companies, customers expect to see an autopay option at checkout.

While it might sound counterintuitive, businesses also need to make it easy for customers to cancel their recurring payments.

The Mechanics of Recurring Payments

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A Competitive Differentiator: How Financial Institutions Can Leverage Bill Pay

Paying bills is an essential part of life, but it’s a task that has become increasingly complex. Because bills often come in various forms and require different payment types, it can be hard for consumers to stay on top of their finances.

In a recent PaymentsJournal podcast, Derek Swords, VP, Head of Product, Bill Pay at Fiserv, and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, discussed the challenges consumers face when paying bills and the opportunities financial institutions have to provide value for their customers.

A Fragmented Landscape

The volume of bills consumers receive has increased over time. In the past, consumers may have sent paper checks by mail to make those payments, but consumers now receive and pay bills in a wide array of methods.

Customers could pay a bill electronically through their bank, mail a paper check, or go to a biller’s website and make an ACH payment directly. Consumers receive bills via mail in some cases and email in others. All those factors have led to a significantly fragmented customer bill pay experience.

To consolidate that experience, new payment networks have been constructed on a digital-first framework. While the volume of bills is increasing consumers are increasingly paying billers directly. There has also been a rise in automatic payments from credit cards. Though checks can be problematic, it will take time for checks to be phased out because many smaller billers still rely on them.

Consumers are becoming more familiar with different payment methods, though many younger consumers may still not be aware that bank bill pay is an option. However, there hasn’t been significant innovation in the traditional bank or credit union experience, so many financial institutions are lagging customer expectations.

“Consumers are evaluating other payment methods because they want enhanced clarity, faster payments, and more payment choice,” Swords said. “They’re using their phone instead of the traditional desktop experience because it provides transparency and increased access. What they’re really looking for is an offering that rolls all their obligations into one, and that creates an opportunity for financial institutions.”

Around 85% of customers indicate that they would rather have a single, combined, integrated experience. Aside from simply viewing bills, consumers also want to make all their payments from that central, mobile platform, and financial institutions should keep that in mind as they design their experiences.

Beneath the Hood

In many cases, customers adopt a service based on the quality of their first bill pay interaction, so financial institutions should make it simple for customers to find their bills and enroll in applicable programs.

“Onboarding is extremely important because it lets customers know the capabilities beneath the hood, if you will,” Swords said. “It’s about informing customers about the offering and getting them engaged. Once they get there, the consumer should have full control of the payment, transparency on when the payment will occur, and confirmation the payment happened.”

Thorough onboarding will be critical as the market heads to faster and, ultimately, real-time payments. Instant settlement makes it even more important for institutions to provide an accurate, transparent experience. When customers get notifications, they should be able to immediately access their mobile app, make the payment, and get back to their lives.

“It’s not like the traditional bill pay model, where they stacked their bills by the desk and paid them one by one,” Swords said. “That’s not how consumers work today. They want an on-demand experience where they can get things done on the go and get advice along the way.”

An Advisory Experience

The advisory aspect is often overlooked in the bill pay experience, but innovative products now help customers proactively manage their finances. Timely push alerts and messages are critical functions. It’s not optimal for an accountholder to miss a bill because they were busy.

The advisory process should also be ongoing. After a customer sets up a bill, an institution might work to eventually transition them to an automatic payment. FIs might also offer customers the option to sign up for notifications or group certain types of bills. Banks and credit unions should inform customers about the different payment rails and the benefits of each.

“If a customer has a bill due tomorrow, they should be advised on how to use the fastest payment the biller accepts,” Swords said. “The goal is to make sure the payment is on time, the customer has a great experience, and users understand when money is sent or received.”

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Paper or Plastic: Sustainable Cards Are the Wave of the Future

Cards made from paper and other sustainable materials continue to gain in popularity. In addition to being ecofriendly, paper cards are more cost-effective and perfect for single-use purposes, such as gift cards.

To explore the future of sustainable cards, Peggy O’Leary, EVP, Prepaid and Digital Solutions for CPI, spoke with Elisa Tavilla, Director of Debit Payments for Javelin Strategy & Research, on a recent PaymentsJournal podcast. They discussed the flexibility available to consumers and providers with sustainable cards and looked at where the industry might be headed.

Paper Power

Sustainable cards are being made from a variety of materials, including paper, wood, recycled PVC and other substrates, as well as recycled plastic. All of these are much easier on the environment than traditional plastic cards.

“We’re seeing a greater effort toward fostering sustainability and protecting the environment across all industries,” Tavilla said. “For example, in the retail industry, there’s been greater attention and efforts toward things like consignment, thrifting, upcycling, focused on zero waste. In the payments industry and financial services, we’ve seen efforts to improve sustainability and help the environment, too.”

Single-use type prepaid cards (that is, not reloadable) are ideal for paper. Visa, Mastercard, and American Express gift products have increasingly moved toward paper cards. They are more environmentally friendly than traditional cards, and they don’t need to be as durable as credit or debit cards that people use more frequently. Paper cards are also more cost-effective for manufacturers than plastic cards.

Sourcing Matters

The market has been pushing for assurances that paper products—and even the packaging around the paper products—come from responsibly sourced materials.

“At CPI, we’re heavily investing in ensuring our materials are FSC-certified,” O’Leary said, referring to the Forest Stewardship Council, a group whose mission is to promote economically viable management of forests. “We’re making sure that our products have a trackable chain of custody and that our paper products come from responsibly managed forests. Not only are we creating something from a natural product that can break down after use, but the source itself is coming from a more ecofriendly supply chain as well.”

Financial institutions have seen plenty of new investment around environmental, social, and governance (ESG) initiatives, indicating a desire by consumers to minimize their impact on the environment. Many of these customers may not even realize that the plastic cards in their wallet could be replaced by something more ecofriendly. The effort extends to finding partners to ensure that the types of materials used are responsibly sourced as well. That is an important part of CPI’s manufacturing process.

“From the ESG perspective, CPI’s approach and strategy are very thorough and well-rounded, whether it’s from the cards and the products that they’re producing or the sourcing and the supply chain of the material,” Tavilla said. “Consumers are increasingly environmentally conscious of the products that they’re using and the providers that they buy from. A Javelin survey asked the key factors that users consider when they apply for a new credit card, and 26% said that having the card being made of sustainable material is an important factor.”

Expanding Possibilities

Sustainable card manufacturing allows for more than just environmentally friendly transactions. It opens up a new world of design for the cards as well.

“We have come up with innovative ideas such as gift packages that would have lights that lit up or scratch-and-sniff options for the holidays where you could definitely smell the peppermint,” O’Leary said. “When you think about what it takes to be able to deliver that kind of innovation, you need an extensive network of suppliers, partners, and innovators behind the scenes that help you bring that all together.”

It’s a misconception that an ecofriendly production means giving up uniqueness or special designs. CPI has developed hundreds of designs suitable for all kinds of occasions and personality types. Indeed, moving beyond simple plastic can give cards a variety of distinctive tactile feels. Special embellishment and designs focus on strong tactile experiences, which consumers love when they’re shopping for gift cards.

Similar developments can be expected in gift and retail cards. Even though these cards tend to be single use or limited use, consumers sometimes want them to have a certain degree of durability. Some people might leave a gift card in their wallet or in a drawer for months before they redeem it. Cards with a larger amount of funds attac...