If your business offers subscription services or has a subscription element, you will realize the complexity this adds to payment processing. You must overcome various challenges before you can run a seamless recurring payment process, ensure risks are avoided, and remain compliant with additional regulatory requirements. In this blog, we describe four4 main challenges of the subscription payment model that merchants must combat.
Why is payment processing more complex for businesses with a subscription model?
Processing payments for businesses with a subscription-based payment model is more complex and nuanced than most forms of e-commerce and traditional payment models. There are so many other factors to consider, from managing customer accounts, to securely storing user card details for recurring payments, to re-invoicing and pursuing customers whose monthly payments fail (like expiration of a credit/debit card), as well as managing changes to subscription preferences. .
On top of these complexities are regulatory differences and the perception of companies with subscription models, which can impact reputation and stability.
Main Challenges of the Subscription Payment Model for Merchants
Let’s dive into the specific challenges for businesses with a subscription-based payment model and the issues merchants face in each case.
Ensure regulatory compliance
Managing recurring payments comes with additional regulatory obligations, to ensure customer data is protected and handled responsibly. In addition, merchants should ensure that consent is collected for ongoing payments for products and services, that information is clearly displayed on short and long term subscription costs and that advice is given on how to unsubscribe – with simple options to do so.
If you offer your customers trials or offers that later turn into paid options or increased costs after a while, again, these details need to be clearly communicated to customers at different times and across different channels.
Failure to comply can result in significant repercussions, both financial and reputational, and the ripple effects can be very detrimental to your business. For example, companies can face fines of up to £80,000 ($100,000) per month for PCI DSS compliance violations. And since most recurring payments are made by card, it is essential to comply with the obligations defined by the Payment Card Industry Data Security Standards (PCI DSS).
Obtain a stable processing account
Having a stable processing account is crucial for businesses with a subscription payment model, especially new businesses. Various factors can impact the stability of your processing account, such as excessive volume of chargebacks, high revenue loss due to failed payments or missed opportunities, and the perception of high-risk business perception and of reputational damage.
A stable processing account is the lifeblood of your business, so we advise you to seek risk management assistance from your payment service provider.
Customer retention and increased CLV
Although all businesses need new customers, it is well known that retaining customers is much more profitable than acquiring new ones. For example, consider this statistic: the success rate of selling to an existing customer is 60-70%, compared to 5-20% when selling to a new customer.
Customer retention is obviously very important in subscription businesses. Recurring payments mean continued revenue, so customer retention is a top priority. But it takes optimization, a sophisticated marketing strategy, and a clear focus on building, nurturing, and growing relationships. However, with brand loyalty no longer what it used to be due to a competitive market, cost of living issues and changing consumer behaviors, the bar is set high for the experience. customer.
Thus, the name of the game increases the value of the customer lifecycle. Which is not a simple task. How competitive are your prices? Do you have levels for different users? Do you reward loyalty? Do you have cross-selling opportunities and regular offers to keep your customers engaged and enticed? Keep these factors in mind.
Delinquency mitigation and management
We previously mentioned the impact of chargebacks on subscription businesses, so a major challenge for merchants with a subscription model is mitigating and managing chargebacks.
In May 2022, Justt conducted a survey with UK e-commerce association IMRG of 1,000 UK consumers regarding their attitudes towards chargebacks. The survey found that 23% of respondents had filed or threatened to file a chargeback on a recurring billing subscription that had lasted longer than necessary, while 16% who had filed a chargeback in the past 12 months did to cancel a recurring transaction.
You won’t eliminate chargebacks – they’re an inescapable reality of today’s business world – but you can put procedures in place to reduce and manage them and coordinate an effective dispute process.
How can PSPs support businesses with a subscription payment model?
While these challenges of running an efficient subscription business may seem daunting, your Payment Service Provider (PSP) will be able to help you solve these problems and help you overcome them.
For example, a good PSP can give you expert advice and solutions to help you identify and manage payment risk, ensure strong security and meet compliance requirements, and offer strategic advice for building loyalty. more customers and provide the best possible payment experience.
Summary
Despite the complexities of managing a subscription-based payment model and the specific challenges merchants face, outlined in this blog, working closely with an experienced payment service provider to address and overcome these challenges will put you on the road to success.
This guest post was written by Fibonatix, a leading payment service provider with extensive experience supporting businesses with a subscription-based payment model.
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