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DT, December 2016

Subscription Payment Is the Future. Are You Ready?
December 1, 2016

By Casey Bullock

Consumers are no longer enamored of single-purchase models. By adopting recurring-transaction models, companies can begin to offer a new and improved user experience.

The subscription economy, a term coined by Zuora Inc., is growing fast, and businesses are taking note. According to a recent report from Zuora, a cloud-based provider of subscription-management software, more than 50% of companies are adapting their pricing models in response to evolving consumer preferences. Despite their best efforts, however, merchants continue to face problems implementing subscription-model payment processes.

To overcome the complexities associated with setting up recurring transactions through alternative payment methods, merchants must first develop an understanding of the subscription economy, implementation struggles plaguing other businesses, potential solutions to such issues, and the future of recurring-payment models.

The Need

When it comes to meeting consumer expectations, a traditional single-purchase model may no longer be the answer. Time spent making monthly and sometimes weekly payments has driven consumer preference for long-term, value-based relationships with businesses.

Retailers eager to stay one step ahead of the competition must offer a user experience that is both seamless and secure. From a straightforward, one-time payment to a one-click process for repeat purchases, recurring-transaction models can help businesses provide the individual user experience that consumers are looking for.

Given the rapid rise of the subscription economy, leading brands have wasted no time shifting toward a recurring-payment model. In fact, global usage levels for new types of billing models—including account on file, subscription, usage-based, advertising, personal information, and micro-payments—are all set to increase.

For businesses, the bottom line is this: Consumers are no longer enamored of single-purchase models. By adopting recurring-transaction models, companies can begin to offer a new and improved user experience, maximizing the lifetime value of a customer in the process.

The Struggle

Although it brings new opportunities for businesses and consumers alike, the subscription model is not without its flaws. The absence of user authorization and real-time authentication standards for alternative payment methods has made it difficult for merchants to successfully implement a recurring-transactions model. Without proper banking standards and system capabilities for a variety of alternative payment methods, businesses face the challenge of proving that user authentication has indeed taken place.

Similarly, alternative payments that lack real-time payment authentication often leave merchants with no choice but to withhold orders, at least until they’ve received payment confirmation.

As a result of these concerns, global adoption rates for alternative payment methods have suffered. To help spur e-commerce growth, online businesses should carefully consider which payment methods are best-suited for each individual market. While technical difficulties are certainly a strong indicator of whether a specific payment method will be successful, cultural differences often play an equally important role in driving payment-method preference and usage.

In conjunction with payments providers, businesses should create a targeted strategy that takes each of these variables into consideration. Only then will they be able to offer payment options that can effectively function locally and abroad.

The Solution

While the absence of standards or system capabilities may seem daunting, businesses must find a way around these obstacles if they hope to grow internationally with a subscription offering. Rather than setting a global standard, merchants should instead focus on offering a subscription model that makes it easy for consumers to make payments.

Tokenization is just one possible solution that can help merchants do just that. By storing credit card details for future use, tokenization enables merchants to initiate recurring transactions without once again prompting consumers for personally identifiable information. Consumers will enjoy simplified payment acceptance, and businesses will face reduced PCI compliance obligations, along with higher conversion rates. Solving for all authentication struggles is no easy task, but tokenization can be a step in the right direction.

By working with payment providers that support alternative payment methods that feature a one-click payment process and open the door for tokenization, businesses can capture more revenue.

The Future

The subscription economy’s rise will be bolstered by two specific developments—SEPA Direct Debit and the EU Payment Services Directive 2. Designed to help facilitate and update current frameworks that simplify recurring transactions, each solution promises to bring much-needed relief in the near future.

SEPA Direct Debit, for example, will enable customer-authorized electronic online collection and subsequent recurring transactions by the end of 2016 within Austria, Belgium, France, Germany, Ireland, Italy, Netherlands, and Spain. Meanwhile, EU Payment Services Directive 2 will help facilitate a new type of payment initiation based on access to information from the payment account.

Although these two solutions could help paint a brighter future for the subscription economy, make no mistake, issues will still need to be resolved. Continued preference for alternative payment methods along with varying rates of adoption among countries could stand in the way of continued success. With the help of payment providers, merchants should look to combat such problems by incorporating these new initiatives and programs that are meant to ease struggles within the global payments landscape.

For merchants, the message is clear: Implementing a recurring-transactions model is no easy task. Problems related to alternative payments have made it difficult to cater to the specific preferences of individual markets. Still, businesses would be wise to take advantage of the opportunities presented by the subscription model.

Closely working with a payments provider to overcome any and all barriers would not only enable merchants to better serve their customers, but would also benefit the global e-commerce industry as a whole.

—Casey Bullock is general manager for global eCommerce, North America, at Worldpay.

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