In A Hard Economy, Leverage a Subscription Model

Here’s how subscription payments can be a key contributor to building loyalty, reducing churn, and boosting cash flow.

If you are a merchant, sell to merchants, or have a friend who is a merchant that sells subscriptions or recurring services, then this article is for you.

When money is tight, businesses can’t afford to let revenue slip through the cracks, but that’s exactly what happens when subscription payments fail. Today’s consumers love the ease of “set it and forget it,” whether it’s for their favorite streaming service, meal kit, or fitness app. Yet, every month, thousands of subscribers drop off, not because they want to cancel, but because of payment issues.

The impact is staggering. On average, 7% of all recurring charges fail on the first attempt, and their effect is even more pronounced on subscription orders, most of which are entirely avoidable. That’s not just churn, it’s preventable revenue loss.

In an uncertain economy, businesses must do more than offer convenience. They must ensure every renewal sticks. The subscription economy is a shift from ownership to access, where businesses thrive on recurring relationships instead of one-time transactions. Recurring revenue and subscriptions are critical for a successful business, so how do you do them right?

Power and Growth

The subscription economy is booming. Despite economic uncertainty, the subscription model continues to thrive, projected to reach $900 billion by the end of 2026, according to a report from the Business Research Company. Companies love subscriptions because they create predictable, recurring revenue. But what happens when those recurring payments fail? That predictable revenue stream suddenly isn’t so predictable anymore.

Consumers love convenience, businesses love predictable revenue, and the model itself has become a dominant force in industries from entertainment to SaaS, retail, fitness, and even automotive. But there’s a catch. While subscriptions offer stability, they also come with a hidden risk: payment failures.

It’s not customers intentionally canceling. In fact, the subscription model is hugely popular among Millennials (69%) and Gen Zers (66%), according to a report by NMI. These groups prefer recurring payments for frequently used goods and services.

It’s credit card expirations, fraud flags, insufficient funds—small things that add up to big revenue losses. The key to success in this space isn’t just signing up subscribers, it’s keeping them. And that starts with optimizing how you handle payments.

More Recurring Billing, Less Involuntary Churn

One way for companies to reduce involuntary churn and ensure their payments strategy is working is to use network tokens—secure, tokenized versions of card numbers issued by the card networks and stored by the merchant or payment provider. Unlike static card numbers, these tokens are automatically updated when a customer’s card is reissued or expires, ensuring stored payment details stay current.

Network tokens also help prevent fraud and reduce disputes, as card issuers trust the process in which tokens are created more than they do transactions with one-time card entry. As a result, these tokens minimize declines and boost authorization rates. If you’re in the subscription business and not using network tokens, you’re leaving money on the table.

Timing is everything when it comes to payments. Even with tools like network tokens in place, transactions can still fail for reasons like insufficient funds or temporary issuer holds. That’s where smart-retry logic comes in.

Instead of retrying a declined payment at random, this approach uses artificial intelligence to pinpoint the best time for a second attempt, factoring in patterns such as payday cycles, past issuer responses, and customer behavior. Another simple but powerful tactic is sending pre-expiration notifications, giving customers a chance to update their details before a card expires. Together, these strategies can significantly reduce failed transactions and keep recurring revenue on track.

Meeting Diverse Customer Needs

Beyond preventing failed payments, businesses need to offer payment flexibility. Customers today expect control over how and when they pay, so the days of rigid, one-size-fits-all subscriptions are fading. For example, not all subscriptions should be monthly. Some customers prefer usage-based, pay-as-you-go, or hybrid models. Also, digital wallets and Buy Now, Pay Later (BNPL) are gaining traction. The more payment options you provide, the easier it is for customers to pay in a way that works for them.

Finally, people want the ability to pause, upgrade, or modify their subscriptions without friction. The more control customers have, the more likely they are to stick around instead of canceling outright.

Imagine this: You’re sitting on your couch after a long week. You’re excited to kick your feet up and binge-watch your favorite show. You earned it. You open the app, but instead of your show, you get an error message: “Payment declined. Please update your payment method.” You sigh, thinking, ‘I’ll do it later.’ But later never comes, and, instead, you decide to check out a competitor.

Just like that, the streaming service lost a paying subscriber—not because you wanted to leave, but because your credit card interrupted the experience.  Every month, troves of customers—who actually like your product—disappear because of payment failures like this.

At the end of the day, payments are not just a back-office function. They’re a critical part of the customer experience. If you optimize them, you’re not just reducing churn, you’re also building loyalty and improving cash flow. This, in turn, will feed into long-term business success.

—Tiffany Johnson is chief product officer at NMI