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Payments: Your Swiss Army Knife in a Subscription Business

Payments: Your Swiss Army Knife in a Subscription Business

Subscription business model is here to stay as it is increasingly becoming a way to purchase products and services online. Consumers today are less willing to own a product. Whether it is streaming TV/ media service, buying a movie ticket or even a car, consumers are more comfortable in subscribing to the product or service. Today’s millennials want the choice and flexibility to be able to try new things and move away from long term ownership.

The subscription market has continued its rapid growth and McKinsey & Company estimates a market size of $10 billion (or more). A recent in-depth analysis by McKinsey shows that sixteen subscription e-commerce companies made Internet Retailer’s 2018 Top 500 list.  In total, these companies generated $5.6 billion in revenue in 2017, up from $4.1 billion in 2016.

When you get a Swiss Army Knife, you may not appreciate its capabilities at first. However, the closer you inspect it, you will realize how you can use it creatively to solve different problems. The more you start using it, the more it keeps growing on you till it becomes an indispensable part of your daily life.

Your Payments processes are more powerful than merely being your back office functions. It is your Swiss Army Knife in your subscription business to leverage multiple opportunities starting with increasing your revenue to effectively reduce your subscriber churn.

Subscription business is based on a long-term customer relationship. Leveraging your Payments processes and data can help you in improving your customer experience, reducing your customer churn, increasing your revenue and reducing your bad debt. In a subscription business, Payments is no longer a commodity where you find a new partner or negotiate with the current one to reduce costs associated with accepting payments.

Let me elaborate on how you can leverage your Payments processes to do all of the above:

Improve Customer Experience

According to the McKinsey report, curation-based subscriptions tend to dominate customer preferences. This reflects the fact that subscribers are ready to pay regularly for high-quality, personalized offerings. Internet Retailer reports that a large number (46.1%) of online shoppers walk away at the payment stage. When the customers reach your payments page, they are looking for speed, convenience and security. Your Payments data can reveal information about your customers, like who they are, where they are and how they prefer to pay. You can leverage this data to customize your customer experience and offer them the right payment type.

Reduce Churn

Minimizing involuntary churn is a key objective of the recurring payments business. A small % change in voluntary or involuntary churn can make a significant impact on the business. The challenges result from the recurring nature of the subscription business. After the initial payment at signup, with each recurring payment, there’s a risk that the payment might fail. When payments fail, subscribers often churn. An effective decline management strategy can reduce your involuntary churn and add to your revenue collection. You can effectively analyze your payments data to understand the reason for the payment failure and strategize your next steps to retain the customers.

Reduce Bad Debt

Friendly fraud is a large part of the subscription chargeback. The subscriber can be well into their subscription period before requesting the chargeback, and then you’re not only out of the chargeback-specific fees but also incurring costs for your goods sold. If your chargeback rate goes beyond a specific limit, the card associations may charge higher fees and/or restrict your ability to accept payment. Your ChargeBack data can give you valuable insight into understanding your customer and the reason for the Chargeback as well. Both of these are required for an effective strategy to combat fraud and also to fight your chargeback.

Payments process and associated data can be your business driver. While a well-executed payments strategy can give your users a differentiated experience, it can also help you in understanding your customers better, help you reduce churn and improve both your top line and bottom line.


Written by Prasanta Chakraborty, Payments Executive, Sling TV
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About the Author
Prasanta Chakraborty is a Payments Executive focused on enabling and leveraging payments to grow business in a subscription economy. He has spent last 15 years in consulting, delivering products and services for global retailers and payments brands.