When you think of recurring monthly expenses, there are certain obvious bills that come to mind: mortgage or rent, utilities and phone bill, among others. But today, monthly recurring expenses increasingly include things like online streaming services (music and entertainment), meal kits, pet treats, video games and clothing. It seems there’s a subscription service for everything these days — and consumers are taking full advantage.
According to Zuora, subscription sales have risen five times faster than retail sales in the United States, with an 18.2 % Compound Annual Growth Rate (CAGR) in subscription revenue versus 3.7 % growth in retail revenue. But while subscriptions have evolved from home newspaper delivery and record-of-the-month clubs, one thing remains the same — collecting subscription fees is a challenge for providers.
ACI recently commissioned Mastercard to conduct a survey of consumers who subscribe to services and providers (merchants that sell recurring goods and services) to obtain market insights on the current state of subscriptions. Here we share a few of the highlights.
Understanding Customer Trends in Subscription Payments
When it comes to voluntary churn (subscribers purposefully canceling a subscription), 23% canceled a subscription due to a payments issue. In other words, providers lost nearly a quarter of their customers who otherwise would have preferred to stay on — and keep paying.
Providers can stem this dissatisfaction in a number of ways, including faster reimbursements and expanded payment options. Real-time payments, for example, not only offer faster reimbursement in the case of overpayment, but also give providers a wealth of transaction data. This rich data ensures more accurate billing and payments posting.
Involuntary churn (subscribers having their subscription canceled) is most likely the result of a card on file either expiring or having inaccurate information. Twenty percent of consumers have missed a subscription payment due to an expired card.
1- Compounding this issue is the fact that 41% of cardholders have had their card reissued due to expiration, loss or fraud.
2- In these instances, updating subscription information may be the last thing on a consumer’s mind.
To help combat this, providers should work to send timely notifications to remind consumers that their information may be out of date — for example, when a card is set to expire or soon after a payment has been declined.
Real-time payments may not yet be a staple of the American payments ecosystem, but banks and networks are rapidly moving toward this model. Unsurprisingly, only 20% of consumers said they were aware of real-time payments, while 41% said they would use them once they understood how these payments work.
For providers, real-time payments offer the ability to deliver speed and convenience. Seventy percent of providers currently accept real-time payments, and of those that do, 90 % list speed as the top benefit. Not only are these payments faster, they are more actionable; they help create accurate customer profiles and prevent fraud due to the rich data accompanying them.
The increasing popularity of subscription services will naturally create greater competition for subscribers — both from in-market competitors and other subscription services. Providers that can offer fast, seamless payments through popular channels and methods will be well poised to retain existing consumers while winning greater market share.
For more facts and insights on how you can achieve recurring payments success, download the full eBook: “Subscription Payments: Growing Pains and a Need for Faster Payments”
ACI Worldwide is innovating the billing and payment experience for subscription providers, leveraging new capabilities such as real-time payments and sophisticated fraud prevention methods. Find out more about our billing and payment solutions.