Rise of the Subscription Billing Economy: Trends, Challenges and Solutions
Ownership is a thing of the past. In fact, today’s consumers are less concerned with physical possessions and more interested in experiences. More than half of adults wish they could own less stuff and 70 percent say that subscribing to products and services releases people from the burden of ownership (e.g., maintenance, clutter, declining value).
In response to these trends, the subscription market is growing exponentially. According to one survey, 71 percent of adults pay for one or more subscriptions, an increase of 18 percent from five years ago. And the businesses that provide them are booming. Over the past seven years, companies throughout North America, Europe and Asia Pacific have seen subscription-based sales increase by more than 300 percent.
Consumers want fast, easy and personalized service when it comes to keeping on top of their subscriptions and their payments. In order to meet these growing demands, companies need to evaluate the unique challenges of offering a subscription service, or risk impacting their bottom lines.
New challenges in a growing market
As with any burgeoning market trend, the pay-as-you-go subscription model comes with its own set of challenges. The biggest problem with subscriptions is, ironically, the reason they are popular to begin with. A subscriber does not buy ownership and can therefore, at any time, forfeit their customer status. Because of that, subscription providers are seeing a major obstacle emerging: customer churn. This refers to the number of customers who stop paying for the subscription, or unsubscribe, during a given period of time. There are two forms of churn — voluntary and involuntary — and each represents a serious challenge to the subscription economy.
Voluntary churn occurs when a customer, based on their experience with the subscription, consciously chooses to unsubscribe. Customers often voluntarily opt-out of a subscription when they feel they aren’t getting the full value of their money, are dissatisfied with the payments process or find a more competitive service. Customers will often be dissatisfied if they aren’t informed of price increases and the reasoning behind them, or a lack of notification over the end of a promotional period.
Involuntary churn occurs when a subscription ends due to a payments issue. Subscription payments fail or are rejected for many reasons; a credit card on file has expired, there are insufficient funds in a bank account or the account number on a debit card has been updated.
Addressing customer churn with seamless payments
With the rapid growth of subscription-based services and products, addressing the churn challenge becomes more and more critical to success. At the root of the battle to retain subscribers is a proactive, customer-oriented billing and payments service.
Involuntary churn is, for the most part, preventable. And companies can offer solutions to help reduce it by proactively stopping the churn before it happens. Subscription services often lack payment reminders or notifications, severing critical communications between business and subscriber. Companies should look to partner with payment providers (like ACI) that can work to build back this necessary connection notifying the customer regarding an upcoming payment or an expiring credit card.
For companies looking to address and prevent voluntary churn, consider focusing on providing a seamless, branded and personalized billing and payments experience across all channels – and keeping customers informed with notifications delivered to their preferred channel. Companies should look to maintain regular communication with customers to discourage voluntary churn. Educate customers about special offers, price increases and product upgrades. By consolidating the payments experience into a fast, easy, informative and personalized process, payment providers are able to elevate subscribers’ experiences and, in turn, encourage customer retention.
Additionally, to further circumvent voluntary churn, companies should consider allowing subscribers to pay using alternative payment methods, such as PayPal and Zelle, to increase customer choice and improve their experience.
The subscriptions ecosystem continues to grow as more options become available, so keeping customers happy will be critical to long-term success.
ACI Worldwide is innovating the billing and payments 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.
Related Blog Posts
Could COVID-19 Be India’s Cashless Catalyst?
India’s push towards a digital economy has accelerated over the years, with a supportive regulatory environment, home-grown technologies and innovation around digital infrastructure improving “last mile” connectivity to the remote towns and rural areas of the country. While the “Digital India” drive has been consistent, the COVID-19 pandemic has brought out the true value of digitization for businesses and consumers alike. It is a watershed moment and has fast-tracked the pace of digital adoption, particularly for payments, which now plays a critical role in economic recovery.
The Nordics’ P27 Initiative: Payments in Uncharted Waters
The advance of real-time payments around the world seems unstoppable, with 45 schemes currently live and a further 13 (at the time of writing) in the planning stages. In Europe, the Nordics’ P27 initiative – the world’s first integrated multi-country, multi-currency, real-time payments platform spanning Denmark, Finland, Sweden and Norway – promises to make headlines as it takes payments into uncharted waters.
The Pandemic Has Accelerated the New Era of Acquiring
The COVID-19 pandemic has accelerated many trends already taking shape in consumer purchasing behavior. Almost overnight, routine activities ranging from picking up groceries to buying gas unexpectedly became something that they had never been before – risky.
How Southeast Asia’s Banks Can Remain Competitive and Profitable in a Real-Time World
Cross-border payments across Southeast Asia are shifting as market dynamics, increased competition and increasingly demanding customers drive rapid change. As payment systems are modernized and the market evolves, banks and governments must stay on top of these trends.
The Benefits of Open Banking for LATAM
Thanks to customer demand and regulations on how customer data can be gathered and used, open banking has seen rapid growth throughout the world. The EU and U.K. have been leading forces in the implementation of open banking, while countries such as Canada, New Zealand, Hong Kong and Japan have been quick adopters.
How National Central Infrastructure Initiatives for Real-time Payments Create Immediate Business Opportunities for Merchants
More and more countries and regional alliances are investing in the creation of new financial market infrastructures. Governments and leaders of central banks have decided that the finance industry needs investment to be fit for the demands of digital economies, suitable for the trailblazing businesses of the fourth industrial revolution.
Payments Modernization in the Cloud: An Inflection Point in the History of Payments
Public cloud is one of the big buzzwords in payments right now. While a few years ago financial institutions were reluctant to embrace the technology, they are now among the most likely to do so. ACI discussed the topic of Payments Modernization in the Cloud during a recent webinar, moderated by Finextra’s Head of Research Gary Wright. Katrin Boettger caught up with the panellists — Ciaran Chu, head of cloud at ACI; Peter Hazou, business strategy leader at Microsoft and Lu Zurawski, practice lead, retail banking at ACI — about why the COVID-19 pandemic might be a further catalyst for the worldwide adoption of cloud technology.
Brazil’s Digital Payments Transformation: Five Key Takeaways
Brazil has abundant growth opportunity when it comes to digital payments, with PIX – the Central Bank of Brazil’s new instant payments system – expected to have a significant impact. This was evident during a recent webinar Digital Transformation into Payments, hosted by Mercado & Consumo em Alerta and featuring experts from Getnet, Pernambucanas, Conductor and ACI.
Southeast Asia’s Domestic Payments Infrastructure Has Laid the Foundation for a Cross-Border Real-Time Network
Over the past decade, economies across Asia have been on the path to payments modernization, upgrading and replacing domestic payments infrastructure to make payments cheaper, faster and better. While the focus has been on domestic gains, this has set the foundation for a broader, cross-border real-time network – especially in Southeast Asia.
From "Access to Cash" to "Access to Digital" – How Innovative Thinking Is Keeping SMEs Trading
With millions of people in London and the wider U.K. having endured lockdowns and restrictions, the COVID-19 pandemic has had a massive impact on our shopping habits. While some supermarkets have struggled to keep up with customer demand and social distancing rules, many small, local business have adapted to the crisis quickly, efficiently and in innovative ways. While supermarkets have run out of delivery slots, smaller businesses are now offering local deliveries whilst providing safe digital payments options. They are also selling goods that the big supermarkets have run out of because traditional supply chains have been interrupted.