How recurring payments can reduce subscription churn
The rise of the subscription economy has been one of the biggest trends in service consumption over the past decade.
Open banking-powered A2A recurring payments can help reduce customer churn
Whether it’s the growth of direct-to-customer (DTC) box services, such as Dollar Shave Club and HelloFresh, or the popularity of Software-as-a-Service (SaaS) business models, such as Spotify and Netflix, the shift has been driven by evolving consumer preferences.
Subscriptions aren’t only popular with consumers. In fact, according to BetterCloud, up to 70% of apps used by businesses today are also SaaS-based, showing that business customers clearly value the benefits of subscription-based models too. It’s easy to see why; at their best these services are convenient, reliable, and customisable. For small businesses especially, it becomes easier to manage expenditure and remain nimble with SaaS-based solutions.
Good for customers, great for merchants
One significant benefit of subscription-based models is they often help users to save money. Individuals and businesses can access valuable services with an advantageous payment model with flexibility and the ability to cancel at any time. The ease with which these services can be cancelled works both ways however, and also ensures that merchants are continually incentivised to innovate and deliver value to their customers.
Therefore, while clearly advantageous for consumers, subscription-based service models can also be great for merchants, who benefit from recurring revenues that contribute to sustainable business growth. What’s more, these models allow merchants to offer services at a lower initial outlay cost, which often makes them more accessible to customers.
Subscribing to success
Subscription-based pricing and business models have had an enormous impact across numerous sectors in recent years. However, despite years of popularity and increasing adoption rates, there are pain points that continue to cause frustration for merchants and consumers. One of the most glaring issues is customer churn – a persistent and growing challenge for businesses offering SaaS and DTC services.
According to commentators, SaaS providers should expect a monthly customer churn rate of 5-7%. However, many companies suffer rates far in excess of this. To a degree, customer churn is an expected occurrence within subscription-based models, but excessive churn rates reflect a deeper problem. Technical inconveniences are a key contributor, resulting in unintentional failed payments often caused by changing details or expired payment cards. In these instances, services can end up being cancelled without the knowledge, or consent, of a customer.
Nobody benefits from this unfortunate scenario. Customers forfeit access to services they may never have intended to give up, while merchants’ recurring revenue decreases. Merchants must then redouble their efforts to regain lost customers, with the additional expenditure needed to “reacquire” them. But it’s an entirely avoidable scenario, especially considering recent advancements in payments facilitated by open banking.
Opening up opportunities
Much like the world of subscription-based businesses, the payments sector has undergone a major transformation in recent years. Specifically, the introduction of open banking has fundamentally altered the landscape of payments across Europe. As a result, third-party providers (TPPs) can offer customers a level of service and convenience that was previously unimaginable.
However, despite the benefits, open banking solutions are frequently underutilised by those who stand to benefit the most. This is partly due to a lack of widespread education and understanding around the application of open banking. Unfortunately, many businesses remain unaware of newer solutions – such as recurring payments facilitated by open banking – that address major pain points. Effective recurring payments can help reduce customer churn and unlock opportunities for subscription-based businesses.
A new era for subscriptions
Subscriptions redeemed via card sign-up have traditionally come unstuck when cards cyclically expire or are changed. An open banking-based recurring payments solution allows monthly payments of a fixed amount to be automatically sent directly from a customer’s account to the merchant, without the need to ever update or change card details. The result? Greater reliability than traditional direct debit models, while providing the same flexibility.
The benefits are significant. Notably, recurring payment solutions significantly reduce the likelihood of unintentional subscription cancellations, which in turn helps reduce unnecessarily high levels of customer churn across DTC and SaaS business models. Reduced churn gives companies more stability in terms of cash flow.
Right now, businesses face an increasingly gloomy economic outlook, meaning that securing reliable cash flow has never been more important. With account-to.account (A2A) recurring payment solutions, companies across many different verticals can help ensure cash flow stability and protect themselves from economic headwinds.
Recurring benefits of A2A payments
A2A recurring payments offer extra benefits beyond reducing customer churn. Merchants immediately gain an efficient and frictionless way to accept recurring payments from customers. What’s more, A2A recurring payments remove many of the pain points associated with traditional models, enabling customers to sign up with only top of mind information. Customers can authenticate themselves quickly with standard login details. All of this makes the solution perfect for businesses looking to lower the barriers to entry during sign up.
Open banking recurring payments can also run without a finite end date, enabling businesses to reduce unintentional card churn while offering a perfectly transparent solution for consumers. In short, A2A recurring payment solutions are more user-friendly and reliable than their predecessors, and the benefits can no longer be ignored.
The time is now for businesses that stand to benefit the most to adopt A2A payment solutions; fortifying their subscription operations, ensuring cash flow is secured and preventing accidental customer churn.
