Payments Learning Resources

Recurring Payment

The recurring payment business model has been gaining traction amongst e-commerce merchants, whether they offer physical or digital goods online, as an acquisition and retention tool for customers. An important strategic decision any e-commerce merchant must make is how to monetize their business and the subscription billing model is worth exploring.

What does recurring payment mean?

recurring payment graphic

Recurring Payment - Things to Know 

  • What does recurring payment mean? 
  • How does a recurring payment work? 
  • Things to know before getting permission for recurring payment 
  • The legitimacy of the company 
  • Terms of agreement 
  • Overdraft policy 
  • Payment security measures 
  • Why is a recurring payment so handy? 
  • Recurring payment limitations 
  • Things to consider before establishing recurring payment
  • Partner with Powercash21

What is meant by recurring payment?

Recurring payment (or billing) is an ongoing payment during a period of time, where a merchant charges their client automatically. Recurring billing is used where the products and/or services are subscription or membership based. 

Subscription based billing is when a merchant automatically charges their client's card or account for a subscription or membership package.

The ease and convenience of a recurring payment option make it an essential function for all online businesses who offer products or services that are purchased on a regular basis. 

As consumers have limited free time, they are probably not willing to go through the checkout process every time they want to buy a subscription-based product or service. Merchants who accept recurring payments offer their customers a convenient way to insert their payment details just once in order to enjoy a product or service recurrently.

Today our lifestyles are busier than ever and people are determined to enjoy life without worrying about time-consuming transactional payments. Having the option of automating transactional processes is now an expected feature, especially as it relates to payment for subscriptions. Allowing people the freedom and peace of mind, by taking payment off their hands for something they are  interested in paying for, is a win-win situation for both the paying customer and the business itself.

How do recurring payments work?

euro dollar sign with clock in the background

When customers select the recurring payment option at the checkout page of an online website, they provide the merchant with debit or credit card information and authorization to withdraw money from their account on a regular basis. The checkout pages where this occurs include those found on an e-commerce store, a SaaS company, an education portal, and so on. These automatic payments can be set up to either pay the same amount each time or allow payments within an amount range that allows for variations in bill payments, such as with utility bills. Subscriptions are a good example of a recurring payment model. A great company practice to avoid confusion is to send a reminder to customers to notify them when a recurring payment is due to be withdrawn.

From a company perspective, the merchant will need to partner with an acquiring bank to obtain a merchant account and a payment processor that will provide the payment gateway needed to process recurring payments. Powercash21 is an acquirer and a payment processor offering online merchants the payment gateway, along with the technology, needed to accept recurring payments.

Before getting permission for a recurring payment

notepad with a verification tick symbol

With the increase in data breaches and fraud activity, consumers are more concerned than ever about whether they should provide their card information to online providers. The most common factors that customers consider before they proceed with an online purchase are:

The legitimacy of the company can affect payment – merchants should include verification that their business is legitimate and support that with related documents where possible. Consumers that will check for such confirmation will feel secure to pay and provide their card information if there is a legitimacy statement in place. In addition, having existing customer reviews visible on a merchant website enhances the perception of legitimacy with potential customers. Having the power of the consumers by your side is a strong and important brand element since security in payment, and the mindset of having your hard earned money handled with care and accuracy during payment is a key element to customer retention.

Terms of agreement for payment – companies must provide consumers with a copy of their agreement terms, or in case of an e-commerce site, include this information in a separate section on the website’s homepage footer. Terms and conditions must be laid out in an easy-to-understand manner. Ensure that you inform customers on how much they need to pay and how much will be taken out of their account, or if they should expect any extra charges under certain circumstances. Also, have a clear return policy that will remove customers’ inhibitions in committing to a repeated purchase. This ensures that they will feel more comfortable if they know exactly what to do if they are not pleased with the product or service you offer. Finally, provide your customers with flexible subscription modification terms, so that they can feel comfortable that their subscription can be altered as their future needs change.

Payment overdraft policy – inform customers on the conditions under which you may charge an overdraft fee during a payment transaction. Such a fee is usually imposed to the customer when insufficient funds are present and companies, or the cardholder bank, charges an overdraft fee as a guarantee that they will receive the amount of the recurring payment. Informing your customers about the fees that they might face is vital. This is because once the customer consider you untrustworthy when dealing with their money
via continuous payment methods due to the hidden fees that they might be charged, it’s game over.

Payment security measures – online merchants usually use fraud protection tools to protect their business and their customers from fraudulent activities especially during a payment. It is important to state in a clear way that the payments submitted on your website are protected from fraudsters and emphasize the security of your browser and servers, as well as the PCI compliance of your payment page and the payment systems you are using.

Merchants must ensure that their clientele remains confident that their payment data is secured when used for recurring payment purposes. Customers will always have safety concerns on whether to use their card details online but you can enhance trust from your customers to your company by following the guidelines mentioned above.

Why recurring billing payments are so handy

euro dollar bill positioned in front of a clock

Recurring payments are beneficial for both businesses and consumers. The major benefit is the convenience they provide to shoppers. Customers only have to submit their card details once instead of providing their information every time that a product or service is purchased. Another great benefit for customers is that they will not be charged with late fees, due to the fact that they will be charged automatically and it is close to impossible to miss a payment.

From a merchant’s perspective, a recurring payment solution will minimize late payments. Moreover, a recurring payment function can help in predicting the business cash flow and managing inventory levels. By selling goods and services automatically, merchants can predict the money they will receive and make well-informed business decisions. 

Loss of profits is never fun for any business. Having the opportunity to automate the most important part of a business, receiving income, is a process that has to be done with efficiency in mind. Once every payment is automated and it brings revenue to the business, you still have to think about the potential updates that may happen to various payment methods and all the many factors you need to keep track of. If the tracking is being performed automatically on almost every payment this can help the company focus on other important tasks as well. 

Finally, offering a recurring payment option yields higher conversions due to the benefits enjoyed by the consumers, as well as greater brand loyalty. Loyal customers are the ones that can bring steady profits to your business limiting the worry about getting enough conversions. A recurring payment can be a great way to create brand loyalty.

Recurring payment limitations

The decision to accept recurring payments involves many benefits for both merchants and their customer, but you should take into account the limitations of recurring payment services prior to finalizing your billing model decision.

Can result in added expenses in payment for the merchant

If consumers forget that they have subscribed or billing errors occur, refund cases will be more likely resulting in added fees for the company to manage such cases. The merchant will lose sales and be consumed in the process of correcting the transaction’s status. Furthermore, not having a consumer-friendly return policy might lead to service-related chargebacks against your company, which can be costly and time consuming to manage.

Recurring payment options can affect the customer relationship

Even though recurring payments increase a company’s customer base, often merchants rely on that fact and don't look past the physical payment to enhance their relationship with their clients. By communicating with customers through personalized content, special offers and other client-focused initiatives the relationship of a merchant with the customer can be enhanced and a better customer experience with the product or service will be provided.

Things to consider before establishing a recurring payment option

dollar sign set as a target in illustrative background

Merchants should consider varying factors before setting up a recurring payment option for their clients. The main questions that a company must think about before enabling recurring payments are the following:

Does your product work with recurring billing and recurring payment?

The great benefits of recurring payments have led companies to adopt this payment option for their products or services. From online education to streaming videos, dating to gaming, SaaS companies to even fashion, the subscription-based model is one of the most popular digital marketing strategies driving revenue in e-commerce today. Even the major companies in e-commerce have blended the subscription model with their business in order to have recurring payment options to bring greater profits to the business alongside sales that the e-commerce platform drives by itself. Prior to enabling a recurring payment plan for your business, ensure that your product or services will work with such a way of paying for it.

Setting up subscription billing for recurring billing might not be straightforward

Setting up a recurring payments plan and subscription billing requires merchants to partner with an experienced payment service provider, like Powercash21, that can provide recurring billing solutions for their business. A recurring billing system must be flexible enough to accommodate the unique needs of particular businesses, by being customizable and by offering multiple options in terms of billing frequency, failed transaction notifications and credit card data change management. Indeed, ensuring that you have the most updated credit card information is especially challenging, given that credit cards expire, or get lost, or hit their spending limits. To manage declined transactions based on this is manual and time-consuming.

Certain payments providers like Powercash21 offer tools like card updater services, which automatically update records when a card is expired or being reissued. Real-account updates are received during the authorization process automatically, ensuring that recurring billing merchants have improved approval rates. Hence the importance of partnering with a billing system that can manage that automatically, saving you resources, lost revenues and allowing you to focus on growing your business. Automation is a great option for both businesses and consumers, and it is important to point out that getting automation correct from the get-go is crucial. By having a flawed plan for your automation payments procedure can reduce in a significant loss of profits.

You’ll need to continually sell the product to the recurring payee

When you start a subscription service you can’t assume that the customer will commit to your product for life without you enhancing the customer loyalty and product offering. When you decide to proceed with a recurring payment model, the customer experience needs to stay exciting, at the product and at the service quality levels. In conclusion, the ease and convenience of recurring payments have rendered this billing model very popular in the e-commerce space, despite its potential challenges. Partnering with a payment service provider with experience and systems to support this model does not only save costs but also time and resources for any merchant. Returning customers may seem easy to maintain, but they are actually a complex segment of your clientele that still needs attention from you and your business. Consumers tend to return to businesses that they feel satisfied with, but they also return because they are kept in the loop. They can be kept in the loop by being reintroduced to new ways that they can interact with the business. For example offers, lower prices and ease of the payment experience.

Partner with Powercash21 

Partnering with a payment service provider with experience and systems in place to support this model of recurring payment does not only save costs but also time and resources for any merchant. Powercash21 has years of experience with recurring payment solutions and are determined to ensure that our clients maximize their time to focus on the things that really matter to them - making their businesses thrive.

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