Though both recurring payments and subscription systems share some similarities, they are still distinct from one another. Choosing the best one without knowing the concept behind them both is challenging.
With the rise of digitization and e-commerce, the demand for flexible payment options has also increased. Some businesses and customers want a subscription system, while others prefer recurring payment models. Let’s check what is the best model for your business to receive online payments.
This post will guide you with this aspect. You will know the difference between recurring and subscription payment options. Read this and select the one that fits well for your business.
Recurring payments involve an auto-pay system that works with a one-time payment setting. Consumers have to provide you with the details of their payment method, usually debit or credit card. Then the whole thing is on your system. It has to save the details and automatically transfer funds from the consumer accounts to yours after a set interval.
The main benefit of this payment model is that you don’t need the customer’s permission every time, so there are no delays. Of course, the user will have the right to cancel, but before the start of a new payment cycle.
2. Fixed payment and variable payment
The payment mode further has two subcategories — fixed payment and variable payment.
Fixed recurring payment: The fixed recurring system is similar to the method followed for magazine charges, gym subscriptions, and automatic bill paying systems. You have a set amount for a particular service, and the customer will pay that for every cycle. It may be a monthly, yearly, weekly, or quarterly cycle.
Variable recurring payment: The term itself suggests that this model will deal with payment cycles that include changes in the principal amount. This system works best for usage-based services such as internet charges, utility bills, and more.
3. Benefits of recurring payment
The benefit of this payment model is that it saves consumers and businesses a lot of time. However, this is not the only reason that makes it a preferred option. The following reasons also contribute.
4. Implementation of recurring payment model
The deployment of recurring payment in your business is not a very complicated task. You can employ the system by following the steps given below:
Select the platform that can help you to create a recurring payment option.
Create guidelines for the customer. You have to guide them through all the terms and the procedures of the payment.
Set the elements such as payment start date, billing frequency, end dates, amount, and more.
The subscription payment system is an advanced payment model developed to enhance customer retention rates. The model involves providing a small preview of your services and encourages consumers to buy your services.
The basic concept of the method is similar to the recurring payment. But in this case, the consumer achieves more flexibility. They can choose from multiple programs and can switch between them.
Moreover, in most subscriptions, the periodic payment will be manual. It means the consumer will have a total control over the payment and will not have to share confidential details with the business they are dealing with.
6. Benefit of a subscription system
The subscription is a preferred payment model for software as a service products. The following things make the subscription accessible.
7. Implementation of subscription payment model
The deployment of the subscription payment model is a multi-layer process that works on both backend and frontend. You have to create a network that can receive, save, and sort the consumer details and payment status in real-time. Following are the things that you have to undergo for adding a subscription:
Ask the consumer for signup and receive their information.
Collect and safely store their payment details for future references.
Add the consumer to the subscriber list along with the dates, time, and other similar information.
Once the customer has connected, create the subscription status chart.
8. Final thoughts on recurring payments vs. subscription
The recurring and subscription are very similar to each other in almost every aspect. They are modern, widely accepted, and help to retain consumers. They even share common benefits like payment security, more extensive exposure, and more.
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The only difference that you will find in them is the timing and payment options. The recurring payment entirely depends on credit or debit card, while subscription may be developed for other payments. Moreover, in the recurring model, you have to store payment details, but the subscription system if flexible with it.
So, the final answer to the question, “Which one is the best?” It depends on the type of services you offer, the flexibility you need, and the audience you are targeting. Analyze these aspects, combine them with the above data, and you will have your answer.
Micropayments are opening up new models of how we inform and entertain ourselves. Subscription fatigue is setting in and content creators are looking for new ways to attract consumers. Micropayments, through pay-per-click or pay-per-view models, can serve end-users more efficiently, expanding the market and bringing more people into the fold.
The typical US customer subscribes to four subscription services, down from five in October 2021, according to a PYMNTS poll conducted in May 2022. Moreover, C+R Research stated that individuals frequently forget about their subscriptions and 2.5 times underestimate their prices. Just 33% of those polled, meanwhile, said they intended to cancel one or more memberships.
Of course, paying for goods and services online presents unique challenges for payment providers and consumers alike. The cost to process transactions can sometimes outweigh the benefits of making small payments. Payments giants such as Visa and PayPal can offset the cost to process small transactions, but smaller payment systems have struggled to allow micropayments.
To understand micropayment is to understand the technology connected to it. Technology is constantly improving, affecting every aspect of our lives. One of the biggest challenges in life is simplifying our finances and the best way to do this is via fintech — a developing area that brings together the best financial products worldwide at the lowest possible price. A crucial part of this is the processing of very small fees that cannot be handled by traditional credit card companies.
Micropayments in the loop
Among the most important characteristics of such transactions are small sums of money being used online. There are various sizes defined as a maximum for the transaction to be considered a micropayment. Different payment providers define it differently. Some consider a micropayment below $1 while others place it below $10. Such small sums are too small for consumers to justify flat transaction fees and too small for payment providers to profit from a percentage fee. Here’s where innovative payment technology comes in. Theodor Nelson developed the idea in the 1960s, already well before widespread internet use. One of the most difficult obstacles was the cost of transactions. Nelson proposed that in order to be profitable, these small payments should have transaction fees maximum of 10 cents. Such transactions were not efficient for payment providers.
Cryptocurrency, however, reawakened interest in micropayments and drove them out of that niche. In this report, we’ll dive into how micropayments work, key drivers and we illustrate its future. We share one of our client’s success story to emphasize the possibility that micropayments hold also for smaller companies. “Micropayments are going to be more and more popular, especially when selling online content and in-game purchases. Blockchain technology can enable wider adoption of micropayments because it reduces transaction costs and allows for instant settlements.”
Key technology development drivers
Cryptocurrencies allowed to significantly lower the transaction provision fees. In some cases even twofold. A remarkable example in the discussion about lowering costs is Bitcoin Cash and Ripple which keeps transaction fees below one cent. Another advantage of digital wallets with decentralized cryptocurrency is the protection of private data and anonymity in comparison to traditional credit cards. Blockchains, the underlying mechanisms of cryptocurrencies, have made microtransactions efficient for both sellers and buyers ensuring also its security, high speed and availability. Blockchain technology is based on the transactions database spread across different computers. Customers instead of having multiple accounts in different services can use an online crypto wallet.
To make the system more efficient, and lower processing fees, companies started to use micropayment channels technology. It was proposed as an alternative to the bitcoin protocol’s capacity. The Lightning Network mechanism, which made transactions almost instant and reduced costs, relied on the creation of the second layer on top of the cryptocurrency while keeping the peer-to-peer character of the transactions. A payment channel is basically the agreement between the sender and receiver of a micropayment. Blockchain technology has energized micropayment systems and the whole infrastructure connected with it. While earlier sending small amounts of money was seen as costly, because you still had to pay transaction fees, there were some indicators that micropayments could work in a more profitable way.
Mobility as micropayment key trigger
Access to financial services was limited by a lack of technology and appropriate devices. As a result, many transactions were completed on a cash-only basis when they occurred outside of the normal banking system. However, the huge popularity of mobile services created an opportunity to provide financial services over its wireless network. Research showed a significant and growing market demand that was particularly important for all GSM (Eng. Global System for Mobile Communications) players.
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This demand intimated that it was technically feasible and profitable to deploy financial services over mobile networks. The big picture showed that mCommerce might fill a major service gap in developing countries which is critical to their social and economic evolution. Practice shows that the range of features accessible in particular environments can be applied elsewhere if the target markets are similar. With only minor variations from the mainstream, the features of all systems need to include:
Over-the-air prepaid top-ups using cash already in an account, such as blik
The ability to transfer any amount of money between users’ accounts
Provision for cash deposits and withdrawals
The ability for an employer or family member to deposit funds into a customer account
The ability to charge for bill payments
Since all the above points are now achievable, micropayment has been reconsidered as a viable technology, largely due to the development of cellular networks. The main reason for this is not technological but simple economics. Independent online service providers receive much revenue from mobile users. Mobile networks often charge users for admission to low-cost services on a fixed network. Alongside this, many applications require a solution for the commissions placed on small transactions containing mass data storage and message exchange. Insomuch as micropayment systems are designed to purchase exceptionally low-cost items, it is crucial that the value of each individual process remains very small.
Areas of micropayments
Importantly, micropayments and microtransactions, sometimes get used interchangeably, in practice these are different things. Microtransactions are often for defining low-value transactions in games, generally with virtual currency. In contrast, there are no strictly defined areas of applications for micropayments.
Microtransactions appeared as a response to the drawbacks of pay-to-play and subscription business models, helping to reduce the barrier of the high prices for games. Market shifts and saturation in the 2000s caused many major game creators to reassess their sector. This led to the free-to-play business model in which customers could play a basic version of a game for free, or pay for the full version.
Some of the biggest adopters of the microtransaction model are mobile app creators. Interestingly, according to PricewaterhouseCoopers, the allocation of the revenues of video game publishers in microtransactions has grown from $1.2 billion in 2010 to $2.5 billion in 2014. Game development studio Ubisoft is one company successfully implementing this model. According to Business Insider, their revenue from micropayments surpassed physical selling in 2017. Moreover, the company’s revenue from micropayments was almost 83% higher in 2017 compared to 2016. Any small-value e-commerce transaction performed in such areas as gaming, applications, online publishing, music and video or even charity and crowdfunding can be called a micropayment. Moreover, such transactions are widely used by content creators, consultants and other experts working online.
The widespread use of micropayment systems indicates that customers are ready to pay small fees in order to access products and services. Among companies which adopted micropayments are technology giants such as Apple, which used this model to charge customers for music downloads. The iTunes model, which proved to be successful, attracted followers in other sectors. Media agencies are increasingly letting readers access the content at a relatively small cost per piece, with companies profiting from increased sales. In an article by Bleyen and Van Hove, in 2007 researchers described the results of the conducted survey in newspaper agencies. The data shows that micropayments were adopted by 13% of the surveyed newspapers as early as 2007. An example of a company which adopted this business model is the Dutch startup Blendle. The company gathered different articles and sold them to customers receiving a commission on each micropayment. Such payments became even more popular with the emergence of bloggers, with readers charged pay-per-view. Other examples include Ivend partnering with GoByte Pay which introduced vending machine selling coffee and other goods with cryptocurrencies. The mechanism underlying this experience is a wallet with GBX currency, which enables low commission fees and fast small payment processing.
Social micropayments function as small donations for content creators. An example of such a platform is the social media service Steemit where users can earn cryptocurrency from each piece of content they share. Flattr, which is working on the basis of the subscription model, also allows patrons to support content creators.
Systems which exist to support
The main systems which support microtransactions include PayPal Micropayments, Skrill, Amazon Payments, Lightning Network and Stripe. Companies such as PayPal and Amazon are more regulated, whereas Lightning Network, used for transactions in Bitcoin, is based on decentralized blockchain technology. There are a few types of models of Micropayments that can be added to the monthly bill, taken directly from the customers’ accounts, e-wallets or prepaid cards. Customers can either prepay the particular amount of money in the form of a subscription or pay afterward the total amount of the microtransaction. Other models include payments for each transaction separately. Online media agencies also use a collaborative model, selling their content for small-value fees together.
How it works
Micropayment platform schemes that are dedicated to processing small transactions work in two main ways: One is that a seller or service provider establishes an account with a third-party micropayment provider who accumulates, stores and distributes the monies accrued. Both seller and user/buyer are required to establish an account with the same micropayment provider for easier and safer implementation. The provider manages a digital wallet where all the payments are stored until they get to a larger amount and can then be sent to the recipient.
Freelance, for example, is a market workplace for freelancers to connect with companies to develop small projects. A company hires a developer from The Freelance to make a few changes on their website for $1 per hour. If the developer works on it for eight hours, the task giver — the company — pays The Freelance. In this case, The Freelance collects all the fees. It also stores the remainder in a developers’ digital wallet. If a developer is good and garners many fees, The Freelance accumulates IOUs to the point where the wallet contains a significant sum, e.g. $500, which is then sufficient to be withdrawn. ‘The Freelance’ then pays the developer directly into his account.
The second way can be that micropayment systems can operate as a system for prepaid transactions. A user/buyer makes use of a micropayment processor account by depositing in advance a certain amount of money in it. As long as the seller (the other side of the primary transaction) uses the same account provider, everything works smoothly as the user’s account with the provider is easily debited for the amount of the purchase. The payment is simply made by using a micropayment processing account. Let’s illustrate this with the most common example: PayPal.
PayPal is a very popular micropayment provider that has its own requirements for micropayments regarding the maximum amount of the transaction. According to PayPal, a micropayment transaction is less than $10. So let’s imagine that a PayPal user decides to pay $200 into his or her account. From that point, the user can become a buyer by purchasing an item for $5 from an online store. The purchase price is debited from the PayPal account and used to cover the payment. On completion, the balance in the buyers’ PayPal account will be $195 minus PayPal’s fees for micropayment transactions, the online store’s balance account is plus $5, and PayPal gains the provision fee. In all these scenarios, commercial organizations have much more to gain by addressing the problem of fiscal cash transactions by micropayments. Cash is not only more difficult to use, but you waste a lot of time moving it outside the banking sector. In the 21st century, no country exists beyond the scope of the banking sector and so for their own economic progress, they should be encouraged to move away from cash. The extra motivation here is that the resulting low-cost solutions and mechanisms that work in these environments can then be efficiently applied in all types of developed economies.
Technicalities
The main issue with low-value transactions has been that processing and transaction fees diminish the final settlement amount.
Payment processors place additional costs for a multiplicity of reasons including infrastructure costs, administrative costs, and paid mechanisms for fraud prevention and dispute resolution. In the past two decades, a lot of research has been undertaken on using digital communications and cryptography to reduce or erase these costs. For banking facilities, these fees ideally need to be down to the fraction-of-a-cent range.
It can be expected that content servers for the global information infrastructure will soon operate billions of these small transactions that are computationally complex. While costly cryptographic protocols are now impractical and obsolete the micropayment process can be bootstrapped with already well-known payment protocols for larger amounts but does not depend on them for each microtransaction.
Special attention is given to its integration into IBM’s Internet Keyed Payment Systems at its most basic level. The product itself allows for the possibility of a payment protocol in wireless networks. The protocol usually assumes two techniques of transaction execution:
In on-line mode with the participation of a trusted website — for macropayments,
In off-line mode using electronic money, mainly for small value transactions — for micropayments.
The main purpose is to predict scenarios of various events and transactions in the protocol — and to be able to analyze any part of it. Paramount within this are the aspects of payment security such as asymmetric cryptography techniques, public key infrastructures and many more. Needless to say that for the evaluation of any protocol, performance must perfectly blend with the criteria specific to the wireless environment.
Conclusion — The future of micropayments
Some experts predict that in the future, credit card companies will engage in the competition for customer attention in the sector of micropayments to a larger extent. Pay-per-click models may become an even more popular alternative for the subscription model or advertisement. The potential of microtransactions for social media platforms, e-commerce, online gaming and the press have yet to be explored. The important role of microtransactions for the internet of the future will be in ensuring user privacy, at the same time being fast, cost-efficient, and flexible.
Our expert and consultant Dominik Zyskowski says that “micropayments are going to be more and more popular, especially when selling online content and in-game purchases. Blockchain technology can enable wider adoption of micropayments because it reduces transaction costs and allows for instant settlements.” Fintech is changing the payment landscape “Fintech has had a more pronounced impact in the payments market, where firms have expanded their presence in non-capital intensive business such as cross-border transfers, micropayments, and card payments because those are the areas where the incumbents have accumulated the most glaring shortcomings, often resulting in inefficient and overpriced products. This is affecting the payments landscape. In a European Banking Authority survey, a majority of incumbent banks indicated that payments is the business area most affected by fintech competition, eroding fees and commission income.
Is the initial exchange offering, or IEO, the new form of fundraising? Like the initial coin offering before them, they have attracted the blockchain world’s attention. But are they really a sound alternative? In this post, I’ll dive into the technical, fundraising, business, security, and legal aspects of the token offering. Here’s what you need to know about IEOs.
Short for initial exchange offering, the IEO is one of the newest ways for blockchain startups to raise initial funds. But how do they work? Promising to avert some of the worst of the ICO phase, IEOs involve exchanges directly instead of inadvisable methods such as the token airdrop to distribute tokens. First, a startup sells tokens for users to spend as an internal currency or as a voucher to access their platform, and any discounts, services or products. The entire process depends on the demand for the new token, which funds the first stages of startup development.
Key to this model is that startups don’t sell tokens themselves, but rather collaborate with cryptocurrency exchanges who organize and execute the token sale. Exchanges such as Chinese exchange ZB.com are established companies with existing customers, so they can handle the promotion of the sale and secure customer accounts. Normally traders can immediately trade their tokens processing time has finished, but sometimes there are vesting periods for tokens – they are held for a certain time. Considering that IEO is mostly based on tokens with solely a utility/ payment function, rather than security features (for example, share participation in a company), trading tokens is a method to grant liquidity for the platform, rather than an investment in a traditional and legal sense of the word.
1. Technical aspects
To explore the technical aspects of IEO, I decided to consult my colleague Marcin Rzetecki, blockchain consultant at Espeo Software and vice-president of the Blockchain Polska Association (in Polish). He is well-known for his vast experience in IT and extensive knowledge of digital currencies.
According to Marcin, IEOs are presently the best way to raise money, especially compared to the ICO and STO. ICOs have lost people’s trust in the last months, as many of ICO-based projects were announced as scams or failures. The IEO is a breath of fresh air in his opinion and has several success stories to prove its credibility, such as BitTorrent, Celer Network and Matic Network, all of which have achieved success on Binance through an IEO. When asked about pioneers in cryptocurrency exchange, Marcin pointed out that, “there is no other exchange that has done its own blockchain, but Binance has achieved it. They have also made their own successful token — Binance coin. It allows you to spend it on the Binance platform.”
Regarding technical aspects of IEOs, Marcin said, “investors don’t take much interest in a technical approach. For them, the new form of fundraising should be safer than before. I think Binance found the best solution. They have the entire ecosystem to the IEO such as its own blockchain, its own cryptocurrency, and proven publication processes for new projects. Generally, with Binance, things would be the easiest way on the technical background.”
Theory aside starting an IEO is roughly similar to the ICO. Creating a solid business foundation, therefore, is the biggest challenge to tackle.Sylwia Rogowicz, Lead project manager and co-founder of Espeo Software, shared what she believes will make IEO projects successful.
“An excellent business model described in the white paper and well-prepared tokenomics [are essential],” she said. “From a technical perspective, both the token and the sale are prepared according to the business model, so it must be of great quality.”
Meanwhile, Hakan Atabaş, founder of Geliyoo (in Turkish) cites IEOs as a safe method of exchange and recommended it for startups. Of course, cost is something every startup wants to know. One downside to the IEO is the cost. The fees charged by exchange companies can range from $250,000 to $400,000 USD, according to Hakan.
2. Fundraising aspects
After covering the technical aspects of IEOs, let’s focus on fundraising and investment. I also spoke to Ethan Pierse, director of The CryptoAssets Institute, founder of Borderless Ventures to dive deeper into the subject. For him, the difference between IEOs, ICOs, and STOs from the investor and fundraiser point of view is purely about who’s selling the tokens.
“An IEO”, he said, “is just an ICO run directly on the exchange, nothing more. Exchanges run due diligence before accepting the IEO for particular projects.”
While IEOs gives many an opportunity to raise money for interesting projects, it is not 100% secure. It simply offers immediate utility, not future utility, which lets projects gain more visibility. In fact, during the crypto winter, only IEO projects became big fundraising hits. However, Ethan remains cautious. He questions how diligent the due diligence checks are.
“[It’s unclear whether] the exchanges are really doing very thorough due diligence or just taking the money for the IEO,” said Ethan, “including listing on their exchange.”
Investors want valid projects, rather than pure ideas, which explains Ethan’s doubts. Ethan also points out that many people involved in ICOs and IEOs don’t understand the value of hard capital, because they raise money too easily.
When I asked him whether it is better to choose a big worldwide exchange or a local one, he said it all depended on a project. Local projects benefit greatly from local exchanges, while global projects thrive on the biggest worldwide exchanges such as Binance.
Investor interest in the initial exchange offering may come from the feeling that they are somehow more legitimate. One huge plus generally is in marketing support. “Exchanges do provide visibility,” Ethan offered. “They’re creating content and visibility for your project and shifting it toward exchanges and your project. It also saves money for the project because part of the ICO fundraising would normally go toward listing the token on an exchange.”
All in all, if you aim to raise funds for an existing blockchain project and the token has immediate utility at issuance, an IEO is an option to consider for your business.
3. Legal aspects
Of course, the elephant in the room for all blockchain projects is the complex, often unclear web of laws and questions of jurisdiction. To learn more about the legal aspects of IEOs, I talked to Pavel Vasilevski, who provides legal advice for the financial industry and has a vast experience in a blockchain stock exchange.
Pavel stressed that the jurisdiction of the platform chosen to conduct IEO on is very important, as “its reputation and regulation will have many repercussions on the performance of the offering.” He said that “from the IEO perspective, any legal entity located in Switzerland or abroad can conduct an IEO with a crypto exchange located in the same or another jurisdiction.” stockup.ch is the recommended blockchain stock exchange of his choice, as he regards it as a trustworthy and ambitious project. According to Pavel “the biggest challenge is to find a proper crypto exchange, which is able to conduct the IEO for a startup and willing to do everything compliant to the actual legislation.”
4. Business Aspects
To learn more about IEO’s business potential I asked Ralf P. Gerteis, an entrepreneur, executive, and blockchain evangelist to share his thoughts on IEOs. According to Ralf, IEOs work out great for “comparably mature blockchain-based ventures, which have built up a lively community, a certain presence on social media and PR, a team that shows all necessary experience, skills and which brings a good level of reputation.”
He thinks that IEOs make sense for products based on the strong utility of the token, especially if the company wants to develop a healthy ecosystem soon after listing. However, he predicts that the STO’s significance will increase after regulators hammer out all the legal issues. His recipe for initial exchange offering success? A careful plan, an available budget, and business maturity in all relevant aspects.
5. Security aspects
Security comes first, so when On Yavin, CEO of Cointelligence, agreed to share his insight on IEO security, I was delighted. On says that in an ideal IEO project, everyone benefits from the arrangement: from a project team, which doesn’t have to spend too much time on marketing, through investors, who can participate in IEO projects, to exchange companies, which get their cut of proceeds.
Nevertheless, conditions aren’t always ideal, and too often exchange companies have too much power in selecting projects and focus mainly on profits. Consequently, they ignore many great projects. On also warns against scammers, stating that “the scams can come from two fronts with an IEO: the project itself, or the hosting exchange.
Projects can be scammed by unscrupulous exchanges that don’t deliver what they promised.” He also mentioned that although exchanges should be doing due diligence, many of them don’t. What is one of the things to look out for when working with IEO? According to On, security. In his view, people “should look into what sort of insurance the exchange has for the funds it’s holding,” as exchanges are often on hackers’ radar.
Conclusion
As with every new solution, it’s important to exercise caution. Beware of scammers, and always check whether the tool is the best match for your needs. The initial exchange offering is relatively easy to navigate and guarantees great visibility, so it could work if your project has good liquidity. A careful plan, an available budget, and business maturity in all relevant aspects should be enough to ensure your success in IEO projects, but each case is different. Minimize the risks to maximize the potential of IEO and you will discover a whole new world of business possibilities.
After reaching out to several cryptocurrency exchanges, the cost to list an initial coin offering varies project to project. They tend to calculate based on trading volumes. For the technical review and development process, it’s also important to pick a solid partner. For more information on building and launching an IEO, drop us a line and we’ll guide you through the process.
Recurring payments have worked their way into thousands of popular subscription services. While subscription models are nothing new, e-commerce has driven innovation in new directions. Integrating online payments in customer-friendly ways is now a top priority for many firms looking to improve cash flow. Video and music streaming giants popularized the trend and now other companies taking these lessons to sell goods or services. Just how seamless a payment provider integration is often means the difference between happy customers and cancelations. Here’s a brief overview of recurring payments and ways put it to good use.
Recurring payment subscription is a business model in which cardholders pay automatically at regular intervals for a product or service. According to Mercator Advisory Group, e-commerce, bill paying, as well as subscription models are factors underlying rapid payments development. In this model, customers allow retailers to save their payment details and give their permission to automatically withdraw funds from a bank account or credit card. This can improve the checkout experience, which can vastly improve customer retention and win loyal customers.
Currently, you can split recurring payment models into three types. Curated choice takes user interests to pitch personalized content while replenishment fills routine items at specific intervals. VIP club recurring billing models create an air of exclusivity that can make your business stand out.
Curation — This is the most popular according to the McKinsey survey. What attracts customers in this category are the positive emotions linked to receiving personalized, hard-to-find items. Try the World does this particularly well. Subscribers save their credit card details once and receive snacks from around the world every month.
Replenishment — This model saves users’ payment information and helps optimize shopping for routine items such as razors or toothbrushes. Dollar Shave Club or The Bam and Boo allow you to customize your recurring billing frequency based on how often they ship.
VIP club — Members can access premium products, discounts, or free delivery otherwise not available to regular customers. Amazon’s Subscribe & Save offers attractive discounts to members and is among the most popular recurring billing model.
Managing recurring subscription billing and existing systems
In many services, customers can adjust their recurring payments schedule according to their needs. When a customer pays a set amount of money for the product or service, this is a fixed subscription. This payment schedule is widely used by different kinds of streaming services when a fixed membership fee is charged from the customer’s bank account regularly. There is also a variable amount model in which the price that the customer pays is not stable. You can see this schedule applied when your account is charged for utility bills which differ from month to month.
Benefits and challenges
Among the most obvious challenges to recurring billing is the convenience and comfort for both customers and merchants. Customers using this method often stay longer than traditional one-off transactions. This gives the company a much better idea of revenue and makes supply ordering much easier. In this way, the company can gain more recurring customers. recurring billing can also lower the costs, helping to receive payments without delays and reminders.
For consumers, this payment method allows them to save time on entering credit card data each time at checkout. Subscription models can also reduce the anxiety and indecision that some consumers feel as they try to make a perfect purchase. Moreover, subscription packages can cause more positive emotions in comparison to traditional shopping because of the less effort and time spent on choosing the right product and element of surprise.
Besides some obvious advantages, some caution should be exercised with a recurring payments plan. First of all, it is more difficult and time-consuming to troubleshoot some potential issues or errors. For companies, there are still some administrative costs left. Moreover, according to the McKinsey report, churn rates of such businesses as subscription boxes are quite high and companies should have a unique competitive advantage to attract buyers.
Recurring payments perspectives
Recurring payment methods besides some resistance is becoming widely accepted and used. According to the Gocardless survey, which surveyed 4,000 people, 52% of respondents preferred direct debit. In the UK and Germany, the number of respondents enthusiastic about direct debit was even higher reaching more than 60%.
Another recent survey conducted on almost 12,800 participants from different countries showed that Canada is the leading nation willing to make automatic payments with credit cards. 27% of the respondents declared that they are likely to use it to pay for offline subscriptions whereas 26% for bills and subscriptions online. The survey found similar results for American consumers. In the US alone the recurring billing method is expected to increase to $473 billion by 2021.
Blockchain recurring payments
First services offering recurring payments using cryptocurrency were Coinbase and PumaPay. In August 2019 Monarch announced its decentralized blockchain-based recurring payment system. The advantage of this subscription business model includes capturing a growing market of people who want to see alternatives to centralized systems. Recurring billing smart contracts is what allows users to hold their own private keys and seed phrase.
Decentralized web browser Brave flips recurring billing on its head by paying users in their native BAT, or basic attention token cryptocurrency to look at advertisements on the platform. While it remains an open question about the viability of this business, cryptocurrency transactions do lend themselves well to small, payments. Brave does offer an example of how similar systems could work. It’s conceivable that a streaming service or online publication could charge a small fee per minute or per view directly from users instead of running ads.
Smart contracts can verifiably prove that a user viewed something and release payment automatically, greatly streamlining billing and auditing. Of course, instead of credit cards and bank accounts, users would connect their crypto wallets. So if you want to accept crypto you would need to be able to integrate with a range of user wallets.
Final thoughts on recurring payments
The question arises whether this system will be the future of recurring billing. What we know for sure is that it opens wide perspectives for businesses with its improved security and possibilities to create personalized subscription plans. In addition, recurring payments can streamline a checkout process by saving key payment details. Credit card, debit card and maybe crypto wallet integrations will be ever more vital as more consumers and retailers transition to e-commerce.
Adding a recurring payment system can grow your business and win loyal customers. Want to add it to your business? Schedule a free 15-minute consultation with one of our payment experts to find out more.
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We use technologies like cookies to store and/or access device information. We do this to improve browsing experience and to show personalized ads. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Not consenting or withdrawing consent, may adversely affect certain features and functions.
Functional
Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes.The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
