The future of payments and why subscriptions are going to gain importance
January 06, 2021
4 min read
Behind are the times where services were purchased once, or were paid manually on a monthly basis. Today, what is fashionable is to buy in a comfortable way, as it is with subscription services that are renewed with different frequencies and automatically. A recent CompareCards survey revealed that Americans have more than tripled their subscription spending since March, and the vast majority of developed countries are moving in that direction. It is predicted that this will continue to grow: According to Gartner, 75% of organizations that sell directly to consumers will do it through subscriptions by 2023. International Data Corporation expects that 53% of software revenues will come from subscription models for 2022.
Covid-19 accelerated this reality: According to a survey conducted by Zuora, 22.5% of companies saw the rate of their subscription services growing during the last year. In the second quarter of 2020, Netflix added 10 million subscribers. Disney+ did the same thing, but with 60 million customers in only nine months.
If the credit card was once the preferred one to pay for subscription services, today is no longer that much. A GoCardless report, revealed that 48% of respondents prefer debit to pay for subscriptions. Digital wallets also took a significant percentage of the survey, minimizing the preference for credit cards. It is clear, then, that paid debit subscriptions are a trend. In Kushki, we brought the tokenization of debit to Chile, allowing to do this, in addition to offering it in other countries of the region.
Advantages of subscription models
There are multiple benefits that businesses can obtain when offering subscriptions. First, there is the topic of income. When selling subscriptions, a business can ensure a constant flow of income, at least during the time of the subscription.
Also, there is the topic of collaboration. It is not rare that in countries such as the United States, for example, subscription services are sold linked to each other in a kind of pack that is suitable for both parties. Having a payment gateway that allows subscribing cards, allows joining to all these trends.
Nevertheless, Bradley Leimer, the co-founder of Unconventional Ventures financial consulting firm, told TechCrunch that fintech companies must be very cautious not to abuse that last resort, because the fact of trying to be attractive to the entire public, also launching massive offers, can bring problems to a company.
The main cons
There are also disadvantages. According to experts, there are certain points that must be considered at the moment when a company decides to move to a subscription model. The first is competition and market saturation risk; nobody wants to go on having many competitors who do the same thing, selling through the same model.
According to studies, Americans are paying many times hundreds of dollars a month in subscription services, and the figure is still increasing, which makes it difficult (more every time) to encourage them with subscribing to something new.
And financial companies, according to Leimer’s opinion, have it a little more complicated, because of the simple fact that people are accustomed to having financial services at zero cost. For the expert, transparency is key: Companies that are clear with their subscription costs, can use that point in their favor.
Customer retention: The new big new topic
Now that subscription services experience a big boom, the matter is moving to how to retain the customer, and manage for him/her to continue renewing the service every month. Although three-quarters of companies are expected to adopt this model in the next three years, Gartner’s own study says that only 20% of these companies are going to be successful in retaining the customer.
There, experts explain, it is key that the subscription process of a card, and managing a monthly subscription is well managed and as automated as possible. All that allows the customer to manage to buy and make decisions quickly, increases retention. Forbes’ specialists point out that the first three months of a subscription service are crucial to provide a frictionless process, which is attractive to capture the user.
Having a good payment gateway, that provides the possibility of subscribing to credit and debit cards, allows businesses to focus on improving their product quality and increasing customer retention, instead of having headaches for payment failures. In Kushki we know about it, and that is why we offer a service that allows subscribing cards easily and quickly, with full support to our customers.
It is natural that payments are adapting to new purchase trends. In that, the increase in subscription services is proving to be one of the main forces that encourage innovation in the payment industry. As businesses continue adapting to the subscriptions trend, we can expect technology and payment agility to grow. If the global trend is maintained, it is important not to delay and get into the innovation bus in subscriptions, as it is reaching Latin America.
It is worth noting that companies are moving towards a subscription system, since it maintains a constant revenue flow, allows strategic alliances, and increases customer retention if done properly. There, payments are fundamental for this to happen.