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How Payment Orchestration can help subscription economy's growth

How Payment Orchestration can help subscription economy's growth

Updated: 2 December 2021 • Reading time: 6 minutes

Subscription economy is a term coined by Tien Tzuo, CEO of Zuora, in 2007 to describe the new wave of subscription-based businesses that has been growing at a very fast pace, especially in the world of PayTV and streaming services.

Whether your business is already based on a subscription model or you are thinking of integrating a subscription product, one of the next main steps will be choosing the best solution to handle recurring payments at a low cost and with high levels of performance and security for storing information. In fact, when we look at subscription businesses the first transaction that the customer makes on your website becomes even more important because its value goes beyond the one of the single purchase and encompasses all the subsequent subscription payments, meaning that the “customer life value” is much higher from the start.

In this article we’ll look at how payment orchestration handles all aspects of recurring payments and effectively answers to all the payment needs of your subscription Ecommerce business.

The subscription economy market

Firstly, let’s have a quick look at the market of subscription model businesses, which in the past years has grown at a really fast pace, especially in the music and SVOD (subscription video on demand) sectors. Only in the UK music sector the streaming subscription’s income has increased from 8.6 million British Pounds in 2008 to 650.3 million in 2020.¹

However, these sectors are not the only ones that see an increase in subscriptions. In the United Kingdom and the US internet users are interested in subscription services for the following products: food grocery, coffee, pet products, clothes, alcohol, personal grooming products and many more.² This shows how this booming business model is growing beyond the entertainment and media sectors and is a good opportunity for different businesses in many industries, as it is becoming a new preferred purchase method for customers.

When we look at the reasons why consumers choose subscription services, 41% of the respondents of a study carried out by Royal Mail say it is for convenience, 47% for price.³

Also, when you look at the video on demand sector, a study from 2021 looked at the number of households that were subscribed from 2014 to 2020 and the number grew from 3.83 million households in 2014 to nearly 17 million households in 2020.⁴

Benefits of a subscription model for your business

Now businesses take advantage of subscription models because of many reasons:

  • Customer life value
    As we were saying before, recurring payments mean that the customer life value is higher from the first purchase of the product/ service.
  • Customer loyalty
    Subscriptions to a business build a stronger relationship between customer and brand, when this relationship is nurtured, as it’s detailed in Axerve’s insight on the topic.
  • Consistent cash flow
    Recurring payments ensure a consistent cashflow and allow your business to budget more easily for the year ahead.
  • Upselling
    Within your existing subscriptions you can always upsell and leverage the existing customer base by offering more services or premium packages

The best payment processing for an effective subscription business model

When we look at the needs of a subscription model business for their payment processing we need to take into consideration the specific characteristics of the business. In fact, whether you are a local company or have a more international customer base you will need to be able to provide international and local payment methods and currencies in order to allow people to access your business.

International and local payments

In fact, if you are a local company you can intercept new customers that are foreign who come to your country and need to subscribe to your business with payment methods that may not be common in your region. However, if you have an international business or if you're willing to scale internationally in the future, it is of utmost importance that your payment processing provider allows customers to pay in their preferred currency and chosen payment method. This can be unrealistic to achieve if you only rely on one payment provider, as your payment provider may not work in the country that you're interested in or might not allow integrations with the payment methods that are most used in the country that you're targeting.

What choosing a multi-processor platform - what we now call a payment orchestration platform - means is that it allows you to switch to the most effective and geographically available payment provider and payment method depending on the single transaction. This way you can always ensure successful transactions for your customers, because if one provider fails there is always a back-up one. Now this is very beneficial for any business model, but it becomes extremely important for a subscription payment model since by missing the first payment you also lose all the subsequent ones. Secondly, with recurring payments, if the PSP cannot process the transaction for technical problems or authorization declines you might end up losing the customer.

Moreover, payment orchestration platforms help you reduce time to market, when scaling internationally. In fact, being able to implement new geographical regions/ age targets is easier knowing the payment processing side is quickly implemented for accepting new payment methods and processors.

Reducing transaction failures with tokenisation

After a new customer jumps on board and manages the first transaction, what the merchant needs to focus on is making sure the following payments happen smoothly and without friction in order to ensure a long relationship with your brand and product/ service. Although there are some aspects that a business has no control over, like insufficient funds on the customer’s card, many technical problems that may arise can be solved by working with many providers and by offering different methods of payments, like we said in the previous example. However, another factor that plays a huge role is tokenization.

We’ll briefly explain what it consists of, but if you want to read more about it you can find plenty of information and data on our whitepaper. Tokenization is the service in which the costumer’s card information is replaced by tokens (numerical or alphanumerical codes). This solution – which is part of payment orchestration - becomes extremely useful when subscribers’ cards expire, because the payment can go through even without the need for the costumer to provide the new card information to the merchant.

Increase payment authorization rates

Another reason why the transaction can be turned down is due to fraud prevention policies and authorizations. With payment orchestration you can increase your chances of the transaction being approved by the acquirer and therefore decrease your number of failed transactions because of this reason. In fact, the smart routing of the orchestration platform redirects the payment to the acquirer with highest approval rates in that specific geographic region from that specific issuer, increasing your chances to get the transaction approved.

Finally, the subscription business model is becoming more and more frequent and customers are getting more accustomed to it and even prefer this method in many occasions compared to one-off purchases. Because of this, businesses need to be prepared to handle recurring payments in the most efficient way in order not to miss the first payments and make sure the subsequent ones go through without technical issues. Payment orchestration solves many of these problems and allows you to scale your business by growing with you and answering to your changing needs in term of payment processing. Discover more about Axerve’s Payment Orchestra here.

Source
1

Income from sales of music streaming subscriptions in the United Kingdom (UK) from 2008 to 2020 (in million GBP), British Recorded Music Industry.

2

Share of internet users in the United States and the United Kingdom (UK) who would be interested in buying a monthly subscription to the following in the next 3-6 months 2020, GlobalWebIndex.

3

Why do UK consumers use subscription services? Royal Mail

4

Number of households subscribed to video on-demand services in the United Kingdom (UK) from 1st quarter 2014 to 3rd quarter 2020 (in millions), Ofcom.

TagEcommerceDigital payments

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