Setting up e-commerce subscriptions and recurring payments can be of great benefit to businesses that wish to provide a monthly, quarterly or annual service. Recurring payments are used by many different businesses like gyms, newspapers, utility companies, product-of-the-month clubs, streaming services and subscription services.
Businesses that accept recurring payments with a subscription service encourage customer retention and can budget better for the future knowing they have regular income. Offering a recurring payment or subscription model can also appeal to customers who want greater predictability and convenience.
How to Set Up Recurring Payments
A recurring payment model allows businesses to charge customers for goods or services at pre-agreed intervals. These are often weekly, monthly or annually. However, some recurring payments can be customised based on an agreement between the business and the customer.
For your business to accept recurring payments, you will need a payment processor and a payment gateway. Your payment gateway will handle all of the transactions for your recurring payment plans while keeping customer data secure. Modern payment gateways can usually handle a range of different payment methods including cards, bank transfers and digital wallets.
1. Work Out Whether You’ll Need Fixed or Variable Payments
Your recurring payment system must be in line with your business’s and customers’ needs. Depending on your business model, the payment amounts may be fixed or variable:
- Subscription services and instalment plans have fixed payments. Fixed payments are automatic payments that don’t change. The most common examples are subscriptions to online streaming platforms and gym memberships.
- Modifiable subscriptions and usage-based services have variable payments. Unlike fixed plans, variable recurring payments change depending on the product or service that the customer has purchased or used. Utility bills, for example, change depending on how much electricity or gas the customer uses.
When choosing a payment processor, your business must ensure that it can manage the type of recurring billing that your business needs. This might be fixed, variable or both.
2. Decide Which Payment Methods to Offer
In Europe, most recurring payments were paid by direct debit or credit transfers in 2022. Less than 10% of consumers paid with cash, card and other payment methods. It’s important to offer a range of payment methods to accommodate customer preferences and changing trends.
Card-on-file payments require the cardholder’s consent to store their payment data. With card-on-file, the customer can save their card details for future payments. These payments can be processed automatically in the case of a membership or subscription.
To store customer data securely and protect yourself against fraud and chargebacks, it’s important to choose a payment provider that’s PCI compliant and offers the full suite of merchant services, including an adjustable fraud scrub and chargeback mitigation.
Direct debit works in a similar way to card-on-file but has some significant differences. Take the following into account before setting up payments via direct debit:
- Recurring card payments clear faster than direct debits. If you need funds to clear quickly, card-on-file payments are a better option.
- Direct debits tend to fail less than card payments.
- Credit cards expire after a few years, unlike bank accounts. This means that direct debits are less likely to be rejected and you won’t need to ask the customer to update their details every few years.
Standing orders are perfect for regular, fixed amounts like subscriptions. The customer issues a standing order to his or her bank to transfer a set amount to your bank account each month. The customer can cancel this arrangement at any time, although banks may request a minimum notice period before the cancellation takes effect.
While this arrangement is advantageous to customers, there are a few drawbacks for businesses. You may notice a time lag before you realise a payment has failed because this method doesn’t offer payment notifications. Standing orders are also less flexible than direct debits as the customer controls the payment amounts and the timing of transfers rather than your business.
Digital wallets are essentially digital versions of physical wallets. They facilitate electronic transfers of funds from one party to another using funds stored in the app, a linked bank card or a linked bank account.
Apple Pay, Google Pay, Samsung Pay, PayPal and Venmo are some of the most popular digital wallets used in Europe. This payment method is becoming more popular, particularly for online payments.
3. Secure Customer Consent
The customer must give clear consent to the terms and conditions surrounding recurring payments before you process a recurring charge. You should issue an email receipt for the recurring transaction with the following information:
- A reminder that the payment is recurring
- The payment schedule
- The duration of the payment plan the customer has signed up for
- Instructions for cancelling the recurring charge
4. Make it Easy to Cancel the Recurring Charge
Making it easy for customers to cancel a recurring charge is important both for the customer and your business. Customers may wish to stop a recurring payment because of financial problems, a change of mind or because they were dissatisfied for some reason.
In any of these cases, that customer will want a quick and easy way to cancel their subscription without having to search for this information or jump through hoops. Providing an easy way to unsubscribe will build trust and help to prevent chargebacks.
5. Keep Customers’ Payment Details Secure
Following credit card processing best practices helps to protect you against fraud. Your payment processor must be PCI compliant and offer the necessary security protocols to protect your and your customers’ data.
Make sure your website has these features:
- An SSL (secure socket layer) certificate
- Anti-virus software and a firewall
Your payment processor should:
- Provide a PCI-compliant payment gateway
- Facilitate checks including address verification service (AVS), card verification values (CVV), IP address matching and reverse lookups
- Provide a customised and adjustable fraud scrub
There are also some simple steps your business can take to prevent subscription-related chargebacks before they happen. These include:
- Sending your customers email reminders before a payment is due
- Making it quick and easy for customers to cancel the recurring charge
- Ensuring that your cancellation process prevents future charges automatically
6. Request Updated Card Details Before the Expiry Date
One way to prevent chargebacks and failed payments is to request updated card details before a customer’s card expires. You can use software to send out a simple automated email reminding the customer that their card is about to expire. This email should include a link to the customer’s card detail page.
The Right Payment Processor Can Help You Succeed
Recurring payments and subscriptions are effective ways for businesses to encourage customer loyalty and generate monthly recurring revenue. Providing different payment methods, both modern and traditional, is important for maximising subscription sign-ups.
To process recurring payments securely, partner with a payment processor that can facilitate the process and keep your customers’ data secure. A modern payment processor will also allow your business to accept multiple payment methods, opening the door to new customers and ensuring a seamless payment experience for all.