Collecting payments for subscription-based services can be a hassle. You need to store customers’ credit or debit card information, manually process monthly payments, and deal with chargebacks and refunds.
It’s hard enough to keep your small business or startup running smoothly without having to worry about payments—you’re busy enough as it is!
Subscription payment processing is the perfect solution to this. It automates the entire payment process, from collecting payment information to issuing refunds.
This article will dive deeper into this type of payment processor, its benefits to your business, how it works, and how a reliable payment processor can streamline recurring payments.
What is Subscription Payment Processing?
Subscription payment processing is a convenient and reliable way for customers to pay for goods and services over time. This payment method allows customers to pay for their purchases in smaller installments instead of one lump sum.
In this model, customers sign up for the service and agree to have their bank account or credit card information stored to facilitate recurring payments. The merchant uses this stored payment information each time a new payment cycle begins.
With subscription payment processing, businesses can collect regular income on an ongoing basis.
Worldwide, subscription-based business models are experiencing significant growth, with an e-commerce market size hitting $97 billion USD in 2022. This figure is expected to reach $904.2 billion by 2026.
Subscription payment processing enables businesses and customers to conveniently manage payments regularly without worrying about missed payments or manually setting up invoices every month.
From automated billing processes that save time on administrative tasks to streamlined payment options that reduce errors, subscription payment processing eliminates friction from financial transactions between buyers and sellers alike.
How Subscription Payment Processing Works
Subscription payment processing starts when customers sign up for the service or product they wish to purchase. The customer provides their contact and payment details, including their debit or credit card information.
After this step, the customer doesn’t need to enter their personal details again, as the merchant has them saved in the payment system.
The merchant will then use an online payment gateway (such as Stripe or PayPal) to store credit card data securely. The payment gateway ensures that all transactions are encrypted while maintaining compliance with security standards like the Payment Card Industry Data Security Standard (PCI DSS).
When a new payment cycle begins, the merchant’s online payment gateway will automatically pull up the customer’s stored credit card information to make the necessary charge for that cycle.
If the customer wants to make an additional purchase from the same merchant later on, they can do so quickly—their information is automatically available from the merchant’s payment gateway.
Recurring billing works differently based on the type of business. Automatic payments for some businesses are typically billed with the same monthly fees and on the same day each month, i.e., gym membership. Others vary in pricing and dates based on payment plans or how the customer uses the product or service, i.e., household utilities.
Benefits of Subscription Billing
Subscription billing offers many benefits for both merchants and customers. Because it’s largely automated, it streamlines the merchant’s billing operations while maintaining data security.
Subscription billing helps merchants save time and resources since there’s no need for manual intervention during each payment cycle.
Let’s dive deep into the benefits of subscription payment processing:
Predictable Cash Flow
Businesses can ensure they receive consistent revenue with minimal effort. E-commerce businesses typically have inconsistent cash flow, so having subscription billing guarantees a reliable and consistent income for each billing cycle. Recurring payments help businesses better budget for their operations and assess their financial growth.
Streamlined Customer Experience
Subscription billing streamlines the customer experience. Automated payments make it easier for customers to complete their payments without manually entering their billing information for each billing cycle.
Subscription billing also removes the need for manual payment processing, essentially any hassle from customers having to remember when or how much to pay each month. It eliminates potential delays from forgotten or late payments.
With subscription billing, customers can also spread out the cost of their purchases. It minimizes the friction when buyers decide whether to purchase—increasing conversions for your business.
Creating Add-On Subscriptions
Subscription models can build customer loyalty.
There’s something in the ongoing use of your offerings that instills brand advocacy among customers, especially when you consistently provide high quality and maintain high customer satisfaction.
This model helps make upselling or cross-selling of your products or services more accessible—especially when you’ve proven the value of your offerings.
Customers don’t have to do anything else but click the “buy” button at the checkout page. Every payment detail from the first purchase will be used for subsequent ones.
Minimizes Customer Churn
The automated nature of recurring payments means that customers are less likely to forget their subscriptions and are more likely to stay subscribed.
The absence of friction in renewing saves businesses time and resources trying to win back former customers—resulting in higher average customer retention rates over time.
Businesses Who Would Benefit From Subscription Payment Processing
Businesses of all kinds can benefit from having a reliable and secure subscription payment processing service. Recurring payments benefit subscription businesses that offer subscription boxes, replenishment subscriptions, software-as-a-service (SaaS) offerings, content platforms, and professional services.
Subscription Boxes
Subscription boxes are popular among customers who wish to receive packages containing an assortment of items tailored to their preferences.
Subscription boxes are typically based on specific day-to-day activities, interests, and hobbies, such as cooking or fitness. It usually involves the customer receiving meal kits, snacks, beauty products, or wellness items.
Hello Fresh and Usual Wines are examples of subscription boxes.
Replenishment Subscriptions
Replenishment subscriptions offer recurring deliveries of consumable items like pet food, toiletries, cleaning supplies, snacks, and other essential household items. Customers can receive recurring deliveries of consumable items at their convenience, reducing the need to shop continually for replenishments.
Petco, Dollar Shave Club, and Harry’s are examples of companies providing replenishment subscriptions.
Software as a Service (SaaS)
Software as a Service (SaaS) is an increasingly popular way for businesses to access the latest software solutions without committing to long-term contracts or paying upfront costs.
SaaS products are often subscription-based, allowing customers to receive ongoing access to the service and updates as they become available.
Companies providing SaaS offerings include Salesforce, Dropbox, Zoom, and Slack.
Content Platforms
Content platforms offer subscriptions for access to a range of content, such as videos, music, books, or magazines.
Netflix, Spotify, and Audible are popular content platforms offering subscription services to access their films and TV shows libraries.
Professional Services
Subscription billing can be used by professional service providers like accountants, lawyers, consultants, and freelancers to automate and streamline their operations, such as with billing and invoicing.
Quickbooks and Freshbooks are examples of companies offering professional services subscription billing.
Setting Up Subscription Payment Processing with Von Payments
Subscription billing is an incredibly powerful tool that can offer many benefits for businesses looking to streamline their payment processing while adding value and convenience for their customers.
Von Payments offers comprehensive payment processing solutions for businesses tailored to the specific needs of high-risk businesses. Our payment solutions include high-risk merchant processing, chargeback management, extensive banking/BIN options, and tailored solutions for clients’ needs.
With fast and easy approvals and no requirement for processing history, we are here to help business owners hit the ground running.
By setting up a subscription management platform with Von Payments, your business can enjoy all the benefits of automated billing with peace of mind knowing their customers’ financial information is safe and secure.
Get in touch today to see how our customer payment and subscription payment processing solutions can help your business.