What better way to guarantee you’ll have great sales next month than to sign your customers up for a recurring billing subscription? Customers who sign up for an ongoing monthly subscription provide the business with much needed, consistent, and predictable income. Unfortunately, recurring billing comes with a few key challenges. Consumer perception, increased risk of chargebacks, and finding an automated way to accept recurring payments. For subscription companies, this adds up to the need for a high-risk recurring billing merchant account.
Within the very recent past, consumers held an unsavory perception of being involved in a recurring billing situation. They viewed it as somehow getting “suckered in”. Like that protein powder that keeps showing up even though you haven’t even used the last jar you got!
Businesses Enjoy Predictable Income with e-Commerce Subscriptions
But times are changing, and quickly! Today, consumers are leaning more and more towards what is being dubbed a “subscription society”. What with subscriptions for everything from razors and toothbrushes to pre-planned meals and wine. And let’s not forget the ever-popular streaming services.
Nobody has basic cable anymore. It’s all about Amazon Prime, HBO, Spotify, and YouTube. Heck, Porsche even has a car subscription. There is almost nothing you can’t subscribe to these days. And this so-called “subscription economy” is growing more and more each year, even faster than S&P 500 companies.
There are many types of products where monthly recurring billing is necessary, not only necessary but appropriate. Society is moving towards wanting more access and less ownership. Today, opportunities for ongoing or recurring billing subscription products go way beyond one’s monthly product subscriptions.
Companies need to bill for things like retainer fees, gym memberships, Amazon Prime membership, streaming services. Likewise, even the landscapers who come tend to your lawn each month have you on a subscription service. The list goes on…
Subscription services are nothing new. And they benefit both the business and the consumer.
Memberships and recurring billing benefit the merchant and the consumer.
Nowadays, the subscription model suits the needs of the consumer. The attitudes of consumers are changing as Millennials and Gen Z continue to influence the marketplace.
It is not so much that they want to own and collect items anymore; they want continuous access. In addition to wanting continuous access, they want to customize the access to their specific needs. The subscription model gives this to them. It offers peace of mind for busy consumers already overwhelmed with business decisions and obligations.
Subscription services allow consumers the ability to simplify their life a bit. They can enjoy the convenience of having exactly what they need, when they need it. They don’t have to remember to shop or make a trip to the store.
Now, instead of that razor being just another item on the grocery list, it feels like a present that just showed up on the doorstep! All shiny and new.
For businesses, the benefits of recurring billing customers are many.
Subscription services are all about customer service. For the business, it allows for the focus to come off the product and return to serving the customer. Not only does this help to increase brand loyalty, but it also helps increase repeat customer base.
Additionally, subscriptions give businesses a clear idea of how much they will sell each month. This enables business to better calculate future cash flow. And because recurring billing generates automatic payments, it all but eliminates late payments. This only adds to a business owner’s ability to better manage cash flow.
There is a certain sense of financial security and peace of mind that comes with the knowledge and certainty of an almost guaranteed income. That ability to forecast future income can help business owners solidify plans for growth and expansion too. Showing guaranteed future income makes a business much more valuable to a lender, a potential investor, or a potential acquirer.
Recurring Billing and Subscription Payments for e-Commerce yield a net positive for all parties involved.
Things to consider with Recurring Billing and Subscription Payments merchant accounts.
Merchants have many choices when deciding to set their business up with recurring billing for customers. Setting up the subscription plan and recurring billing properly is almost more important than offering a subscription model in the first place.
Will you go with the solutions offered by your current merchant service provider? Or use a third party billing service or app that will need to integrate with your current processor? Merchants must make sure that the processor is equipped to handle the unique challenges of the subscription model.
Fusebill and Chargify are examples of third party apps that allow businesses to accept recurring payments by integrating with its current processor. But it's important to keep in mind that this could end up costing you more. When using a third party to gain access to recurring billing, you may end up with additional charges on top of your processing fees.
Third party apps sometimes charge a per transaction fee or even a percentage of the volume processed. This would be on top of the processing fees you already pay your Merchant Service Provider for payment processing. For this reason, it may be more cost effective to partner with a merchant service provider who offers recurring billing as part of their payment processing services.
Subscriptions, memberships and recurring billing are already considered high risk by acquiring banks.
Acquiring banks put the subscription business model in the high-risk business category. This is because subscription services often have very high sales volumes that can also increase exponentially. But the industry is also extremely prone to very high chargeback ratios and is a magnet for fraud.
Free trial offerings prior to an ongoing subscription are a whole different ball game. Many acquiring banks (the merchant account provider) view free trial programs as extremely “high risk”. This is due to a history of bad business practices by some pretty unscrupulous business owners.
Even though today the business practices of most subscription companies have greatly improved, the banks opinion of them has not. And that's largely because the industry as a whole still falls victim to high chargebacks and excessive fraud.
Being high risk means these businesses have a few more things to think about, and a few more hoops to jump through, to open a merchant account with recurring billing.
A word on Offering Free Trials.
Offering a trial version of your product is a great way to introduce customers to your product and increase sales. But it is important to do it right if you care about the longevity of your business model.
And doing it right means following Best Practices for your business model as well as Card Brand rules.
And really, following Best Practices is technically not just a choice. Per the Restore Online Shoppers’ Confidence Act, "companies must clearly lay out the terms of free trials or other subscriptions before consumers give their credit card information.” Companies are also required to have express consumer permission before charging consumers and they must have a simple mechanism for the consumer to stop the recurring charges.
Many subscription companies in the past skirted these rules. But now, it's being supported and enforced by the card brand rules. Which means that Card Brands can monitor your business practices and take action if they find you are violating MasterCard merchant regulations.
Follow MasterCard Rules and Best Practices for subscription services.
Businesses that offer subscriptions or recurring billing must follow specific rules set by the card brands for accepting credit cards for subscriptions and memberships. Especially if you offer a free trial to your product.
Each card brand has their own set of rules surrounding free trials, subscriptions, and recurring billing. For instance, in 2019, MasterCard implemented a new set of rules for merchants practicing free trial type subscription services. These new guidelines were created in an effort to "increase transparency and ensure an outstanding experience for cardholders" These rules guide merchants on communicating with the consumer, notifying the consumer, and include verbiage they must use on the website.
But the rules only apply to merchants who provide physical merchandise to its customers. That means that any business providing a subscription to a service, Apple music, Netflix, the gym, etc., will not have to make any changes. This is why it's important to understand the specific rules for each card brand if you are offering subscription and/or recurring billing.
For a deeper dive into the new free trial regulations read “MC’s Free Trials Without the Hassle” announcement. These merchants may be subject to higher processing rates than subscription companies who do not offer a free trial.
Adding Subscriptions to your e-Commerce Store requires CRM and data portability.
Subscription services require robust customer relationship and data management. CRM software is essential for successful subscription-based businesses. Your merchant account provider must be able to integrate with all the most common CRM software platforms.
Whether you are using basic or the most enterprise level CRM software, integration should be a given. Here are just a few of the most common CRM platforms we work with: Apptivo, Fresh Sales, LessannoyingCRM, Hubspot, Pipedrive, Insightly, and Sales Creatio,
If you’re just starting your subscription business, or adding subscription services to an existing business, you must consider your data portability.
As your business grows and changes, the current billing solution may no longer work best for your business. But how do you get all of that customer information and card payment data over to the new solution? Especially without having to trouble each and every one of your customers for their information again! This is where data portability comes into play.
Merchants must always keep future growth and adaptability in mind. Even if you don’t think you need it now, you must consider a time when you will need to do it.
Therefore, it’s extremely important to consider working with a processor that offers data portability. You’ll be pulling your hair out if you started with a solution that doesn’t allow data portability.
Scalability of your merchant account processing limits.
Speaking of future growth and adaptability, how equipped is your merchant account provider to handle your growth?
When considering a merchant account provider, remember to question their willingness to allow you to increase processing volumes. Many processors put limits on monthly processing volumes. Be sure you understand the terms of your merchant account. Will they implement processing limits? And if so, how quickly can they be increased to accommodate your growth?
In this business, it is not uncommon for subscribers to multiply exponentially. When that happens, your transactions will also multiply exponentially. The last thing you need is to experience a halt in your processing right when you're gaining new customers.
Consider the Functionality Included with your Subscription Payment Merchant Account.
Businesses involved with monthly subscriptions are not all “one size fits all”. Each has their own level of needs depending on the size of the company and the diversity of product. Some simply need to bill customers each month for the same amount. Others may need multiple payment gateways or require customized integration.
Some businesses benefit from the ability to update plans, prorate payments or update customer credit cards automatically when they expire or get reissued. It's very important to consider your needs and compare them to the functionality included with your merchant account.
Automatic Card Updating
While the needs of most businesses will indeed be individual, Automatic Card Updating is a feature that can benefit any merchant. With Automatic Updating, the provider works directly with card issuing banks to automatically update card information as needed. This not only allows for continuous service for the customer but also decreases the incidence of card declines due to expired card information.
Once a card has expired, it can often take a customer months to enter new card information to keep a subscription going, if they even do it at all. This can often give a customer an excuse to discontinue service or look for another product. Payment Updating functionality may cost the merchant additional money though. It’s important to work with a processor who specializes in recurring billing and has solutions for different business types.
Many processors include the ability to process subscriptions right in their base merchant account pricing. Others treat it as a special service. They’ll charge substantial fees to set up the feature, as well as additional fees for each transaction.
Create a strategy to handle declined payments.
If a recurring payment is declined by the card issuer, what protocols do you have in place to follow up? Will it notify you as well as the customer that the payment was unsuccessful? Will the notification offer an alternative way to complete the payment, or possibly retry at a later time?
Integration with Apps and software you currently use.
Does the recurring billing service integrate or communicate with your current accounting software or apps? Accounting and reconciliation are just one part of a successful business model. As a merchant, you want to make sure you are not adding extra work in order to transfer data needed to complete the task.
Ready to open your own Recurring Billing Merchant Account?
As you can see, there are a few really important things to consider when choosing a recurring billing service or processor. The services you choose and what it costs can have a profound effect on the success of your company.
At Bankcard International Group, we’re experienced in the intricacies of all forms of eCommerce, card-not-present, and recurring billing payment processing. In addition to recurring billing, we offer features such as suspicious transaction screening, electronic invoicing, tokenized customer vaults, and Level 111 processing with extended transaction data.
Our dedication to providing feature rich solutions and developing a long-term partnership with our merchants allows them to process ongoing payments with confidence.
For the most competitive rates built on transparency, credibility and our dedication to exceed client’s expectations call Bankcard International Group today.