Payments - a secret subscription growth strategy

As modern consumers shy away from the traditional idea of ownership, flexible payment options underpin successful growth strategies for subscription service providers.

"Why buy when you can rent?" is the mantra of millennials born into a world of monthly subscriptions and "as a Service" business models. It's not just young consumers who are rethinking the way they consume goods and services, with 57% of adults also wanting to "own less stuff", according to the End of Ownership Report from global subscription management provider Zuora.

It's not that people don't want to spend money, it's just that they are no longer hung up on concepts such as purchasing outright. Instead, they desire the freedom, flexibility and convenience of subscription models in both the physical and digital worlds.

Consumers are less interested in the status and ephemeral personal fulfilment that once came from ownership. Instead, they are motivated by a desire for fulfilling experiences that enrich their lives. 

This presents a vast opportunity for the world's service providers with subscription models, but only if they understand what it takes to attract and retain subscribers.

Which payment methods your customers prefer is a critical consideration in any business’ payments function. Meeting customers' needs can increase your conversion rates, improve your customer loyalty and reduce your churn – having a considerable impact on your bottom line.

Ignoring your customers’ payment preferences introduces friction into their purchasing journey and can make your competitors appear as a more welcoming alternative.

One of the key trends in the payments space is that businesses and consumers are ending their long-standing love affair with credit cards.

Direct Debit is the most popular way for businesses to pay for digital subscriptions in Australia, according to GoCardless' B2B Payment Preferences Report 2019. Built on Direct Debit, GoCardless makes it simple for service providers to collect recurring and one-off payments from customers in Australia and worldwide.

Direct Debit is favoured by 56% of Australian businesses when subscribing, ahead of bank transfer (53%), corporate card (49%) and digital wallet (48%). It's a similar story in the UK and Europe, where Direct Debit (Bacs Direct Debit in the UK and SEPA Direct Debit in Europe) comes first place by a significant margin in most use cases.

The same trend is reflected in consumer behaviour, with GoCardless partnering with YouGov to survey the payment preferences of 15,424 consumers across the US, Canada, UK, France, Germany, Australia and New Zealand.

The strong preference for Direct Debit translates into customer loyalty. Service providers which sign up customers using GoCardless enjoy 91% customer retention rates, compared to 86% for customers paying via card providers and 75% for those paying via PayPal.

One of the key factors deterring businesses and consumers from paying for subscriptions using credit cards is the high rate of payment failure rates. Around 10% of B2B transactions fail and 15% of B2C transactions, getting as high as 20% in some market segments.

In comparison, payment failure rates are a low 2.9% via GoCardless. It's a critical figure, considering that 30% of all the churn experienced by service providers is involuntary and related to payment failure.

Other benefits for service providers adopting GoCardless include improved cash flow – with a 59% reduction in payment administration time and a 47% reduction in the time taken to receive funds. Businesses using GoCardless also see an average payment timing of just 3.6 days.

Of course, no single payment method has 100% market adoption, nor are any close to 100% payer preference. To fully cater for payer preference, and give customers the best experience, service providers need a multi-method payments arsenal.

That said, businesses and consumers are making their changing preferences clear. In an age where ownership has lost its appeal, both service providers and subscribers are turning to GoCardless to satisfy their needs.