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Guide to recurring payments in e-commerce

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Last editedAug 20222 min read

Once you’ve won a customer, you want to keep them. The way to do this is to keep delivering value to them. Specifically, you need to keep offering them ways to improve their lives. A common strategy is to turn a one-off purchase into a repeating service offering. Implementing ecommerce recurring payments can play an important role in this.

The basics of ecommerce recurring payments

The terms “recurring payments”, “instalments”, “subscriptions” and “card-on-file payments” are often used interchangeably. This is understandable because there’s a lot of crossover between them. In fact, more than one term can apply to any given transaction. They are, however, slightly different.

The term "recurring payments" just means charging a customer on a recurring basis. The amount may be fixed or variable. The payment term can be time-limited or ongoing. The term “instalments” refers specifically to making fixed payments for a specified period of time. Instalments are used as a way to make larger purchases easier to manage.

The term “subscriptions” refers specifically to making fixed payments on an ongoing basis. Subscriptions created through GoCardless can be created to end after a certain number of billing cycles. The assumption, however, is that this is generally because the merchant wants to update the pricing after that time.

“Card-on-file payments” are payments made using card details that the merchant has already stored. They are often recurring payments. They may well be instalments or subscriptions. They can, however, equally be one-off payments.

The benefits of ecommerce recurring payments

Ecommerce recurring payments offer numerous benefits to both merchants and their customers. All of these, however, effectively hinge on their ability to remove friction. In particular, they reduce the need for manual input on the part of both the customer and the merchant.

The customer only has to provide their payment details once. The merchant only has to set up the recurring payment once. After that, the payment literally takes care of itself. The merchant gets secure, predictable income and can also plan their inventory more reliably. The customer gets affordable, predictable expenses. This makes it easier for both to manage their cash-flow.

On a broader level, the fact that the merchant and the customer have an ongoing relationship can create the potential for that relationship to develop. At a minimum, the merchant will have an ongoing opportunity to show that they are worth the customer’s trust. This can give them a strong edge when it comes to winning future business.

The practicalities of ecommerce recurring payments

The whole point of implementing ecommerce recurring payments is to reduce friction. That starts with your choice of payment methods. Your three main options are payment cards, ewallets and Direct Debits. 

Payment cards are often the default choice followed by ewallets. The problem with payment cards is that they are regularly updated. They are also very easy to lose (or have stolen). This means that they need to be blocked and then updated. Many ewallet transactions are backed by payment cards so they will also be impacted when this happens.

Direct Debits, by contrast, are set up directly on the customer’s bank account. Current accounts are not updated every few years. Likewise, they’re nowhere near as vulnerable to being lost (or stolen). If customers do switch bank accounts, there’s a strong chance they’ll use a switching service. This will update all their Direct Debits automatically.

Although Direct Debits are generally used for recurring payments, they can be used for ad-hoc single payments. GoCardless also offers an Instant Bank Payments service for when you need your funds to be confirmed immediately. This means that you take a mixture of recurring and single payments without having to collect card details or use an ewallet.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.

Over 70,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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Interested in automating the way you get paid? GoCardless can help
Interested in automating the way you get paid? GoCardless can help

Interested in automating the way you get paid? GoCardless can help

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