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What Is a Recurring Transaction?

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedDec 20222 min read

A recurring transaction is a charge for goods or services that a customer pays for at predetermined intervals. Examples of recurring transactions include memberships and subscriptions.

In this post, we’ll explain in detail how recurring transactions work, and the various payment methods that can be used to collect recurring payments from customers.

How does a recurring transaction work?

With recurring transactions, a customer will purchase a service or goods. However, instead of settling their payment in one lump sum, the merchant sets up a set time interval in which the customer will pay a pre-agreed sum. This will continue until either the consumer of the merchant cancels the service or all payment obligations have been met.

Recurring transaction payment methods

Recurring payments can be made using a variety of different methods. Below are the most popular payment types used to complete recurring transactions.

Credit and debit cards

When a recurring transaction is set up with a credit or debit card, it is defined under the Stored Credential Transaction Framework. Within this framework there are two transaction types: merchant initiated transactions and customer initiated transactions.

With merchant initiated transactions, the cardholder gives permission for a merchant to retain their card information and initiate payments at set intervals. The cardholder meanwhile, does not actively participate in the payments as they go ahead automatically. covers any transaction that relates to a previous cardholder-initiated transaction but is conducted without the active participation of the cardholder. The payments are therefore not authenticated.

With customer initiated transactions, the cardholder is the party which actively participates in the transaction. It refers to both checkout transactions carried out in-store, or via stored payment credentials the customer has consented a merchant to retain. Cardholder authentication is always performed with customer initiated transactions.

Direct Debits

With Direct Debits set up through banks, merchants must acquire a mandate which explicitly grants a business permission to take funds from a customer account.

This traditional direct debit payment method can be time-consuming and expensive for businesses, as mandates can take time to acquire, and there are often other underwriting requirements. Fortunately, however, there are easier ways to take payments via Direct Debit. GoCardless, for instance, offers streamlined Direct Debit solutions suitable for the digital age.

As a dedicated and world leading online Direct Debit provider, GoCardless manages the whole payment collection on behalf of merchants and is ideal for recurring transactions.

GoCardless seamlessly fits in with your existing business processes, through its integrations with popular accounting and billing software, including Xero and Sage 50Cloud, or via the flexible API for more tailored integrations.

With GoCardless, you no longer need to concern yourself with complicated paper mandates. Instead, you can get your customers to set up Direct Debit payments online. As soon as a mandate is set up, you can begin collecting one-off or recurring payments from your customers automatically.

GoCardless charges a fee of just 1% +20p and comes with no setup fees or hidden charges.

Digital wallets

Recurring transactions can also be set up via digital wallets, such as PayPal.

As a merchant wishing to collect recurring payments through PayPal, you need to first set up PayPal Reference Transactions. This will allow you to collect recurring payments at different amounts and at different intervals. Buyers too can set up recurring payments using the Express Checkout Flow option. When you set up recurring payments using PayPal Reference Transactions, you can control the amount and schedule of payments.

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.