Recurring Payments 101: Seamless Transactions for Powerful Businesses
- All, Insights
As financial technologies evolve, businesses gain new opportunities to ensure a smoother and faster payment experience for their customers. Today, fintech makes it possible not only to accept payments online but to differentiate the method of collecting funds depending on the type of transaction.
Traditional one-time payments are unsuitable for businesses operating on a subscription basis. However, recurring payments are their way to go since they allow for regular charging of funds from the customer accounts. Consequently, it is no surprise that in 2023, the recurring payments market reached $13.2 trillion. By 2027, these numbers are expected to hit $15.4 trillion, demonstrating a staggering CAGR of 17%.
Does that sound interesting? Continue reading to learn more and answer the most common questions, including “What does recurring payment mean, and how can your business benefit?”
What is a recurring payment?
Recurring payment is a regular payment method performed without the payer’s direct participation.
With recurring payments, the customer does not need to enter a card number or company details every time they want to pay for a product or service. Instead, they fill out payment details once and agree to debit the money. When the payment deadline arrives, the money is debited automatically. The customer does not even need to confirm the transaction. Everything happens without their participation.
The meaning of recurring payments for customers and businesses cannot be exaggerated. They provide an effortless payment experience and increase customer retention.
What is especially important is that the recurring payment is highly secure. Even though the transaction occurs without the payer’s participation, it is reliably protected from fraud.
How do recurring payments work?
Recurring payments work thanks to special software provided by third parties involved in recurring payment processing.
So, we have already found out what recurring payments are; now it’s time to see how recurring payments work and how to set them up. The essential steps are listed below:
- Transaction initiation. A customer who wants to buy a service or product enters payment details on the website or mobile app of the service provider or merchant. Before confirming payment, the buyer usually needs to check the Agree to Terms box. These terms clearly state the date and amount of payment and the fact that the buyer can cancel the subscription at any time.
- Payment data collection. The entered card details go to a payment gateway or PCI DSS-compliant payment service provider (PSP). The payment gateway or PSP converts the card details into a token and returns the token to the seller (in such a manner that the seller does not have access to the actual payment data). The token allows the seller to securely debit funds from the buyer’s card without the buyer’s confirmation.
- Transaction processing and confirmation. The payment gateway invokes the payment process at the defined time (once a week/month/quarter/year/etc.). It requests the issuing bank to confirm the debiting of the specific sum from the customer’s account. After confirmation, the money is debited from the buyer’s account and credited to the seller’s account. Both buyer and seller receive notification about the successful transaction.
The case with failed transaction handling
If there is not enough money in the customer’s account, the payment will not be executed. The customer will receive a notification that the transaction has failed and an explanation of why. The payment gateway will attempt to re-execute the transaction at specified intervals. The transaction will be processed successfully as soon as the money appears in the account.
There are situations when a customer reissues a card and their payment information changes. You have nothing to worry about if your PSP supports the automatic card update. The funds will be debited from the buyer’s account and credited to your account with zero effort on your part. The automatic card update ensures that old payment details are replaced with new payment details automatically.
Two types of recurring payments
There are two main types of recurring bill payments: fixed and variable:
Recurring payment use cases in business
There are a variety of businesses that accept recurring payments. The most common use cases are listed below:
- Subscription services: media with paid content, streaming platforms (music and video), radio station aggregators, cloud storages, file sharing services, and online TV.
- Membership organizations: gyms, fitness clubs, board game clubs, country clubs, and professional associations.
- SaaS providers: collaboration, task management, resource planning, customer support, marketing, and sales management platforms.
- Utilities: electricity, water, and gas companies and telecommunication providers.
- Insurance companies: they accept recurring payments from policyholders.
- E-commerce businesses: some platforms charge regular payments and, in turn, provide free shipping or exclusive offers.
- Online education platforms: with a recurring monthly payment, users gain unlimited access to educational videos, books, podcasts, etc.
- Software maintenance: users with premium subscriptions may count on instant responses and 24/7 support.
Benefits of recurring payments for SME
What is a recurring payment for a small business? This is primarily a way to retain customers and grow income. After all, users who subscribe to your website or app will regularly pay you money, even if they forget the payment date.
On top of that, the recurring payment meaning for small enterprises is further enhanced due to the following benefits:
- Reduced number of purchase refusals. The customer makes a purchase decision once. All subsequent purchases occur automatically. This eliminates the need for the buyers to rethink their buying intent. As a result, the customer will likely use your service for an extended period.
- Enhanced security of online payments. Recurring payment systems have improved security mechanisms, such as payment tokenization and encryption. By partnering with a reliable payment service provider you can be sure that sensitive payment data is well protected.
- Quick engagement of new subscribers. You can use the first-month free approach to make the purchasing decision easier for the customer. Having tried your service and experienced all its benefits for free, they will be more willing to pay to prolong it.
- Predictable revenue. By analyzing the number of subscribers for a certain period and the average subscription duration, you can predict your revenue for future periods. These data-driven insights are crucial for investors. Additionally, they will help you make informed business decisions in the long run.
- Increased conversion rate. Recurring payments simplify the buying process, so customers don’t need to renew their subscriptions manually. Such convenience makes the buying process smoother and encourages users to stay in touch with the brand longer.
- Optimized staff workload. Recurring billing eliminates the need for the staff to perform repeated simple operations. This allows for the concentration of more creative activities and enhances business efficiency.
- Reduced human errors. Since the payments are processed automatically with the help of specialized recurring payment software, the risks associated with a human factor are minimized. You can rest assured that transactions are processed like clockwork.
- Improved shopping experience. Modern users value good service. By enabling recurring payments, you give them the opportunity to buy a product or service of interest quickly. Having received a positive experience with your brand once, they will return to your company again.
- Better brand reputation. By offering recurring payments on your website or app, you keep up with modern fintech trends and meet customer requirements. This strengthens trust in your brand and grows the number of loyal customers.
How DCM facilitates recurring payments for businesses
DCM is a software product company that provides modern, ready-to-go payment rails to banks, financial institutions, international organizations, and merchants to enable instant and efficient payment operations.
One of our most popular features is the recurring payment platform, which allows businesses to easily add subscription payments to their operations. We understand that every business is unique, and that’s why we offer a solution with a modular structure, allowing clients to include only necessary functionality and get the best payment recurring system aligned with their specific needs.
DCM’s main advantage is that we keep up with new technologies and quickly implement solutions that help businesses grow. With our strong support team, you can be sure that any issues encountered will be addressed promptly and efficiently. Are you looking to implement recurring payments but don’t know where to start? Contact us today, and let us guide you through the process.
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