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Finance

SUBSCRIPTIONS: THE NEXT BIG PAYMENT TREND

By Nick Raper, Head of UK at Nuapay

 

Ask the next person you speak to whether they’ve ever had a subscription to a business (the most common being a gym membership) that they forgot about, or just didn’t use, losing money as a result. Guaranteed, nine out of ten times, the answer you receive will be a ‘yes’.  This is often followed by a disgruntled anecdote about how the individual kept forgetting to cancel the direct debit, using the service for much longer than he or she intended to.  It proves just how sticky customers are when they are signed up to subscriptions – a trend that is rapidly increasing in the current environment.

Today, consumers are increasingly demanding ‘always on’ services that are fast, easy and can be personalised. With the COVID19 pandemic restricting consumers’ access to physical shops and driving almost all of them online, this expectation is growing the world over. Subscriptions provide a method of receiving services or products at a specified regularity and according to predefined preferences.

Subscriptions also allow businesses transitioning into the digital space to better monetise their services. Newspapers are a great example of this;  it isn’t practical to sell newspapers on a “one-off” basis online, so many publishers have transitioned to digital subscriber models. With many other businesses from fitness classes to online events providers, forced to find a viable virtual business model, subscriptions have become an attractive option. Indeed, research from Zuora has shown that throughout the first lockdown nearly 90% of subscription businesses maintained or grew memberships. And this trend shows no sign of slowing down.

Businesses looking to offer their customers the best service would do well to consider consumer subscriptions, enabled by recurring payments technology. Subscriptions can be used across a growing range of sectors, from traditional subscription users like gyms, and online entertainment and media services, to food and beverage retailers, health providers in dental and eyecare sectors, and even online matchmaking and dating services. Going forward, subscription payments are expected to grow further as Gartner predicts that by 2023, 75% of organisations selling direct to consumers will offer subscription services.

 

What’s the business benefit?

By employing recurring payments, businesses can attract more customers that are price driven. A £25 per month cost in return for something new each month, is often much easier to accept than a £300 lump sum for one product.

Another benefit of subscription models is the ability to drive increases in customer revenue through reduced attrition and the ability to upsell or cross-sell products and services.  One-off purchases with little or no product feedback, make it difficult to develop an understanding of consumer behaviours and preferences. By building an ongoing relationship with customers businesses can gain deeper insights which can be used to inform product alterations or even bring entirely new products to market.

Data from Nuapay shows the benefit of having members signed up on subscription services from the over 700 gyms serviced by Nuapay.  Of gyms that were forced to close their doors and stop collecting membership fees in April as a result of Covid, many saw a relatively quick return in their revenue over the summer.  By August, on average 83% of customers were back and paying their gym memberships again, despite continued restrictions in many European countries. Additionally, these gyms only saw a +0.9% increase in cancelled payments in August, compared to pre-Covid levels, suggesting no lasting impact on their attrition rate.

The additional beauty of subscription based business models is that, Covid aside, the stability of the customer base makes it easier to predict business revenues, enabling improved decision-making as strategic planning can be informed by revenue from ongoing recurring payments.

 

Partnering for success

Historically, implementing a subscription based business model has been difficult for organisations given the limits of collecting via recurring payments – this is particularly so for businesses at the small to medium end of the spectrum.

Today, improved digital payment infrastructure and new providers in the Account-2-Account payments space makes it possible to set up and process recurring payments quickly and easily. Payment providers are increasingly being integrated into a range of business software and payment solutions – large and small – to ensure they deliver the speed and exemplary experience demanded by consumers.

CyberSource, Visa’s global payment management platform, recently announced a partnership with Nuapay to take advantage of Nuapay’s Account-2-Account capabilities, and deliver additional payment solutions to its merchants client base. At the other end of the spectrum, specialist software platforms, such as gym management software Deciplus, can also integrate Account-2-Account solutions into its platform, providing an effortless Direct Debit experience for payers and merchants.

New payment innovations are now starting to transform historic Account-2-Account recurring solutions, which have been Direct Debit based till now. As an example, a merchant can now use Open Banking payments to improve the Direct Debit sign up process for payers, while also helping merchants reduce their failed payments, indemnity claims, and lost payments. Additionally, new recurring payment options known as Variable Recurring Payments (VRP) is said to be the next generation of Open Banking. Currently being tested in the FCA’s sandbox, this technology enables businesses to collect payments from a consumer up to an agreed maximum amount, subject to monthly limits. As it is based on Open Banking technology, VRP will be SCA compliant, providing a secure and convenient alternative to online card payments.

With an increasing number of subscription options now available, a good payment service provider will be able to provide businesses with access to and advice on the best options for them and their situation, whether that is Direct Debits, Standing Orders, or new integrated Open Banking solutions.

 

Subscribing to subscriptions

Subscriptions will only continue to grow in demand as consumers increasingly flock to online environments. Subscriptions were already growing in popularity even before the pandemic came along. 71% of adults internationally used at least one subscription service during 2019, and in Europe alone spent an average of €130 per month on subscriptions over the same period.

Covid has only accelerated this trend in some areas.  It is no surprise that video streaming services saw a massive increase in subscribers, with some providers seeing a 25% jump in subscriptions in March 2020 according to Nuapay data.

Players in other sectors also seem to be transitioning their business model during this time.  Food and nutrition suppliers who have been actively pushing subscriptions for regular deliveries have seen their subscriber base grow as much as 3 times higher than the start of the year in everything from seafood to coffee to vitamin deliveries.  Some home office suppliers who introduced subscriber models for items like printer ink, have seen growth in subscribers as high as 40% since January.  Even some travel businesses have managed to pivot their business to increase recurring sales by taking a more locally focused approach.

With the range of insight-led advantages for organisations evident, it would be an oversight for business leaders not to consider sharing their products and services via a subscription based model.

 

Finance

WHAT’S NEXT? PAYMENT TRENDS IN 2021

Philip McHugh, CEO at Paysafe

 

Undoubtedly COVID-19 is going to continue having an impact on us all at least for the next few months and maybe all of this year, but there are still reasons to be optimistic. The industry continues to evolve quickly, and that in mind, here’s five of our predictions to watch out for in payments in 2021:

 

1. New consumers to online change the digital payments landscape

As more consumers headed online during the first wave of COVID-19, businesses noticed that their customers were also paying differently. Three quarters (76%) of the businesses we recently asked for our Lost in Transaction research report series said that consumers were using different payment methods during the pandemic, with the increased use of digital wallets being the most common. Having more customers that were new to eCommerce, and customers now shopping regularly with businesses that they were not comfortable sharing their financial details with, were key reasons for this.

Consumers confirmed this was true. When we asked in April, 18% of consumers told us they shopped online for the first time during the pandemic. With 38% of consumers telling us they are planning to shop online more even when COVID-19 is no longer a factor in their lives, we should see this shift to alternative payments continue.

 

2. SCA will drive mass adoption of biometric authentication 

Perhaps the first factor to shake up the payments industry in 2021 is going to have the greatest impact of any trend we will see in the coming year. That is because, after a series of extensions, the deadline for PSD2 Strong Customer Authentication is fast approaching. From December 31 2020 any transaction that isn’t verified by multi-factor authentication will be automatically declined.

One of the inevitable consequences of this is going to be a huge increase in the use of biometrics to verify payments. With the growth of mCommerce that we have seen before and during COVID-19, it seems very likely this will accelerate beyond predictions made at the initial SCA deadline in 2019. Juniper Research has already predicted that biometrics will be used for more than 18 billion transactions in 2021, with a value exceeding $210 billion in 2021.

 

3. A renewed focus on 5G

The importance of 5G and the growth of the IOT was another prediction we made for 2020. But while the impact of the pandemic has been to accelerate many of the trends we expected to see, perhaps one area where the pandemic has actually slowed adoption is the growth of 5G. With consumers spending so much time at home, appetite for personal 5G-enabled devices has been limited.

But at the same time, the need for the in-store shopping experience to be as frictionless as possible is now more important than ever. Almost half (46%) of businesses told us that they had lost sales in 2020 because their checkout times were too slow. So the use of 5G technology to overhaul the checkout will be back at the top of retailers’ agendas.

Almost half (47%) of stores told us that 5G will mean the end of the traditional checkout, and more than half (53%) believe that Amazon-Go style frictionless checkouts are the future of retail. Omnichannel experiences where consumers shop in a store and then pay via a digital checkout on a smartphone app are also on businesses’ radars.

 

4. A surge in subscription models

Almost one fifth (18%) of stores told us that they had launched a subscription services during the pandemic, and this is not only a result of business need but also customer demand. Overall, 27% of consumers told us that they were already planning to increase the number of subscriptions they had in the future, and this rose to 37% for consumers aged 18-34.

The growth will not be limited to digital either. Pret A Manger recently launched the first in-store coffee subscription service in the UK, and we expect to see similar models populating malls and independent stores soon.

Also, only the initial purchase of a subscription is subject to PSD2 multi-factor authentication. So for some businesses, launching a subscription service may be a way to reduce friction in the online checkout.

 

5. AI and machine learning as the cornerstone of fraud prevention

We’ve known about the importance of artificial intelligence (AI) and machine learning to financial services for years, but in many cases the industry has been slow to implement the technology. With the sophistication of financial crime increasing, and the growing concerns of consumers of being a victim of fraud, it is no surprise that adoption is now accelerating rapidly.

Banks have currently spent as much as $217bn on AI applications already, and in 2021 AI and machine learning based systems will be the standard in fraud prevention.

 

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Finance

FIVE TRENDS THAT WILL IMPACT THE FINANCIAL SERVICES INDUSTRY IN 2021

Ian Johnson, Managing Director Europe at Marqeta

 

Coronavirus has shaken things up across all industries, and financial services is no different. This year, we are likely to see a much more risk averse industry, as fintechs and banks alike move into survival mode. Yet, this will also spur innovation. The shift away from cash will give a shot in the arm to digital payments, while lenders in particular will have to get creative to balance their risk against the need to dispense funds.

It’s likely to be an interesting, albeit bumpy, year. Here are five core trends that I see having a major impact in 2021.

 

Lenders will seek improved visibility to combat delinquency

An economic downturn unfortunately means higher delinquency rates for lenders. But businesses – in particular, SMEs – need liquidity to survive, now more than ever. To balance risk with need, more lenders will focus on enabling visibility and control after a loan is dispensed. Instead of issuing funds to a bank account, loans will be dispensed to virtual cards or wallets, allowing lenders to track exactly how and where money is spent. This way, lenders only release funds as they are needed – rather than in one lump sum.

Ian Johnson

They also have the power to approve or reject payments in real-time, based on whether the request is aligned with the terms of the loan agreement. For instance, if a company has secured a loan for IT equipment, but attempts to spend it on office refreshments, the lender can make an instant decision to permit or deny the transaction based on geolocation and other transactional data. So, borrowers should ready themselves to be much more transparent if they want to secure loans in the future.

 

Embedded payments to become more commonplace

Embedded payments has been around a long time – just look at pioneers like Uber, where payments are so integral to the customer experience that it doesn’t even feel like you’re paying anymore. In the next year, we will see this expand, with a wider variety of organisations making payments a core element of their customer experience strategies. This trend will be coupled with a shift towards transparency and privacy, where people willingly exchange their data for an improved, personalised experience.

This is something consumers do readily in many areas of online life already – shopping, social media, and so on. In 2021, we will see more banking and payment services operating off the back of this same exchange. In return for data, customers will be given smoother, more tailored payment experiences.

 

Use of cash to drop below 15%, falling from 23% of all payments in 2019

The UK and Europe’s departure from cash will continue to evolve into next year. Physical cards will begin to give way to a rise in digital payment methods – virtual cards, digital wallets, and the likes of Apple Pay and Google Pay. Banks will need to prepare for this shift; hopefully learning their lesson from the early months of the pandemic, where 88% were overwhelmed by demand for online and mobile banking. This means modernising behind the scenes, using technology to improve and streamline payment processing. Time and money also need to be invested into educating and supporting businesses and individuals that going cashless could leave vulnerable, such as small merchants and elderly people. Until this has been addressed, going cashless risks leaving the most vulnerable in our society behind.

 

Back-end bank modernisation set to continue

Traditional banks recognise that they need to be able to innovate faster, particularly on the front-end, to compete with the new waves of digital banks and fintech entering the market. While we will see continued modernisation on the back-end, as they try to unpick the complex web of legacy systems they sit upon, I would not expect this issue to be fixed in a year. Instead of taking on the risk of full migration, many banks will ‘hollow out’ certain services – leaving core services in place that are too risky to move, whilst shifting newer services onto more modern platforms to avoid coding them into legacy systems.

This will create the building blocks to build a standalone digital bank within a bank, allowing them to modernise the entire stack and then incentivising customers to make the switch. An example of this approach is Goldman Sachs’ digital bank Marcus, which has debuted to strong demand – it’ll be interesting to see if others follow suit.

 

Alternative lenders will open up the market to support post-COVID-19 recovery

The process of securing a loan has always been quite painful – involving lots of self-reporting, paper statements and credit reports. And it could take days to find out if you were successful and then even longer to access the funds. Thankfully, it is looking like those days might be coming to an end with the emergence of a new breed of alternative lender focused on transforming specific niches of lending. Take SME lending, which has traditionally been regarded as high risk/low rewards and neglected by traditional lenders.

New alternative lenders, such as Capital on Tap, are changing the stakes. Using data and modern payment platforms, they are able to make loan decisions in minutes, not months. We are seeing the same in Point of Sale lending with companies like Klarna – now, you can apply for a POS loan and get approved in seconds. These companies will set the standard in terms of expectations around lending, forcing bigger lenders to follow suit and helping to transform the loan experience.

 

Fintechs to continue leading front-end innovation

Fintechs hold the monopoly on defining what ‘good’ looks like in terms of features. From money management tools, to saving incentives, fintechs have the agility to create new, attractive products with a speed and creativity that traditional banks simply cannot match. However, true success stories of fintechs paving the way to long term profitability are rare. Established, traditional banks still hold all the capital and most of the main checking accounts, making it harder for fintechs to really get ahead. This is likely to continue into 2021, but we are seeing signs of convergence, with fintechs acting as the front-end for customers while banks provide capital in the background.

 

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