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.
