Traditional subscriptions — the daily paper, cable television, and the like — have undergone a major overhaul in recent years. It’s not an exaggeration to say that almost everything seems to be available as a subscription these days.
And it’s not surprising. The benefits of subscription models are clear. Customers demand the reliability and predictability of receiving their shaving supplies, meal kits, makeup, clothing, pet food alongside their streaming media and news. The merchants and platforms offering these subscriptions benefit as well with higher customer retention, better engagement, and more predictable revenue streams.
It’s also not surprising that the myriad of payments processes that support the subscription economy are complex. Unfortunately, it’s typically the last piece of the business model many organizations consider — when really, it should be the first.
Subscription Payment Pains
It is core to most subscription-based businesses to closely monitor and manage customer lifetime value (CLV) and customer churn. This is especially important as the transaction is not done at one time but over the course of the engagement with that brand. For payments this means capturing and storing payments credentials compliantly and securely while managing this payment data over a much longer time period.
Payment failures can often be the biggest pain for an organization reliant on subscriptions. Most payments service providers (PSPs) have mitigated this risk with retry logic. Merchants and platforms can set various parameters to retry a particular payment method in the hopes of that payment going through. Historically this has been one of the only options available.
Enter the Multi-Processor / Gateway Strategy
Because a subscription payment has the added benefit of more time to process versus an immediate, one-time purchase, an additional layer has emerged where a payment can be cascaded from one failed gateway to another in an effort to capture the subscriber’s payment. This has helped bolster traditional retry logic.
Core in a successful multi-processor strategy however, are the integrations required to each of the payments services or gateways being used. The number of integrations multiplies quickly when you take into account a merchant expanding into new countries or regions and need to accept payments from new customers. The right payments strategy can quickly overwhelm the internal development resources to build — and maintain — these integrations and keep payments moving through smoothly.
Add in the complexity of a subscriptions platform who needs to integrate with many different merchants — all with their own preferred gateway or payment service. It becomes virtually impossible to build and maintain all of the required connections.
Payments Orchestration for Subscriptions
In order to enable subscription payments in a multi-processor / gateway schema, payment credentials of course need to be tokenized and vaulted, but done so in a manner where those stored values can be used across any gateway. Doing so in a Payments Orchestration layer facilitates the easy integrations required to onboard (and off-board) providers as needed while easily sharing the payment credentials in the most secure and compliant manner. This also limits the PCI scope.
Add in the value of other ways to dramatically improve payment authorization rates like Network Tokenization, and you have a winning payments strategy to improve customer experience, reduce churn and substantially add to the bottom line.
Again, the ability to integrate with and easily share payments data is all facilitated with the Payments Orchestration layer.
Subscription Management Services
So why not just use a subscription management service? Many organizations do, and very successfully! Payments Orchestration is not a replacement for these services but rather an additional layer in the process that further enables payments flexibility.
An example of where this flexibility might be needed would be with a merchant selling subscriptions as well as one-time purchase items. The subscription management service isn’t needed for the one time purchase. Payments Orchestration can often be the best tool to integrate with the right combination of services needed for unique mix found in each customer’s purchase.
Additionally, many subscription management services also leverage Payments Orchestration to help them easily add more value-added services to their platform. For a recurring billing platform who is typically working with large and growing merchants, they need to be able to easily connect to the merchant’s current gateways, PSPs, fraud vendors, etc. (Read more about how Chargebee is using Payments Orchestration.)
A Case Study
Spreedly works with a merchant who offers their customers a one time as well as a recurring sales model. Prior to using Spreedly’s Payments Orchestration platform, the organization had low success rates and high involuntary churn.
Payments Orchestration has now allowed the organization to first apply a strategy of cascading transactions through a series of payment processors to help improve success rates. While this strategy had a positive impact on a little more than 1% of their successes, deployed over an entire year this amounted to almost $3 million in recovered revenue.
Once this process was in place, the payments team also adopted Account Updater, to automatically update credit card details directly from the issuing banks. This further moved the needle to improve success rates. And now the organization is seeking to incorporate further tools like Network Tokenization to even further improve success rates and lower involuntary churn.
At the end of the day, the customer experience is paramount. Your subscriber must trust you with their payment information as well as be engaged enough with your product or service to allow you to charge them on a recurring basis. Building the best payments infrastructure to seamlessly meet customers where they are, goes a long way in building the required value to add your next subscriber.