Recurring Payment Pain: Remedies for Chronic Subscription Billing Headaches

This article is sponsored by ACI Worldwide

Today’s subscription providers are plagued by four key pain points that chronically and uniquely challenge their ability to increase retention, lower cost and drive higher profitability: slow payments, payment expenses, poor integration and payment insecurity.

Given rising competition and slight pullback of subscriptions in the second half of 2020, providers must take a proactive approach towards solving these issues—or risk getting left behind. Thankfully, the remedies to these pain points don’t require a prescription.

The Current State of Subscriptions

As mentioned, subscriptions experienced a slight pullback in the second half of 2020, possibly driven by budget restraints due to the ongoing pandemic. But while those subscribing to a service dipped 3% in the second half of 2020 (from 33% to 30%), those sharing the cost of a subscription rose 3% in that same time-period (33% to 36%). Offering the ability to share costs presents a unique opportunity for providers to retain subscribers and prevent churn.

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When it comes to making payments, subscribers now prefer debit cards (34%) over ACH payments (33%) and credit cards (30%). The reasons for this surge most likely revolve around the convenience of cards and the desire to avoid debt. Given COVID-19’s impact on the economy, it’s unsurprising to see subscribers move towards payment options that give them the most up-to-date account information as possible.

No talk of payments would be complete without mentioning missed payments. One in five subscribers missed a payment due to having an expired payment method on file, while nearly 40% blamed a lack of notification and reminders. Communicating with subscribers is now an essential part of the payments puzzle to drive more on-time payments and prevent involuntary churn.

Today’s Top Pain Points

Diagnosing the conditions plaguing today’s providers is not hard. The pain points impacting providers’ ability to collect, retain subscribers and fend off new competition are common throughout the industry, making it essential to solve them or risk getting left behind. Slow payments, payment expenses, poor integration and payment insecurity form the core issues plaguing providers today, but thankfully, remedying these issues doesn’t have to be hard.

Poor Integration

In our recent webinar, 45% of participants listed poor integration as their number one pain point. While this may seem a bit surprising given the challenges seen today, the ramifications of a poor integration spread throughout the organization, and include: delayed access to payment information, complicated reconciliation and a strain on IT resources.

The cascading effect of these issues leads to more errors, greater inefficiency and the inability to focus on projects that can drive innovation and open new lines of revenue. To compound the issue, providers cannot set and forget an integration. Eventually, the ongoing maintenance of the platform will become overwhelming.

Fortunately, while seemingly a daunting task to complete, optimizing integrations can be done without the need to rip and replace or otherwise begin from scratch. APIs and software development kits (SDK) can drastically improve the connectivity of existing systems, while offering the ability to innovate, as well as connections to new payment and engagement channels.

Providers should also look to take advantage of developer portals, which are specifically designed to ease development and speed time to market. All of these tools are currently available and support the ongoing maintenance needed to retain and win subscribers.  

Slow Payments

A lack of speed in the payments process presents issues for both the provider and the consumer. For providers, slow payments can lead to treasury challenges, including slow cash flow and longer fulfillment times. Delays can also increase subscriber inquiries into the status of their payments. This can lead to much more than simply a poor customer experience for the subscriber. Any delay in the posting of funds can lead to reversed transactions or a subscriber potentially being overdrawn on their account. Either way, they won’t be a subscriber for long.

To speed up funds, providers must now start to consider real-time payments. Instant fund transfers and payment confirmations give subscribers an up-to-the-second view into their account standing, helping to avoid issues with overdrawn funds and inquiries. Real-time payments also offer the ability to collect rich data from transactions, enabling providers to get a better view of subscriber behaviors to drive greater personalization (and satisfaction).

Providers should also consider integrated treasury management. This integration consolidates funds from multiple sources into a single daily deposit, streamlining the process while providing a clearer view for optimal funds management.

One last consideration when it comes to speed, block chain and crypto payments are right around the corner (and in some cases, already here). Any payments modernization roadmap must account for these emerging payment types and channels.

Payment Expenses

The cost to collect has increasingly become an enemy of the bottom line. The high rate of card payments certainly plays a role in this. Rising interchange costs are a twofold issue—providers can either absorb them and lose profits or pass them to the subscriber and risk losing them. Additionally, chargebacks and dispute management expenses are on the rise thanks to today’s fraud landscape. While the battle to defeat all fraud rages on, the cost of mitigation is a natural drain on resources.

Returns and errors are two more drains the bottom line. Bad account information (card numbers, addresses, etc.), closed accounts and expired payment methods impact providers in many ways—but each creates a financial hit. This revenue loss is compounded with staff time spent on contacting subscribers, chasing collections or handling returns.

To address the high cost of payments, providers should start by optimizing their card processing capabilities. This ideally involves working with a partner that can enable least-cost routing, routing to networks with the best authorization rates and deploying account updater services.

And let’s not forget about real-time payments. Real-time verification services must be considered and deployed to confirm both account status and funds availability. This will soon be a must-have capability as real-time payments become the norm.

Systemic Insecurity

Finally, no mention of pain points would be complete without addressing fraud. Data breaches can cause an irreparable loss of trust, while non-compliance with evolving regulatory changes can lead to much worse. And if fraudsters are successful, every single dollar that is lost reduces profit margins—which are already under pressure.

And yet, adding security cannot add friction to the customer experience. The goal is to make payments as seamless and secure as possible. A real-time, multi-layered platform backed by machine learning is optimal in meeting today’s fraud fighting challenges. Providers should also look to positive profiling, which uses global data to develop the clearest view of a subscriber possible—helping to increase acceptance and mitigate risk.

For more insights, we encourage you to view our on-demand webinar. In it, we expand on the strategies and solutions providers can deploy to address these four pain points.