The subscription model has gained tremendous popularity, from magazines to digital services to software; everyone is opting for this model. The craze for the subscription model is because of its steady cash flow and other benefits that recurring payment provides.
It is gaining steam globally as it benefits both customers as well as businesses.
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Enterprises receive their payments on time and cut down on administrative costs that are related to payment delays.
Whereas customers no need to open invoices to complete their billing cycle.
Once they set a recurring payment system, the funds will be debited automatically from customers’ accounts on time, protecting them from possible fraud and late payment penalties.
This article will help you have a quick insight into what recurring payment is, how it benefits your business and more.
What is Recurring Payment?
The recurring payment is a simple payment model where consumers authorize the merchant to boost revenue and pull more funds from their accounts at regular intervals automatically for the goods and services offered to them on an ongoing basis.
Once approval from customers, the amount is deducted automatically at predefined intervals until the consumers retract the permission or the subscription expires.
UPI Autopay experienced a 28.34% rise in recurring mandates.
The mandated volume registered by remitter banks abutted around 4.03 million; it had a great jump over September.
During the period, the remitter banks registered almost 3.14 million mandates on the platform.
The recurring payment option has created huge buzz these days as more brands and customers are welcoming this concept with open hands.
Types of Recurring Payments
This trend started in 2007 and got recognized as a business transformation.
It is a trend that is away from purchasing products towards subscribing to services. The new way of doing business is termed as “subscription economy.”
Many brands, such as video streaming platforms Netflix, Amazon, and many more were the torch bearers; however, the phenomenon is far broader and relevant to every industry.
The recurring payment is categorized into two types, these include:
Fixed or Regular Recurring Payments
When individuals choose fixed or regular recurring payment options, they are charged the same every time.
For example, magazine subscriptions, gym memberships, etc.
Variable or Irregular Payments
When anybody chooses variable or irregular payment, the amount charged is changed based on the usage of the product or services.
For example, gas, electricity, water, and other bills change based on consumption.
Different Services That Provide Recurring Payment Options
No matter whether you have a SaaS-based business or other types and sizes of business, recurring payments have become increasingly popular among customers and businesses.
It is used by a growing number of business models; let’s check the list of areas that work with a regular payment approach.
Everyone is familiar with the streaming platforms like Netflix, Spotify, and more.
But do you know that all these platforms have driven recurring payments globally?
Their business models enable subscribers to pay a monthly fee to access a catalog of premier content, which can be TV series, music, movies, and more.
Streamers can use different video and music streaming platforms for free, but if they want access to premium content, then they have to get a subscription, which is based on a weekly, monthly, or annually recurring payment approach.
Streamers can choose any Subscription plan and make payments to enjoy the content of their choice without any delays.
A recurring payment is no more limited to digital channels and tech. Traditional personal services like clinics, schools, and parking follow the same approach.
For example, in a club, individuals can choose a membership to enjoy the leisure and sports facilities.
As mentioned above, streaming platforms boosted the popularity of recurring payments; they were the first to employ these billing methods. Recurring payments were referred to as recurring savings in the past.
The front runners to recurring payments were the SaaS business, which offers technological systems as a service.
Enterprises are able to access the platform also without the need to invest in program licensing.
Subscriptions Through Clubs
Changing customers’ habits have made brands more innovative. For example, in the literature market, a decrease in physical sales resulted in increasing the subscription clubs.
Besides books, subscribers get reading guides along with special gifts. Other markets like beverages, makeup, home products, and more followed this trend.
Customers can choose to make recurring payments in all cases to get the products.
Recurring Payment Benefits for Businesses
Every size and type of brand has an interest in recurring revenue; however, the goal is often elusive to smaller brands that are changing for better use.
Recurring payments boost customer experience; however, the subscription payment models have provided the foundation for industries, from software to digital services, from newspapers to utilities.
Subscriptions are more popular than ever before, that is in large part due to the ease of setting up recurring payments and accessibilities to growing and new business.
The ability to tap into recurring credit card processing is fueling the steady rise in subscription payment models.
A customer provides your business with payment methods like credit/debit card or bank account details when it comes to a regular recurring payment approach; they grant the approval at regular intervals like annually, monthly, or weekly for goods or services they provide to them.
Recurring payments are very helpful for different types of businesses like music streaming platforms like Spotify or gym memberships or pet food delivery, among other businesses.
Almost all businesses can enjoy the advantages that they get from the predictable revenue, which becomes possible due to recurring credit card processing.
There are lots of advantages that recurring payment provides to brands and customers; these include:
Improve Customer Retention
Customer acquisition costs your business time and money. You can improve the customer retention rate resulting in improving your business revenue by 80% and boosting customer loyalty by 30% with recurring transactions.
Recurring payments support retention by incentivizing consumers to pledge with your brand.
It has been implemented by top brands like Amazon Prime and others. They offer discounts and other perks to participants, helping brands to gain more loyal customers.
Recurring payments ease the payment process for customers. By agreeing to recurring billing, individuals can eliminate the need to remember the time and date to make timely payments, which makes their subscriptions, access, or deliveries remain uninterrupted.
Stabilize Cash Flow
Sales are not always predictable; they fluctuate from season to season or even in response to customer trends.
This makes your business revenue less predictable than your hope, making your budget complicated and difficult for you to grow your business.
However, recurring transactions help to stabilize the cash flow of your business as it has customers who prefer to make regular recurring payments; this makes it easier for you to generate more revenue.
Increase Customer Lifetime Value
Customer lifetime value means the total revenue brought by customers, operating expenses minus acquisition costs, and the expense of goods or services offered to customers. A larger CLV means more money for your business.
Recurring payments help to build a relationship between customers and brands after acquisition. Your brand income increases with the increase in the retention period.
Don’t Avoid Tech
Companies that implement modern tech in their operations have experienced great growth in recent years, McKinsey’s study shows. This represents how digital transformation makes a business competitive.
Automated systems used for recurring payment simplify tasks and make collections more effective.
Guarantees Better Customer Experience
Most companies these days focus on experience as more customers desire to have personalized and pleasant experiences from brands in addition to better products and services.
Hence while advertising your recurring payment system, make sure to manage your business as well.
Recurring transactions gained great followers as more customers these days demand more quality in delivery.
The primary reason is that the buyers consider the subscription service rather than a transaction.
They want brands to satisfy their needs; else, they will choose their competitors over them. On the other side, companies are focusing on improving the quality of the experience by final delivery and team performance.
Recurring payments are made regularly; hence, most businesses choose to provide this service, helping them attract new customers and retain old ones. Following new models for obtaining services by customers, the use of recurring billing or payments has increased dramatically.
As this payment method charges periodically, it makes it easier for customers to clear their billings without any issues in a safer way. The business can set the amount and pre-established period for a recurring payment; it is a really effective way to enable your customers to pay at their convenience.