Recurring Payments: Building a Successful PlanVarone
The concept of customers making automatic, recurring payments to access goods or services isn’t new. Health club memberships are based on recurring payments and have been around for decades. Software-as-a-service (SaaS) began its strong growth trajectory in the 1990s as the Internet grew.
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The success of recurring payments for these two industries has encouraged other types of businesses to either add on or completely shift to accepting automated, repeat payments electronically. In a 2018 study, 54% of retail leaders said they expected substantial revenue growth from recurring customer purchases in 2019. While 65% of them already offered subscription programs, another 22% were considering such a program in 2019.
Not only do businesses increasingly prefer recurring payments, but consumers are more willing to purchase products and services with a subscription using recurring payments. Underscoring the popularity of the subscription business model is the fact that, for every year from 2011 – 2016, the subscription e-commerce market grew by 100%.
B2B (business-to-business) organizations have been slower to embrace recurring payments. However, they are increasingly open to making payments online with ACH, a payment method that most recurring payment solutions support. It’s expected that the increasing popularity of ACH and the growth of real-time payment technology will lead to an uptick in B2B
The appeal of billing customers regularly and automatically is obviously intriguing for retailers, who benefit from a reliable and predictable revenue stream. As for consumers, they experience less hassle, fewer late fees, and consistent access to the desired product or service. Rather than risk a loss of access to, for example, their video streaming, they realize it’s easier to keep their credit or bank information on file with the merchant for automated payments.
Another reason why consumers may opt for merchants to store and regularly charge their credit card or debit their bank account is that, in the case of large ticket items, they get immediate access to the product without having to put down the entire amount of money at once.
The SaaS industry is one example of this. Before software companies adopted the SaaS business model, the cost of office software was typically hundreds of dollars for just one license. Specialized, professional-level software and enterprise-level software costs even more—thousands up to hundreds of thousands of dollars. With a monthly, quarterly, or yearly SaaS subscription, customers can immediately begin using the software for a lower price upfront without worrying if they can afford to pay for the next software upgrade.
How Recurring Payments Work
Recurring Software Solutions
Recurring software solutions—such as those offered by POS systems, virtual terminals, invoicing software, e-commerce platforms, and payment gateways—enable merchants to set up recurring payment schedules that link to their customer database and their stored payment methods. Once they’ve selected the customer in their system, the merchant can choose the desired payment method on file (card or ACH), the frequency of the payment, the payment amount, and more.
Recurring Payment Methods
Recurring software solutions typically support both card and ACH payments to accommodate customer preferences.
Credit and debit card payment information can be stored securely within the merchant’s system. To keep data safe and compliant with PCI requirements, merchants should be sure to use a recurring solution that either encrypts card data or tokenizes it (more on that later).
The ACH (Automated Clearing House) network, which coordinates bank-to-bank electronic payments and money transfers, is another payment method that’s frequently supported by recurring payment solutions. Many customers and merchants alike prefer ACH payments as part of a recurring payment program, and they’re a great alternative to snail-mail invoicing. Plus, merchants enjoy the added benefit of not having to pay for credit card processing rates.
In the past, ACH payments required a few days of processing before becoming finalized. However, with the advent of real-time ACH technology, banks can instantaneously transfer money between accounts.
One global survey found that in the U.S. and Canada, companies preferred to use corporate credit cards. However, across all nine international markets surveyed (including the U.S. and Canada), ACH debit is the preferred payment method 42% of the time.
Consumers are also embracing ACH payments. In 2018, for the first time ever in the U.S., consumers used ACH debit payments more than check payments (16.6 billion dollars versus 14.5 billion).
Recurring for B2B
Recurring billing works exceptionally well for businesses that send out regular invoices to other businesses. Many types of businesses have transitioned from traditional billing to automated recurring billing, such as attorneys who need to bill retainer fees; metropolitan newspapers; and global travel clubs.
The “set-it-and-forget-it” benefit of recurring payments allows merchants to rely on timely payments. Invoices do not have to travel through the postal service, nor do merchants have to wait for their clients’ accounting departments to write out a check and send a payment back via the same route.
Since 2004, when 81% of B2B payments were made with checks, check writing has declined by 50%. Instead, more and more companies are turning to corporate credit cards or ACH payments to pay and accept invoices. In general, ACH debit payments are more secure, as routing and account information must only be communicated once during setup. This is in contrast to sending a check through the postal service, which could expose your bank account number to several pairs of eyes.
Additionally, recurring billing streamlines accounts payable and account receivable functions, and it gives companies access to income more quickly than with check payments—even faster if the business chooses to use a next-day funding option.
With a stable revenue stream, budgeting for predictable expenses like capital expenditures or employee salaries is straightforward. The reliability of recurring payments lets startups and other businesses focus on improving their products and services, continually procuring new customers, and keeping their existing ones for longer.
Recurring for B2C
As mentioned earlier, the success of recurring payments at health clubs and SaaS businesses has enticed other business sectors—such as pet supplies, retail stores, and doctors — to test the waters. Auto-billing has also helped to sprout innumerable new business startups. Recurring payments are the underlying vehicle that has to have a surge of subscription businesses like Dollar Shave Club, Blue Apron, and Stitch Fix to success.
While recurring payments save time and hassle, they also give consumers access to unique products that were previously cost-prohibitive. Besides fully featured software, they can try out monthly selections of cosmetic samples; pre-cooked, home-delivered meals; and creatively designed, pre-assembled outfits—to mention just a few.
Many recurring payment solutions also offer added features to reduce card declines so that businesses can keep customer payment information up-to-date and avoid applying late fees to delinquent accounts, dunning customers, or cutting off their access to service or products. It helps reduce the dreaded churn rate (the percentage of customers who cancel their service) and strengthens customer loyalty.
What To Look For in a Recurring Payment Solution Provider
When looking for a recurring payment solution, you’ll want to make sure to find one that offers a range of added benefits to ensure maximum ease of use, business efficiency, security, and customer satisfaction. Here are some essential features to look out for:
Easy Recurring Payment Management
Merchants need a central location to manage recurring payments. Look for an easily accessible system with a clear user interface that’s easy to navigate and make changes. Recurring payment capabilities are available through a wide range of software solutions, such as:
- POS systems
- Virtual terminals
- Invoicing software
- E-commerce platforms
- Payment gateways
You’ll want there to be as much flexibility as possible when it comes to setting up your schedule, with the ability to easily link each schedule to the customer and payment method. Plus, there should be a wide range of settings to ensure that you can set up schedules as precisely as possible based on the desired start date, end date, transaction amount, number of payments, and more.
Another helpful feature that some recurring payment solutions like Cardknox offer is the ability to save recurring schedule templates. This is ideal if your business offers subscription tiers or membership plans, as you’ll be able to select a default recurring plan when adding a recurring schedule for a new customer.
Besides for setting up payment schedules and applying them to customers, merchants need to be able to see the status of the recurring transactions (approved, declined, etc.). This feature is available via a report or list of transactions in your software system.
Support for Multiple Payment Methods
When evaluating a software solution for recurring payments, make sure that the solution lets you accept multiple payment methods. Credit cards and auto-debit ACH payments (from bank checking or savings accounts) are the most common.
Customers will appreciate being able to pay how they want, and you’ll be able to harness the unique benefits of each payment method.
Some recurring billing solutions enable merchants to create a custom online payment form. This form can be shared with the customer to collect a one-time invoice, and to prompt the customer to enroll in recurring payments. Cardknox’s PaymentSITE form is one such solution, and it’s preferred by service providers, nonprofits, and other organizations for its ability to automate invoicing.
Support for Convenience and Service Fees
Some sectors, such as real estate, the public sector, and non-profit organizations, traditionally apply convenience or service fees to transactions to offset the cost of credit card processing. If your industry commonly does this, it’s important that your recurring processing solution allows you to apply convenience fees to recurring payments.
Payment processors like Cardknox make it simple to apply convenience fees to recurring payments. Our Cardknox Merchant Portal is a virtual terminal solution in which merchants can set up custom recurring schedules that link to their customers. In their account settings, they’ll be able to add a convenience fee that’s automatically included as a line item on customers’ payments for both cardpresent or card-not-present transactions.
Data Tokenization and PCI Compliance
If you’re not comfortable or familiar with payment technology, it can seem counterintuitive or unsafe to store customers’ credit card information online for recurring payments. However, you can keep your customer’s payment information safe as long as your payment processor stores payment information in a virtual “vault” as tokenized data.
Even if hackers intercept or retrieve tokens, they are useless because they only make sense to the credit card issuer. Not only does tokenization protect sensitive payment information, but it also simplifies PCI compliance because you’re not storing the actual credit card data on-site or on your servers.
Cardknox utilizes tokenization technology as part of its recurring payment processing capabilities. When payment data is stored within the Cardknox Merchant Portal or within the merchant’s software, it is saved securely in token form.
Automatic Card Updating Tools to Prevent Card Declines
While it’s good to use tokens to represent customers’ credit card data, the credit card data itself is useless if it is out-of-date. Unfortunately, as most merchants already know, declined transactions—typically a result of expired, lost, or stolen cards—are widespread. If a customer forgets to update the payment information on file with you, the result is a declined transaction.
Many payment technology companies have developed automated solutions to prevent card declines. Most commonly, these tools work in the background to identify stored credit cards that need to be updated and then automatically retrieve the correct credit card information from card-issuing banks.
This method of automatically updating credit cards is less hassle for both the merchant and the customer. Besides for reducing declined transactions, it saves merchants’ time because they’re not trying to track down customers to get the updated payment information. Furthermore, it helps merchants retain customers by reducing passive churn.
And, customers won’t have to remember to update their payment information when they receive a new card. They also don’t experience an interruption in the service or product they’re enjoying or the frustration of having to set up the subscription again.
Cardknox offers its own account updater tool that scans for inactive or expired cards and updates them automatically. And on top of that, Cardknox offers another feature called UpdateYourCard that more proactively updates cardholder information. While Cardknox’s account updater tool can gather information from the issuing banks in the event that a card was lost, stolen, or expired, UpdateYourCard contacts the cardholder directly. Thus, the customer can provide information for an entirely different card in the event that their account stored on file with the merchant is inactive, closed, or has insufficient funds. After the customer provides the correct payment information, Cardknox updates it in the system, and it’s applied to subsequent transactions for that cardholder.
Automated Retries For Declined Transactions
Not only is it important to use a recurring payment solution that can update expired or inactive cards on file, but you’ll also want to find a solution that will automatically retry the transaction a certain number of times if the payment is declined. If the decline is due to a lack of funds, then re-running a transaction using the existing payment method on file will likely be successful down the road (and if this doesn’t work, your solution can then utilize the account updater tool to find new card information).
Cardknox Recurring Payments Are a Breeze to Set Up
Whether you’re a merchant or a developer, it’s easy to get started with Cardknox’s recurring payment processing technology. Merchants can set up fully customized recurring payment schedules in our Cardknox Merchant Portal, a virtual terminal web application that also offers a wide range of tools for viewing reporting and sales history; sending email invoices; storing customer payment information; and more.
Cardknox recurring payments technology can also be integrated into your existing operational and accounting systems, providing better visibility across the company. While merchants can create and manage recurring schedules on their own in the Cardknox Merchant Portal, our recurring API gives developers the ability to integrate recurring capabilities within the merchant’s software so that recurring schedules can operate automatically behind the scenes. Our plugins for leading e-commerce, POS, and ERP systems make it easy to integrate Cardknox payment capabilities, no matter the merchant’s setup. And, merchants can enjoy streamlined account reconciliations and a seamless user experience since they don’t have to switch between multiple software systems.
Next Step: Get Up and Running With Recurring Payments
Moving a business to recurring payments—or starting a new subscription-based business with recurring payments—is a significant step, but it doesn’t have to be overwhelming. What’s critical is to first determine your business’ needs, and then look for a solutions provider who is the best fit.
Consumers are already comfortable and familiar with being billed automatically. Adding recurring payments to your payment processing operations can grow your customer base, improve customer loyalty and satisfaction, free up staff time, and stabilize your revenue stream.
With Cardknox, developers and Independent Software Vendors (ISVs) who work with merchants have a flexible, straightforward solution to configure merchants with recurring payments. Instead of wrangling with customized software solutions, developers can instead focus on expanding their businesses with satisfied merchants.
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