It all started with the big names in subscription-based services. Amazon, Netflix, and Spotify. The growth of the subscription-based business model has led to a boom in recurring payments, popular among both customers and merchants.
As digital wallets, BNPL, and one-click payments continue to shape the payments space, one thing is for sure, payment processing with new recurring payment features has become commonplace.
How do they work? Are they the same as subscription payments? And how do they add value to a business? These questions we explore below to help platforms navigate how to best to offer this payment solution.
When a business charges a customer for a product or service at a predetermined interval, we call it a recurring payment. It is an automatic transaction that occurs regularly, such as monthly or annually.
What was once the only way to pay for that gym membership you never used has made its way into everything from utility bills and software subscriptions to rent collection.
The transaction begins with the customer authorizing the merchant to pull funds from their account on demand, and the process continues until such a time as the service is cancelled or if repayments are complete.
This all works behind the scenes, weaving ease into the billing experience for customers and merchants alike.
A recurring payment process begins when a customer subscribes to a merchant’s product or service.
For instance, let’s take a look at the prop tech industry. When a property management platform has an integrated payment solution through the services of a third-party payment service provider collecting rent becomes simplified. Once the rental terms are outlined, the date of payment is finalized, and the initial banking information has been provided, the rent payment is collected automatically. This can either be done with a customer's credit card or bank account through an automatic EFT withdrawal or Pre-Authorized Debit.
Customer funds are first deposited into the business's merchant account until this process becomes a "fait accompli" when the funds land in the property manager's business account. Every month, no further action needs to be taken by either party. Rent gets paid on time every time. This recurring payment life cycle carries on until the agreed subscription term ends.
Recurring payments have become an integral component of the SaaS experience. The subscription-based business model gives customers the flexibility and convenience of ongoing payments while simultaneously delivering a steady revenue stream for the company.
Subscription and recurring payments are very similar in all the similar ways. Subscription payments are more often than not a fixed amount. In contrast, recurring payments could fluctuate, such as a utility bill, and subscription payments deliver more flexibility to the customer, as in they can upgrade or downgrade their subscription plan.
Both options have fast become a platform favourite due to their ability to deliver a seamless payment experience with fewer touchpoints and less interaction and the fact they solve several merchant payment problems like the time-consuming manual task of following up when a payment is due ( more on that below).
The recurring revenue business model is popping up everywhere and solving challenges in industries you might least expect.
It is an excellent payment solution for any repeat collection:
• Loan Repayments
• Student Tuition
• Insurance Premium Payments
• Charity Donations
• Rental Payments
• Gym Memberships
• Software License Fees
Customers expect a smooth operation from start to finish. Businesses need to adapt and make it as easy as possible for clients to pay.
The final payment transaction is critical. The recurring payment system delivers a convenient “set and forget” payment transaction for both customers and the business. They reduce the friction of repeated manual payment initiation and remove the delays in getting paid.
Recurring payments have proven to be a powerful tool for almost every SaaS. If a customer is signing on to a recurring payment transaction, the likelihood of them staying for a while or even for good is high. The commitment has already been made, making customer retention that much easier.
In a situation where we are talking about an ongoing loan repayment with recurring payments, the chances of a missed payment are low.
What this payment solution does well is provide a stable and predictable revenue stream. Long-term strategies based on one-time ad hoc payments are ineffective and make forecasting cash flow challenging. In contrast, recurring payments ensure revenue continues flowing through the business.
They have become a solid strategy for companies looking to address high late and missed payment rates.
They deliver better operational efficiency. With automatic payments, there’s no following up on unpaid invoices.
Regular payments mean companies can plan their cash flow, allocate resources, and invest in growth without worrying about unpredictable revenue streams.
Embed payments directly into your software solution or platform using VoPay's payment technology. Offer multiple payment options and automate reconciliation to increase efficiency and engagement for your business. Recurring payment capabilities are accessible across VoPay’s payment rails, including e-Transfer for Business, EFT payments, VoPay Instant, and ACH payments.
To schedule a demonstration or speak to a payment specialist, connect with us today!