Towards a new Subscription Economy

Subscription Payments, Trending topics | 03.04.2014

The trend towards online subscription models is having a major impact on e-commerce. But monetizing such models is often not in the best interest of the buyer or seller. What are some e-subscription options?

The Subscription Economy

For many reasons, both financial and practical, our economy is evolving from one of possession to one of use.

  • We no longer buy software, but rather rent access to software online, which relieves us of having to deal with installation, infrastructure and maintenance.  This is why today’s web service, cloud computing and cloud storage models are so successful.
  • Rather than buying music, we subscribe to a streaming service. Other media are following the same trend, offering platforms for renting films, games and interactive press content.
  • Due to the rising costs of car ownership, we now have the option to subscribe to a car-sharing service. Similarly, major cities are considering long leases, in which property owners would own their structures, but only lease the ground they are built on.

This change to our purchasing habits calls into question the traditional ways we have monetized the client relationship.  Telecom operators have been at the vanguard of this change with multiple innovations, such as unlimited or minimum subscription plans and loyalty programs.  They also confronted their worst enemy: churn, or subscriber attrition.

The trend towards online subscription models is having a major impact on e-commerce, but lack of customer loyalty in this market is even more marked. Is it only because consumers are, as many believe, fickle and calculating? Or, rather, is it because people think merchants treat their customers like numbers or are unable to deliver on their promises? E-commerce is an incredible collective adventure we embarked upon in the mid-90s, so it’s understandable that it is still trying to find its way. In any case, it offers an opportunity to understand the buyer/seller relationship in a different way since, in the past, it has often been viewed as being necessarily antagonistic.

Attrition

Monetising subscription models is often not in the best interest of the buyer or seller, and can be a true lose/lose proposition.  Either the merchant stores bank card data in order to make recurring debits to cards, exposing himself to a high incident rate and natural churn resulting from the regular renewal of card information (not to mention the distinct risk of card fraud due to hacking of databases, which even the most respected companies are not immune to).  Or the merchant requires his customers to go to his site to pay monthly fees, which is also not a good option in terms of creating customer loyalty.

Finally, the ideal solution for e-subscriptions

Thanks to new technology and a new legal framework that clarifies and significantly extends buyers’ options for contesting payments and getting reimbursed, it is now as easy to set up direct debits from a bank account as it is to implement a bank card payment solution (of the Electronic Payment Terminal type). Direct debiting from bank accounts is also a completely secure solution for both the payer and the merchant (very little fraud so far). Recurring debits are authorized by the online signature of an electronic mandate between the payer and the merchant, freeing payers of the requirement to sign a paper debit authorization and having to then mail it to the merchant — which they often don’t do.  Another advantage is that debits are taken directly from customers’ bank accounts rather than their cards, eliminating the automatic churn resulting from the customer’s failure to update bank card information with the merchant.  So… To churn, or not to churn?

More insights in the White Paper “Europeans and the subscription model viewed from a payment perspective”

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