Over the past 20 years, businesses who needed to collect recurring revenue for their products or services traditionally looked towards payment service providers (also known as third party payment providers) to assist with their processing needs. A few large players emerged in this space, mostly with similar solutions, aggregating incumbent banks’ technology. In the process, they carried over the complexity of these solutions and the inability for them to solve bespoke merchant needs.
The boom in e-commerce also saw the rise of payment gateways. Like payment services providers, payment gateways make it easy for a business to process customer payments. By sitting between the buyer and the seller, they facilitate payment transactions that help businesses collect customers’ payments.
Being core to their business model, most payment providers excel in processing payments. Some payment gateways offer the ability to generate and distribute customer invoices, which cover some of the basic payment requirements of subscription-driven businesses. However, these capabilities fall short when compared with advanced subscription workflows.
Subscriptions keep changing over time and can become incredibly complex. But what you need is a system that can handle these changes and growth phases effortlessly. You want a platform that is designed to think about and solve these challenges, where the core business strategy is all about subscriptions, in a way that payment gateways are not set up for. We’re talking about changing the billing frequency, adding multiple subscriptions to one account, supporting add-ons, coupons and discounts and offering alternate payment methods.
We could keep going, but you get the picture! As such, let’s consider a few examples:
1. Customer engagement to maximise revenue collected
The industry average for customer payment failures is around 10%. As your business grows, reaching out to customers to recover failed payments can be expensive.
So should you hand over your customer to a debt recovery agency or set up your own arrears management team? Both options add significant cost to your bottom line and often result in customer churn.
Billing platforms are built from the ground up to consider your data to drive real-time and personalised engagement interactions with your customers.
2. Lack of flexibility
Customer expectations and payment technology are changing rapidly, and with change comes the need for flexibility — something traditional payment gateways often don’t have.
A rigid, inflexible payment gateway can be costly and limit your ability to migrate to a different provider or financial institution, add new features or access reduced financial institution costs. Not being able to easily switch or add payment gateways to your business can severely limit your ability to improve your payment experience, performance and control.
3. Keeping up with customer needs
What do you do when you find that a customer’s preferred request for payment is not supported by your gateway? The obvious solution is to switch your payment provider. But what if you find out later that only a select few of your customers prefer that payment method? Do you switch gateways again and go through the entire process of migrating all your subscriber information all over?
It should also be mentioned that switching to another payment gateway is a daunting task. You’d have to take into account the time taken to test the gateway and migrate to it.
4. Billing flexibility
Through personalised engagement triggers, you’ve convinced your customer to re-subscribe and activate their subscription. Or, you want to experiment with pricing and be able to make pricing changes easily. You would want to let customers upgrade, downgrade or pause their plans.
5. Multi-channel reconciliation
As your business and product offering grows, you will inevitably start offering more options for your customers to pay, and the complexity of your reconciliation and revenue recognition processes will increase.
Suddenly, you are stuck with different recons for different payment providers, each with their bespoke recon files and integration. Do you try to centralise your payments under one provider, only to find a new payment method better suited to your customers available through another provider in six months time?
Billing platforms are designed from the ground up with all these solutions in mind, catering for the growth in features you are not even aware you need yet.
Don’t worry; there is a silver lining! Subscription management solutions work on top of payment gateways and payment services providers. At its core, it makes it easier to handle subscriptions, from order to cash.