How Subscription Payments Work

How Subscription Payments Work

Subscription payments are a great option in case of regular purchases from a merchant site. The customer saves on time as there is no need to browse for the same product again. Besides, the customer would have access to price discounts and other offers by the e-commerce website.The merchant is assured of upfront revenues. It is a win-win situation for both. We shall now look at the mechanism of how subscription payments work.

What is Subscription Payments Model?

In a subscription model, the merchant or the seller debits the transaction amount from the customer’s bank account, at periodic intervals, towards regular purchases.

Also called recurring billing or the membership model, this is a model whereby the payment is collected upfront.

This is different from traditionally buying a product or service, where one makes a one-time payment at the time of purchase to close the transaction.

How Recurring Payments work:

  • A customer signs up with the e-commerce site or buys a particular product for an annual/monthly/weekly fee under the subscription option
  • While making the initial payment, the customer enters and saves the card details
  • The details of the payment mode are saved for the subsequent purchases
  • At the time of renewal of the purchase, the money is debited from the customer’s account
  • This is done periodically as per the frequency of the purchase or before the expiry of the subscription
  • This is convenient for the customer, who does not have to enter the payment details again
  • The customer is charged until the subscription is cancelled or withdrawn by the merchant
  • The income flow is steady and constant for the seller

How to Set Up Recurring Payments: The following are the methods in which a payment solutions company could help a merchant set up the recurring payments model.

  1. Recurring invoice: This is ideal in case the amount being billed on a recurring basis is an identical sum. The payments company would send an e- invoice to the customer, based on the plan, on a predetermined date as per schedule. The invoice would have options for the customer to enable the payment, update the payment mode, remove and replace the stored card information etc.
  2. Advanced payments: This is ideal in case of repeat clients. Here, the card details, provided by the client are stored in the payment gateway page. Thus, the client’s bank account is automatically debited on a pre-fixed date.

Role of the Payment Solutions Company: The payment gateway has an important role as an enabler in the entire process.

  1. Make plans: The payment solutions company facilitates the merchant to integrate subscription plans with the payment gateway. For example, a customer can choose a certain plan for a fortnight’s use of a service or product. The online payment platforms would charge each customer as per the selected plan. Also, there is ample flexibility like the option to change the active plan, offer an initial trial period waiver on charges or extend plans with discounted rates. Further, payment gateways would also cease charges in case of cancellation by customer.
  2. Maintain database: Payment companies help maintain a repository with the past and active plans of each and every customer. This is very useful to resolve any disputes that may arise regarding the tenure of the subscription or the amount debited from the customer account.
  3. Secure payment processor: Since the customer saves the confidential card related data, it is mandatory that the merchant integrate a secure online payment system that does not result in any data breach or privacy violations. It is hence prudent to opt for PCI DSS V3.2 Service Provider Certified gateway.
  4. Customized offerings: The payments company would also help automatically update the system of any plan changes by the customer, changes in the payment mode and card details. A global payments company with an inbuilt currency converter would be able to accept payments in multiple currencies.

Given its host of advantages, it is no surprise that subscription payments are on the rise. However, be sure to select a reputed, secure payments gateway, with experience in handling high volume of customer transactions, and established track record of accurate service delivery and multi-currency processing capabilities.