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Generation Subscriber demands next generation payments

Myles Dawson, UK Managing Director, Adyen, explains why digital subscriptions are fast replacing ‘ownership’ – and the payment issues arising from this shift

A new generation of consumer is here – Generation Subscriber. According to recent results from the Entertainment Retailers Association (ERA), digital entertainment services are, for the first time, delivering higher revenues through subscriptions than ‘ownership’.

Last year, music subscriptions accounted for 62% of total recorded music revenues, finally following the gaming and video markets, which saw subscriptions surpass ownership in 2016 and 2017 respectively. Naturally, this spend is coming via digital means: in fact, digital revenue now accounts for 75% of entertainment expenditure.

The rise of services such as Amazon, Spotify, Apple Music, Hello Fresh and Graze has transformed the way we consume and share goods and services. Against this backdrop, a fit-for-purpose payments infrastructure is required to appeal to, sign-up and retain customers who think ‘digital-first’.

A smooth and flexible checkout process

The first part of the payments puzzle is to ensure the online checkout process is as frictionless as possible. This is particularly vital at the point a customer signs up, as it’s their first direct experience of the brand. At this point they also need clearly-signposted information such as terms and conditions, how charges are made and cancellation policies. Brands need to get the ‘buy in’ and confidence of the consumer right from the off.

For subscription businesses, who are often trying to quickly build a base of loyal consumers, payments must be quick, easy and secure, and possible on any device.

It’s vital that consumers can select from a variety of different payment methods. Customers usually have their own preferences, including debit cards, credit cards, bank transfers and other local systems such as AliPay or WeChat Pay in China and SEPA Direct Debit in mainland Europe.

Subscription businesses also have considerations around recurring payments. In some markets, such as Indonesia, it’s not even possible to set up periodic payments – a challenge that Spotify has overcome by allowing its customers there to pay each month using bank transfers or with cash at local convenience stores.

Minimising churn

Involuntary churn – where customers unintentionally have their subscription cancelled due to payment failure – can be a huge source of frustration.

It often occurs when cards expire, are lost, or changed for other unforeseen reasons, triggering a decline in the next payment, often without the business or customer immediately realising it.

Merchants need instant visibility on these changes to keep up with their customers, no matter how often, or not, they return. Major card schemes now provide such updates in real time at the time of payment, preventing significant involuntary churn without disrupting the customer experience.

Real time account updates are especially easy to use when paired with tokenisation. Rather than storing sensitive card details, a merchant using tokenisation will store and make payments with a unique ‘token’ number linked to the customer’s card.

Tokens will remain the same, irrespective of any new payment card details. That means fewer false declines and a lower churn rate – with no integration or maintenance required. It also means the merchant is completely protected against reputational and monetary damages from card breaches, while the payments process is made as simple and as seamless as possible for the customer. Everyone wins.

Protection against fraud

E-commerce-based, subscription businesses are more susceptible to two types of fraud than other merchants: card testing and reseller fraud.

Card testing is where fraudsters test stolen details to see if they can be used to make subsequent transactions.

Reseller fraud is where fraudsters sign up for trial periods and then sell them on to unsuspecting consumers for small amounts of money. This delivers a negative customer experience and damages brand perception in the process.

The traditional approach to combating fraud is stopping suspicious transactions. But the consequence of doing so often means potentially blocking ‘good’ customers at the same time as ‘bad’ ones.

Instead, subscription businesses should look to use a payments system that can analyse consumers and their spending behaviour in real-time, in order to minimise false positives. Adyen’s Revenue Protect, for example, uses a data-driven approach to block fraud. Features include behavioural analysis, transaction linking, connecting multiple signals into a single profile for every device and custom risk profiles.

In conclusion

The world is increasingly moving towards a subscription-based model – with markets such as beauty, fashion and food & drink following the entertainment sector’s lead. In this world, customers demand quality, speed, security and – most of all – an uninterrupted, continuous experience. This applies not just to what they buy, but how they pay for it. Simply put, Generation Subscriber demands next generation payments.