Unlike card payments, in this mode the user doesn’t need to manually make any payments or even authorise anything month-on-month.
By Ramakrishnan Ramamurthy
You are all geared up for the weekend as you look forward to watch a cricket match on your new TV; guests arrive and, at that moment, you realise your dish operator has disconnected your feed. While seems like a scene right out of a commercial, it is a possibility, given that many of us have Netflix or Amazon Prime memberships. In our day-to-day hustle, we end up forgetting time-lines of our bill payments. This is where recurring payments prove helpful; they deduct from the bank account on an agreed upon schedule (monthly, daily, weekly). These can be done for a range of payments, from utilities to subscription-based magazines, blogs, etc.
It’s a significant change in the payment metrics of India, where conventionally this service was only accessible to credit card holders, but now the market is open to anyone who has a bank account. This model can enable people to make payments faster, safer and in a hassle-free manner.
In India’s ecosystem, the subscription-based model was considered niche, restricted to those catering to specific needs such as insurance and regular domestic bills. But this market has exploded especially in the last two years. At the same time, there has been a steady rise in subscription-based models that create a need for a payments solution which integrates the working of the subscription model as well as consumers’ payment cycles seamlessly. This is where the recurring payments business model is taking a major step towards closing the requirement loop. Most of us do bear the brunt of late payments. With this, the customer becomes conscious of the monthly cycle of payments and is aware of expenditures, besides it also allows purchasing of big-ticket items as you can spread it out over periodic cycles.
Unlike card payments, in this mode the user doesn’t need to manually make payments or authorise anything month-on-month. A simple, one-time authorisation along with a payment limit needs to be approved by the user, and the system is in place. The customer needs to type in the security passwords to authorise the payment the first time, and then the system creates a loop of the same payment. An important point to remember is that, at no step, does the payment provider/bank capture or store the security passwords of the account. With subscription-based models getting popular, the convenience, transparency and flexibility that comes with them is a deal sealer for consumers.
The recurring payments model also gives retailers a chance to gain detailed insights into customers’ behaviours and preferences, not to forget a predictable flow of income into their coffers and the power to better manage inventory. Especially, late payments have a significant impact on a business’s cash flow—late fees, more often than not, badly affect customer relationship. Besides, a business can also gauge a stable and steady customer who is up for the long haul, as opposed to one-time shoppers.
Another key element is that when a customer has to go through the tedious process of processing payments, it provides them the window of rethinking whether or not the purchase is valuable. This can lead to losing customers—therefore, recurring payments can help in customer retention. Lastly, it helps in minimising the legwork as all the merchant needs to do is set up the initial payment schedule, and then manage changes in payment type or amount.
For retailers with diverse product offerings, subscription billings also offer the opportunity to cross-sell or up-sell products. Amazon’s Subscribe & Save, which offers monthly automated deliveries of peoples’ favourite items, is a case in point. These are some of the reasons recurring payments can become more relevant to emerging industries. Lastly, while the subscription industry is still new to India, recurring payments is a deep-rooted and safe process when it comes to financial banking transactions. With growing subscription business models and rapid urbanisation, recurring payments are going to be the norm as they enhance cash-flow, customer experience and security.