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Thursday, June 6, 2019

Subscription services missing out by not offering direct debits

Americans prefer to use credit cards for recurring payments—more than consumers in almost every leading industrialized country, save Canada. A growing number of Americans, however, would consider paying with direct debits to their bank accounts, according to a new survey from GoCardless and YouGov.com.

But here’s the catch: all of the top 30 subscription-based services in the United States offer credit and debit card payments, 53 percent offer PayPal, and 6 percent offer other payment methods. But none offer direct debits as an option for recurring payments, according to Hiroki Takeuchi, CEO of GoCardless. That includes Amazon Prime, iCloud and Netflix.

Direct debits are unique to the United States. With authorization from customers, service providers use the automated clearing house (ACH) system to pull funds from customer bank accounts (typically checking accounts) on payment due dates. In most other countries, consumers use bank debits, bank-to-bank transfers that use electronic networks similar to the ACH. Unlike the ACH, which relies on batch processing cycles, transactions across these networks occur in near real-time.

Consumers want options

Among U.S. consumers surveyed for GoCardless, 19 percent said they liked the idea of paying for subscription services with direct debits. Thirty-eight percent said they prefer using credit cards to pay for subscription services, 34 percent prefer debit cards, and 22 percent like the idea of using digital wallets for these payments.

This contrasts with much of the industrialized world. Outside North America, consumers in eight markets surveyed prefer bank debits to pay for these services. In the United Kingdom, for example, two-thirds of consumers indicated they liked the idea of using bank debits to pay for subscription services, although none of the 29 largest subscription services there offer bank debits as a payment option.

The only place where consumers have the option to pay for subscription services with bank debits is Germany, and only one of Germany’s top 44 subscription websites offer the option, GoCardless said.

Thwarting business growth

The fact that consumers aren’t getting the option to pay by direct (or bank) debit could stymie growth of subscription services, several experts observed. “Payment preferences can have a huge impact on checkout conversion, especially for subscription businesses,” Takeuchi said. “There is no ‘one size fits all’ solution, but businesses must understand that choice is crucial if they want to continue to appeal to consumers. If you fail to offer the most relevant options for recurring payments, customers will walk away,” he added.

Tom Roten, CEO of Chargify, a software service for subscription-based businesses, agreed. “Subscriptions are in essence relationships that constantly change over time. In recent years, the ability to offer a menu of payment options has increased in importance for both getting new customers in the door and retaining them as the customer/merchant relationship evolves.”

“To meet changing consumer expectations in the subscription economy, businesses need to offer convenience and flexibility in how they accept payments,” stated John Phillips, managing director of Europe at Zoura, a global subscription billing platform.

Many factors influence how consumers want to pay, and some of these may be cultural, noted Duncan Barrigan, product vice president at GoCardless. “That doesn’t mean however, that you can’t influence preferences,” he said. “Simple actions, like offering incentives to steer buyers toward an option or simply changing the order in which payment options are shown on your payment page or invoice, can make a big impact.” end of article

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