Using Cards For Recurring Payments | Hydrogen Blog
Using Cards for Recurring Payments

Using Cards for Recurring Payments

When you think about a subscription, weekly newspaper delivery or a glossy monthly magazine might come to mind. In recent years, the options available for subscriptions have multiplied. Now, people can subscribe to music services and movie streaming services as well as traditional magazines and newspapers. They can also elect to receive regular deliveries of razor refills, vitamins, and meal kits. 

Recurring payments make the new subscription economy possible. A service provider charges the customer’s card before each subscription is sent either annually or monthly. Recurring card payments help make businesses more sustainable by ensuring a continuous source of income. Learn more about recurring billing and how to set up recurring payments for a subscription service.

The Rise of the Subscription Economy

The use of the subscription business model isn’t new. It dates back to the 1600s when it was primarily used by newspaper companies and publishers. Technology, particularly the development of software as a service (SaaS) and e-commerce, has made the subscription model more popular in modern times. It has also allowed the model to expand into almost every area of life, from personal care to food and from media to clothing.

At the start of the new subscription economy, many of the companies involved were small startups who offered their products directly to consumers and often used social media and grassroots marketing to spread the word. As the value of the subscription method became apparent, larger companies launched their own competing services or bought up the startups. Over the course of the five years from 2011 to 2016, sales of subscription services went from $57 million to $2.6 billion.

How Do Online Subscription Services Work?

The subscription business model focuses on retaining customers rather than always acquiring new ones. When someone signs up for a subscription, they agree to receive a product or service regularly or consistently. In exchange for the product or service, they agree to make recurring payments for it. Someone might pay a monthly fee for a streaming service or an annual fee for a car or bike rental service.

Subscription services generally fall into three categories:

  • Replenishment: Replenishment services send a refill of a product on a set schedule. For example, a consumer might purchase a skin care subscription and receive a new bottle of lotion or facial cleanser every four to six weeks. Usually, the consumer has the option of adjusting the frequency of shipments or skipping a shipment if they have enough of the product left and don’t need a refill at the moment. 
  • Curated: Another option is a curated subscription service. With curation, someone, such as a stylist or tastemaker, chooses the products that get sent to subscribers each month. The appeal of curation is that the products are chosen by an expert and might be of better quality or more trendy than something a person would choose on their own.
  • Access: An access subscription gives a person access to something, such as a streaming service, free shipping, or discounts on products. The subscriber might not get a physical item in exchange for their subscription. Instead, they get to enjoy the service offered by the company, often at a lower price.

When a consumer signs up for a subscription service of any type, they have to provide payment information and give the company permission to take payment on the agreed schedule. Many subscription companies will send a customer a reminder of upcoming recurring payments, so the customer can make sure they have enough money on their card or in their bank account to cover the charge.

Payment Methods Used for Recurring Payments

Modern-day subscription models rely on quick, regular payment methods. Most won’t accept cash payments, as the subscriptions primarily exist in the digital space and many subscription-based companies don’t have brick-and-mortar locations. It also takes too long for a customer to send in a check for payment and for the check to clear. There’s also the chance that a customer will forget to send in a check, disrupting their subscription.

Ideally, the methods used to pay for subscription services are repeatable and automated. Two of the most commonly used methods for recurring payments are direct deposit and card payments. To initiate direct deposit payments, a consumer provides a business their bank account information, such as the routing number and account number. They also need to authorize the company to make the payment. 

The process is similar if someone chooses to use a card, such as a credit or debit card, to pay for their subscription. They provide the card number and expiration date to the subscription company. On the agreed dates, the subscription company charges the card for the amount due.

How to Accept Recurring Payments With Cards

With a subscription model, it’s likely you aren’t seeing your customers in person and can’t physically accept their payment cards from them. You’ll likely need to collect their payment information and set up the recurring payments virtually. To get started, your business will need to connect with a payment service provider that allows for recurring payments. Once you’ve found a service provider, you can collect information from your customers.

Customers will need to provide you card details, including the expiration date. They’ll also need to sign an agreement authorizing you to pull the payment. Usually, you don’t have to provide a customer with an exact date that you’ll take the payment, and there is some flexibility in case the amount of the payment needs to change. 

After getting the customer’s details and authorization, you can enter it into your service provider, choose the recurring payment option and begin getting paid.

Benefits of Collecting Recurring Payments

One reason why the subscription service model has caught on is that it benefits both customers and companies. When you accept recurring payments, you have a steady stream of revenue. Your company’s cash flow improves, and you can start making plans for growth and future endeavors. If you offer a product subscription that automatically renews, you save time and money as you don’t have to hunt down customers or remind them to renew their subscriptions.

For customers, the biggest benefit of a subscription service is convenience. Someone who signs up for a meal kit delivery service knows they’ll receive a box of food every week or so and won’t have to go to the grocery store and battle crowds to get food on the table. Someone who subscribes to Netflix, or a similar streaming service, will always have something to watch when they’re bored. 

The “set it and forget it” nature of recurring payments can also help consumers with their budgeting. They know they’ll always pay $X for their streaming service, $Y for their meal kits, and $Z for their skin care box. Accordingly, they can plan their expenses and other purchases around the subscriptions. 

Create Recurring Payment Cards With Hydrogen

With Hydrogen, you can issue cards that can be used to pay for your organization’s subscriptions or you can create an offering for your customers to use cards to pay for their subscriptions! You can also issue virtual cards for each subscription and have spending controls for greater security. To learn more, sign up on our platform today.

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