Cross-border recurring payments are subject to the double whammy of facilitating local currency and all of the challenges that come with subscription commerce in any country.
The latest Global Recurring Payments Tracker delves into the state of global subscriptions, how much of a role consumer payment preferences have and why speed matters so much for cross-border transactions.
With the subscription market set to reach more than $500 billion by 2023, consumers now purchase things like music streaming, software and groceries through subscription services. But just because a merchant is successful in its home market, doesn’t mean they are also guaranteed success abroad.
Beyond product and strategy, payment methods come with highly regional preferences. One of the biggest issues — especially among U.S. merchants — is assuming everyone uses credit cards for online payments.
“The primary thing that merchants discover pretty quickly as they start going cross-border is that credit cards aren’t taken everywhere. Don’t think that just because [you] support credit cards and [your] payment processor might be able to transact in the local currency that that’s enough,” said Andy Barker, head of payments at Adobe.
It’s true that payment processors charge fees to convert currencies, but paying an FX fee is the tradeoff to enabling preferred currencies and not risking losing a sale.
How Do Consumers Want to Pay?
A recent study by GoCardless analyzed payment preferences for subscriptions, memberships, bills and installment plans in 10 countries and found a number of regional quirks.
First, payment preferences differ between traditional subscriptions like magazines or gym memberships and online subscriptions like streaming services or food delivery.
North America rules when it comes to credit card usage. Among the 10 countries surveyed, consumers in Canada were the most likely to make recurring payments via credit card; 27 percent were “very likely” to use this method for traditional subscriptions while 26 percent said the same for online subscriptions. U.S. consumers were just behind at 22 percent for both types of subscriptions.
Nearly half (40 percent) of Germans, on the other hand, are “very unlikely” to use credit cards. They prefer bank debit (38 percent) like many others in Europe including Denmark (50 percent), the U.K. (47 percent) and Spain (39 percent).
One stark takeaway from this study is that while in nine of the 10 countries included, at least 30 percent of consumers preferred bank/direct debit to pay for online subscriptions, only one of the top 44 B2C subscription sites even offers bank/direct debit as an option to pay.
Speed Matters for Subscription Payments
Smarter, faster payments have long been the goal, but speed can make a bigger difference in cross-border recurring payments since FX rates can fluctuate. As it stands, cross-border transactions often take three to five business days to settle. Accelerating the speed of transactions can help reducing the risk of FX rate changes.
Some FIs have been partnering with cross-border transaction FinTechs to streamline banking transfers, and application programming interface (API) integration can also help businesses access domestic rails.
FIs trying to improve both cross-border and domestic payment speeds must focus on providing easy access to real-time settlement systems. According to the July Faster Payments Tracker, roughly 40 countries had real-time payment systems in place in 2018, and many more working on them.
In an interview with PYMNTS, Deva Annamalai, director of innovation and payment strategy at Fiserv, spoke about the role that such APIs play in the further deployment of real-time payments (RTP).“Even in established markets like the U.S., the use of APIs can help a lot. APIs are changing the traditional model.” he said.
Subscription Commerce Continues to Gain Ground
Over the past seven years, subscription companies across North America, Europe, and the Asia Pacific have seen their sales grow by more than 300 percent, equaling an 18 percent compound annual growth rate (CAGR). Globally, 71 percent of consumers use subscription services in 2019, up from 53 percent just five years ago.
This might just be the tip of the iceberg. Three-fourths (74 percent) of consumers worldwide think that in the future people will own fewer goods and subscribe to more services. Additionally, one-third of consumers worldwide envision using subscription services more in the next two years.