Churn And Regional Preferences Challenge Subscription Commerce

In non-iPhone Apple news, last month the tech company introduced a “grace period” for lapses in app store subscriptions.

Apple’s grace period can last for six or 16 days, depending on whether the subscription duration is weekly, monthly or longer. To the benefit of merchants, the consumer’s access runs uninterrupted during that period so revenue streams won’t be interrupted.

Businesses benefit from established ongoing customer relationships that build loyalty as well as increase the predictability of their cash flows. The subscription commerce sector is growing, with Asia-Pacific, Europe and North America-based subscription companies experiencing more than 300 percent growth in subscription sales from 2012 to 2019.

The latest Global Recurring Payments Tracker examines the challenges of the international recurring payments space, as well as the latest efforts to enable smoother cross-border transactions for global business growth.

Loyalty and Retention

Subscription commerce is increasingly global in nature. According to a recent study, 71 percent of consumers across 12 countries have subscription services, up from roughly half who had them five years ago.

Nearly three-fourths (72 percent) of consumers have completed a cross-border purchase, and those purchases are dominated by digital goods and services with 75 percent of shoppers who purchased digital products also buying internationally.

Companies must focus on both customer retention and acquisition, but the former can often be more cost-effective. Companies are then working to continue to serve those who are interested rather than aiming to win over a more general public.

In a YouGov survey, 12 percent said they used to subscribe to a delivery service for beauty products but don’t anymore. Food services had similar levels of churn; 11 percent said they once subscribed but had lapsed.

Voluntary Churn

There are two key types of subscriber loss: voluntary and involuntary churn. The former refers to shoppers who actively decide to discontinue a service — those who no longer need the service or discovered that subscriptions led them to spend more than they planned.

Voluntary churn is where most focus is placed, since it tends to be where subscription commerce businesses think they have the most potential to improve their odds with better engagement.

The YouGov survey found the largest concern (53 percent) about using subscription services was spending more money than intended. Other cited drawbacks more applicable to physical goods, were not getting the right number of products at the right time (52 percent) and shipments not arriving on schedule (34 percent).

Involuntary Churn

Lapses due to involuntary churn occur for many reasons. Cards get turned off, expire or are lost, consumers move and billing ZIP codes change. Once a customer unsubscribes — voluntarily or not — it can be a hassle to get them back.

Merchants that accept credit card payments must be aware that their customers’ cards could become lost, stolen or expired, at which point the payments would be declined.

Credit and debit cards can also have different challenges. Credit cards have a reported 13 percent churn rate on average. According to GoGardless, direct debit is more reliable in collecting recurring payments, with success rates of 95 percent to 100 percent compared to 80 percent to 95 percent for cards. That’s because it’s a bank to bank payment method, which means fewer intermediaries and points of failure, and no expired or cancelled cards to deal with.

It’s best to prevent involuntary churn before it happens. Some warn against asking customers to take action to continue their services, as it may prompt them to reconsider their interest in the offering or provider.

Emerging Markets

Credit cards might be riskier than debit cards, and they are neither a sure bet for global subscription commerce.

Case in point: India, where credit card penetration is less than 3 percent. Payment gateway platform provider Cashfree recently announced that it would enable acceptance of automatic subscription or utility bill payments through eMandates, an Indian system that automatically debits customers’ bank accounts.

Credit cards remain an important payment method in the U.S., but are not nearly as popular in China either, where less than 1 percent of online shoppers use international credit cards.

Major payment processors such as PayPal or Stripe are not available in many emerging markets, making it critical to explore local options. This means subscription providers must seek out and partner with reliable local payment service providers to ensure customers can pay.

“All merchants on the market have to find a new way to get to those clients — to find new local payment methods to collect the money,” said Tunio Zafer, CEO of cloud storage provider pCloud.