Payments Insights for the Subscription Economy Contents
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Payments Insights for the Subscription Economy Contents The moment of truth Changing commerce with subscription businesses How payments increases customer lifetime value Maximizing the signup process 1. Offer local and prepaid payment methods 2. Combat card testing and reseller fraud Increasing customer retention Thanks to 3. Deliver uninterrupted service with Account Updater Federico Pezzotti of Spotify, 4. Take a data-driven approach to retries Thierry Locard of Netflix, Nastassja Gilmartin of Jagex, 5. Fine-tune your billing intervals and David Francesconi of DAZN for contributing their insights to this research About Adyen 5 Payments Insights for the Subscription Economy 5 Payments Insights for the Subscription Economy 2 3 The moment of truth The payment is the moment of truth in the customer relationship, where the costs of customer acquisition are converted into revenue. Yet, up to a few years ago, payments was widely regarded as a commod- ity - something that businesses would plug in when they needed, and look for ways to drive down its costs in order to save money. But recently, some- thing interesting has happened. Partnering in many cases with Adyen, the world’s most innovative com- panies have begun to rethink payments as a stra- tegic driver of improved customer experience and increased revenue. In practice, this means taking a granular approach to improving the payment flow. Instead of focusing only on obvious areas like the design of the check- out, these companies are making gains of 1% here, 0.5% there, in areas in which many businesses do not consider, such as taking a data-driven approach to retrying failed transactions. For the world’s most well-known recurring and subscription businesses, Netflix, Spotify, and Linke- dIn among them, the results have been twofold. On the one hand, the emphasis on getting payments right is improving the customer experience, as sig- nup becomes easier and fewer transactions fail with- out warning. And the other side is the business ben- efit, with better approval rates leading to millions in additional revenue. This guide is a selection of insights from some of these businesses, combined with data and insights Pieter van der Does from Adyen, that will give you the right areas to focus on in order to improve the customer experience, and CEO, Adyen grow revenue for your business too. 5 Payments Insights for the Subscription Economy 5 Payments Insights for the Subscription Economy 4 5 Whether in transport, food delivery, music, movies, or Changing commerce even shaving, there is a vast change sweeping the world of commerce. Disrupting all industries it touches, from retail to digital content, and everything in between, the rise with subscription of the subscription and recurring economy is a major, businesses and seemingly unstoppable, shift in the way we buy. The examples are numerous. In In this new world of commerce, transport, this new economy is a key touchpoint of the customer giving access to ride services at relationship is payments. In fact, the tap of a button, led by a new payments is a cornerstone of the range of companies such as Uber, customer relationship in two BlaBlaCar, Grab, and Lyft. In key areas: food delivery, companies such as 1. Providing a fast, easy sig- Foodora, Just Eat, Delivery Hero, nup process. Leading busi- HelloFresh, and more, mean that nesses maximize success at we can outsource our grocery the checkout by removing all shopping or get local meals deliv- possible points of failure in ered to our door at our conve- the signup process, not just nience. And in the cosmetics and through checkout design, but grooming industries, the success also a number of back-end of companies such as The Dollar tools. Shave Club, Althea, and Birch- 2. Delivering uninterrupted ac- box are disrupting traditional cess for as long as your cus- business models that have been tomer wishes. That is to say, around for decades. Such is the ensuring no disruption for pace of change that, since 2012, reasons related to payments, sales in subscription businesses regardless of whether it is a have been growing an estimated technical reason, or an issue nine times faster than sales of on the customer side, such as companies in the S&P 500. temporary insufficient funds. 5 Payments Insights for the Subscription Economy 5 Payments Insights for the Subscription Economy 6 7 How payments increases customer lifetime value For your business to be successful, customer “At Spotify, we have moved acquisition costs need to be exceeded by customer away from a standard view lifetime value within as short an amount of time as of payments as a cost-base possible. In order to make this happen, subscription only. In fact, payments businesses normally ensure their product is sticky sit within the growth and and user engagement is strong. However, one conversion team, as we see it often under-invested in area in which subscription as a key driver of Customer businesses can make significant gains is payments. Lifetime Value.” The graph below shows how payments fits in to customer lifetime value for subscription businesses. Federico Pezzotti Spotify How payments fit in to the recurring and subscription customer lifecycle* *and where you can make gains Lifetime value Lifetime value exceeds customer acquisition cost Profit $ 0 Each repeat transaction will increase the LTV Success Dunning Account Updater Transaction 8-9% saved Billing cycles Retry logic Customer acquisition cost acquisition Customer 10% failed* Success Intent to purchase Signup & validation Bad user experience Failed Missing payment options Non-optimal fraud settings *Global average On average globally, two thirds of shopping carts are tions fail for reasons ranging from insufficient funds, abandoned at the checkout - a figure that has been to lost or stolen cards or technical failure. increasing over the past few years a m-commerce has However, of that 10 percent, 8-9 percent can be become more popular. Therefore, seamlessly con- saved with the right techniques and tools - resulting verting your prospect at this step is essential. In addi- in up to millions in increased revenue for large busi- tion, uninterrupted payments are crucial to customer nesses, happier customers, and increased LTV. This retention. On a global average across industries and guide will walk you through tools and techniques to geographies, approximately 10 percent of transac- optimize both of these areas. 5 Payments Insights for the Subscription Economy 5 Payments Insights for the Subscription Economy 8 9 The goal of signup is to give your customer access to your Maximizing the signup product or service as quickly as possible. Making the payment process step flawless is a key part of this proposition. When optimizing the signup, most businesses think process, what goes on under the hood also delivers about how to minimize its steps – asking as little significant gains. This section will take a look at two information as possible from a customer in order to areas in which you can make measurable improve- make the process as easy as possible. ments – by adding subscription-enabled payment While this is a crucial part of optimizing the methods, and optimizing risk management. 5 Payments Insights for the Subscription Economy 5 Payments Insights for the Subscription Economy 10 11 Offer local and prepaid Prepaid methods Austria, and the Netherlands, to payment methods For markets in which 3D Secure make the initial transaction with is mandated, or popular payment their preferred local payment If you are in North methods do not support recur- method, with subsequent transac- 1 America, the U.K., or ring functionality, some subscrip- tions occurring with SEPA Direct Australia, the major- tion businesses are tweaking their Debit. Furthermore, Adyen sup- ity of transaction volume will be models to create prepaid options. ports all key payment methods cards. However, many of your Typically, this involves a longer globally, from Boletos in Brazil to customers on a global level do not period of access than a regular cash-based payment methods in use cards as their primary way to monthly subscription – where Southeast Asia, giving your busi- pay. Furthermore, in some mar- businesses need to optimize the ness enormous flexibility to offer kets, regulations mandating 3D balance between the length of prepaid options in the manner Secure make recurring payments time and a transaction amount your customers prefer. unfeasible, as this creates an extra that is reasonable for the maxi- step in the payment flow. mum number of subscribers. In order to capture these enormous untapped markets, it is “Merchants should question crucial to offer local and prepaid whether the notion of “one payment methods. payment equals one month of product” works for all Local payment methods customers. For example, In many key markets around the some customers prefer to world, China, Germany, and pay for a full year of service, Russia among them, credit cards while others may part-pay are not the most popular payment throughout the month.” method. However, a number of key local payment methods such Federico Pezzotti Spotify as QIWI in Russia, Alipay in China, and SEPA Direct Debit in What Adyen offers - local Europe, both support recurring payment methods and subscription payments, and In Europe, Adyen has built func- are used by significant numbers tionality that enables customers of your potential customers. in markets including Germany, Payment method Market opportunity Functionality “We have found SEPA Direct Debit to be extremely SOFORT / Giropay / SEPA 50% share of online payments The shopper makes the initial popular in Germany and Direct Debit in Germany transaction with the payment Austria and it is the payment method of their choice, method favored by our local with subsequent transactions customers when signing up EPS / SEPA DD 60% share in Austria happening with SEPA Direct to DAZN.