Consumers increasingly demand instant access to products and services. At the same time, companies are currently facing new challenges stemming from the global pandemic, and many are looking for ways to diversify their business offerings in order to survive. The combination of the two is driving an increase in demand for subscription services. According to Zuora, Subscription Impact Report: Covid edition, 22,5% of companies have seen their subscription growth rate accelerate. For example, in the streaming industry alone, Netflix added 10 million subscribers in the second quarter of this year, while the more recently launched Disney+ registered 60 million subscribers in just nine months. This phenomenon is growing beyond traditional SaaS businesses and beyond entertainment, into industries that just ten years ago might have made you think twice about the feasibility of offering subscriptions. Graze's food boxes, or the KONG Box subscription service for pets, are just a few examples of the changes in consumption patterns in favor of this model. In fact, a Juniper Research report shows that the global subscription market for physical goods is expected to grow significantly in value to over €263 billion by 2025, putting them on track to overtake the digital subscription market. 'by 2022. Traditional companies need to think outside the box and ask how they can sustain their business model, which is causing a lot of thinking about getting started in the subscription movement. The impact is an ever-expanding subscription economy, spanning a whole new range of industries, as well as a rapidly changing payments landscape that accommodates this movement.
Subscriptions drive the wheels of business
Barclaycard research shows that the growing UK subscription economy is worth €323m per year and that 65% of UK households subscribe to a regular subscription service, with an average of seven contracts. per household. With these numbers showing promising results, it's no wonder traditional businesses want to follow suit. Morrisons, the UK's fourth largest grocery store, recently joined the subscription movement that is spreading in retail, launching a weekly, bi-weekly and monthly food box service. The initiative, he says, is underway to help those who need it most during the pandemic, as well as those who are sheltering in their homes or prefer not to visit a store. Pret is another British company on a mission to survive. Lockdown restrictions have meant the number of workers arriving in the city has plummeted over the past eight months, but ultimately the number of people arriving in the capital remains low compared to the same time of year. past. Pret's new subscription service, called YourPret Barista, allows UK customers to receive up to five barista drinks per day for €20 per month. It claims to be the UK's first in-store coffee subscription service, and as of its launch date, the company has seen 16,500 people sign up for the 3pm program. The group reported that the pandemic had set sales back 10 years, but in a new move to become a "multi-channel business," it hopes it can weather the storm. These are just two examples of companies diversifying to accommodate our changing lifestyles. There are also a number of other industries that take advantage of subscriptions that could attract attention, for example, tires. GoCardless recently partnered with Bridgestone to boost recurring payment collection for their new subscription service, MOBOX. The all-inclusive monthly subscription service offers consumers new tires, along with other vehicle-related services, starting at just €7 per month. It may seem unexpected, but tires are an expensive asset to purchase outright and also pose a huge health and safety risk if not changed regularly. This is another example of how the subscription model can provide customers with better service and companies with a more scalable model.The payments that finance the subscription
A key benefit of subscription services is convenience for the user, since they don't have to spend time upgrading or buying new products. However, this convenience is immediately interrupted if a payment fails. The two main causes of non-payment are insufficient funds and expired or lost or stolen debit or credit cards. Therefore, this helps to further stimulate innovation in recurring payments. For example, our report on consumer payment preferences found that 48% of respondents would likely choose bank debit to pay for traditional subscriptions and 45% for online subscriptions. Therefore, the rise of subscription-based businesses as a whole could accelerate the decline in preference to use cards for recurring payments. Furthermore, the payments represent an extremely high leverage effect. It is common for companies offering subscription services to accept a default rate of 10% on cards or 5% on bank debits as standard, but this can have a huge impact on cash flow and the cost of recovery. and customer relations. This is driving the rise of payment intelligence tools that leverage data and machine learning to automate failed payment recovery based on the optimal strategy for each individual customer. Such technology has worked in the background to keep the subscription economy running, but is now taking center stage as the payments industry seeks to innovate and adapt. Payments are a vital part of the subscription process and can make all the difference in ensuring customers have a smooth experience. But it is not something that companies should worry about, it is a distraction to improve what they offer to their customers. Implementing a technology solution that automates this process and adapts to new demands will ultimately help companies continue to improve their subscription services, with better customer retention and less churn.The future of subscriptions and recurring payments
The lure of subscriptions in our daily lives presents an attractive proposition for companies looking to diversify and ultimately emerge stronger from the pandemic. Closed storefronts and reduced customer numbers have given business owners time to rethink how they will operate in the future. We've seen from people like Pret and Morrisons that being able to rotate quickly and adapt to new demands can have huge benefits. This is probably just the beginning of a rapidly growing hidden subscription economy. And that also has an impact on payments. Over time, payments have adapted to the changing needs of consumers, often focusing on on-time payment trends. However, the rise of the subscription business model is one of the driving forces driving business innovation and recurring payments. As businesses adapt to the expanding subscription economy, we can expect payment innovation to continue to grow with it.- Stephen Reidy, GoCardless UK and Ireland Managing Director.