Payment Modernization Strategies for Mid-Sized Banks: Preparing for 2025 and Beyond
Numerous industries have adopted the subscription model to conveniently buy and sell goods and services. Going beyond Spotify and LinkedIn, many businesses ranging from SaaS providers to gyms to restaurants are riding this new wave. The flourishing subscription economy is witnessing the foray of exclusive payment models to support the embedding of subscription payments into fintechs and businesses.
What is the subscription economy?
The subscription economy offers a model where customers pay a recurring fee at steady intervals - weekly, monthly, annually or based on consumption, to access a product or service.
Buying or selling goods and services on a recurring schedule is the basis for subscription business.
How do businesses benefit from subscription models?
Subscription models ensure recurring payments, and a consistent cash flow. Not only does this create customer stickiness through retention and the opportunity to upsell, but it also helps businesses budget with more confidence.
As an example, a $99 annual subscription fee on Amazon Prime impels subscribers to spend more than double of what non-subscribers spend.
Are there convincing statistics for business growth on a subscription model?
According to the Subscription Economy Index, companies embracing these new business models have grown six times faster than traditional businesses in the S&P 500 index during the 2020 pandemic.
What are the key considerations for handling payments when you offer subscriptions?
Subscriptions are marked by recurring payments, which means a solution that supports secure, low-cost payments is important. Unlike one-off purchases, subscription payments last for the customer lifetime, and it is important to ensure that the payment failures are totally eliminated.
While convenience in payments is offered through digital payment platforms such as PayPal and Stripe, businesses offering subscription benefit from bank-to-bank(A2A) transfers, without having to lose on interchange fees. Moreover, with card payments, there is always the risk of customer churn because of card expiry.
How can businesses take advantage of A2A payments for subscriptions?
Businesses allow their customers to enter their bank details as part of customer setup. Once this is set up, businesses can send out a secure payment link as part of an invoice, bill or integrate it into their websites. This will give them the advantage of low-cost payment processing using A2A transfers. Many banks provide these payment links to their corporate customers.
Where can we see the application of subscription payments?
You name it — music, TV/movies, non-perishables, meal kits, gaming, health and fitness, home maintenance, education, airlines, rental cars.
Example:
- Hertz, Enterprise, Zipcar use subscriptions to go beyond short-term car rentals.
- Peloton makes fitness accessible through monthly subscriptions.
- Xbox Game Pass gives access to hundreds of games for a monthly subscription.
- Coursera, Code Academy and Masterclass are examples of learning-as-a-service using subscription models.
How is corporate treasury moving towards subscription models?
For corporate treasurers who want to adjust to subscription models, changes around billing, invoicing and pricing need to be accounted. Banks are increasingly supporting recurring payments for subscriptions and are also able to process payments by building customizable rules.
How can banks help to capitalize on the subscription economy?
Banks should have the ability to move from a linear to recurring processing of digital payments to support subscription payments. In addition to traditional account-to-account transfers, banks should have the capability to customize and easily build payment workflows suited to the specificities of the subscription model. The ability to send and receive Request for Pay for instant payments is also enabling the subscription models. Forward-thinking banks are able to offer support to Payment links and build services around it like QR payments, and recurring invoice using Request for Pay.
Are you a bank or fintech looking to support subscription payments? Talk to a payment expert today.
