Finding Success in a Subscription-Based Model

Subscription commerce has recently demonstrated significant growth, as consumers have embraced the convenience and efficiency that subscriptions deliver. Companies and shareholders love it too, because it ensures repeat customers on a regular basis, without the necessity and hassle of pitching and closing a new sale each time.

Some companies will replenish customers’ supply of a particular product, such as the Dollar Shave Club. Others attempt to delight and surprise their customers with a new and unique selection, such as Birchbox. But it is not a new phenomenon; magazine companies, nonprofits, and phone companies have long found great success using the subscription billing model.

Unfortunately, it can be complicated for subscription-based companies to obtain processing for a merchant account, and even once set up the overhead cost and efforts can be staggering. Subscription services are considered “high risk” processing accounts because they present an  increased chance of chargebacks for the following three reasons:

Subscription accounts are subject to uncertainty: Despite the few that have found massive success, it can be challenging to succeed in the industry. The bank has the risk of the businesses closing and having to absorb the loss of chargebacks.

Subscription accounts are subject to bias: If the customer decides that the product does not meet their standards for any reason, or they are unhappy with it, they may file a chargeback.

Subscription accounts are subject to other parties and uncontrollable factors: Most subscriptions are delivered by mail, which involves a third party carrier.  Aside from the mail provider, mail orders are subject to inclement weather or theft.

Once a merchant account goes through the process of approval, there is also a significant investment of time and resources involved in maintaining the payments flow.  As customer’s credit card numbers expire or change, they must be individually contacted for the new information. Not only does this take time and administrative hours, but it also causes the customer to reconsider the service in the first place. Customers may not notice small recurring charges but when they are called they are more likely to cancel. According to research conducted by Bain & Co, 80% of your future profits come from a mere 20% of your current customers.  Retaining current customers is key to the future financial health of your business.

Fidelity understands the importance of the emerging subscription culture and works to accommodate merchants that utilize recurring billing.  Fidelity not only offers the lowest rates and premier customer support but provides a number of key technological features to merchants as well.

The recurring billing platform allows merchants to easily manage their invoices and payment schedules. The customer database saves customers’ credit card information in a secure, encrypted fashion where they can easily be charged at a later date.  

However, the most notable feature is the Account Updater. This feature automatically updates expiration date changes, account number changes, account closures and brand mitigations between Visa, Mastercard, and Discover. The service provides several benefits to merchants with recurring billing services such as health clubs, charities, and subscription services.  It prevents interruptions of customer service due to non-payment, as well as reducing the risk of customer cancellation and minimizing the cost of manually updating data.

The subscription service industry can reap great rewards, and by understanding the unique potential challenges, issues can be addressed before they arise. Leave the payments to us, so you can focus on growing your business.

Integrating with Fidelity is simple and straightforward. Speak to an account representative today for an obligation-free consultation.  Let us see what we can do to make your payments smarter.