Let’s back up a bit.
Before we discuss subscription payment methods, what are subscription payments?
Subscription payments are recurring payments to access products or services for a period of time, typically monthly, quarterly, or yearly. Unlike traditional one-time purchases, subscription payments give you continual access to products or services for recurring, automatic payments.
In the past ten years, the subscription payment business model has become incredibly popular. One reason could be that modern customers can conveniently and consistently access their preferred product offerings from the comfort of their homes. Another reason is that it allows businesses to earn predictable revenue. What a win-win business model!
However, this business model only presents a simple outlook. You need to become familiar with its methods and tools of operation to maximize it!
In this article, we will discuss popular subscription payment methods as well as their pros and cons. Let’s learn!
What are Subscription Payment Methods?
Now, to the crux of this article.
Subscription payment methods are tools, gateways, and systems that allow customers to pay for services or products on a recurring basis. These methods facilitate seamless transactions between businesses and customers, ensuring hassle-free access to desired services.
Types of Subscription Payment Methods
There are different types of subscription payment methods. Understanding them can help your business optimize your payment processes and enhance customer satisfaction.
Credit Cards and Debit Cards
Credit cards and debit cards are the most common subscription payment methods.
A credit card is a payment card issued by your financial institution that allows you to borrow funds from them to pay for goods and services. When you make a purchase using your credit card, your financial institution covers the cost, and you pay them back at the end of the month. Financial institutions determine the maximum spending limit for credit cards based on cardholders’ income and credit history.
On the other hand, a debit card is a type of payment card issued by your financial institution that allows you to make electronic payments from your account balance. When you make a purchase using your debit card, the funds are deducted from your checking account immediately, much like cash. Using a debit card, you can only spend the money you actually have in your account. So, there’s no borrowing involved. No need to worry about paying back later or racking up debt, unlike with a credit card.
You can easily set up your subscription payments by entering your credit or debit card details. So, your card will be automatically charged at regular intervals. However, you may need to update your card information if your card expires or gets lost.
Examples of credit and debit card payment methods include Mastercard, Visa card, and American Express.
Direct Debit
Direct debit, also known as direct withdrawal, is a transaction whereby a business withdraws funds from a payer’s account based on the payer’s instructions.
Here, recurring payments can be made automatically to the customer’s account without network glitches, which are common with credit or debit cards. However, the customer must always ensure that they have sufficient funds in their financial account for direct withdrawal.
Digital Wallets
A digital wallet, also known as an e-wallet or mobile wallet, is an electronic device, software, or online service that allows you to securely make electronic payments. Like conventional wallets, digital wallets allow you to store your financial information and credit or debit cards in one place. Instead of paying with cash or a credit card, you can use a digital wallet on your mobile device and confirm your purchase with a pin, fingerprint, or face scan.
Digital wallets, such as Apple Pay, Google Pay and PayPal, are secure subscription payment methods. You can connect your bank accounts or cards to these wallets. This allows for simple recurring payments without divulging sensitive financial information with each transaction. However, many citizens of developing countries are not conversant with digital wallets.
Cryptocurrency
A cryptocurrency is a digital or virtual currency that operates independently of a central bank and is secured using cryptography, which makes it nearly impossible to counterfeit. Most cryptocurrencies are built on decentralized networks that use blockchain technology, which is a distributed ledger enforced by a disparate network of computers. Cryptocurrencies are typically not issued by a central bank or governing authority, making them theoretically impervious to government interference or manipulation.
Now, how do cryptocurrencies work as subscription payment methods? Well, some businesses now accept cryptocurrencies such as Bitcoin, Ethereum, and Litecoin as payment for their subscription services. So, rather than paying in typical fiat currencies like dollars, pounds, euros, or naira, you can use your cryptocurrency holdings to pay for your subscriptions.
Cryptocurrency facilitates faster, cheaper, and more secure transactions without a central authority, offering privacy and anonymity that traditional payment methods cannot provide. However, not all businesses take cryptocurrencies since their value fluctuates. For example, the price you pay for a subscription in Bitcoin today may be drastically different from what you spend tomorrow.
Prepaid Cards
A prepaid card, also known as a prepaid debit card or a stored-value card, is a type of payment card that is not tied to your bank account but can be loaded with funds to allow for secure transactions. Although it may be issued by a bank, unlike debit cards, the money that can be spent is not from your account balance. Rather, it is a predetermined amount of money that is loaded on the card for your transactions.
Prepaid cards can be used to pay for subscription services for a specific duration. This method is ideal for consumers who prefer not to link their bank accounts or cards directly to the subscription service. The downside to using prepaid cards is that you need to top up the amount on the card regularly to service recurrent subscriptions.
Direct Carrier Billing
Direct carrier billing, also known as mobile carrier billing, is a payment method whereby consumers make payments for their preferred product offerings using mobile carrier phone bills.
More than 1 billion adults are unbanked or underbanked. Direct carrier billing is useful for those who are unbanked, underbanked or do not have credit cards. Such people can simply make subscription payments through their mobile carrier phone bill. What an edge this method has, right?
Direct carrier billing is useful for inexpensive subscriptions that your mobile carrier phone bill can clear. Some subscription services may be billed directly by your mobile carrier, such as mobile payments and interactive services like gaming, logistics, and ticketing. However, it may be unsuitable for expensive subscriptions unless you recharge your mobile number with thousands of dollars monthly.
What Subscription Payment Method Will You Adopt?
For your business, you should choose your preferred subscription payment method based on its pros and cons, as well as customer demographics and preferences, among other factors.
For instance, it would be counterintuitive for you to adopt the cryptocurrency subscription payment method in an underdeveloped nation where the use of cryptocurrencies is strictly prohibited.
Another trick would be to adopt multiple subscription payment methods so that your customers can select their preferred method per time.
For example, if you run a software-as-a-service platform in a Mexican suburb populated with many baby boomers, you can allow for payments via direct transfer, credit cards, prepaid cards and direct carrier billing. This way, your customers can choose their preferred payment method and subscribe to your product offerings. Your options would also meet their needs, whether or not they are unbanked. I hope this helps!
Frequently Asked Questions About Subscription Payment Methods
What is the best payment method?
The best payment method is subjective and varies based on individual needs, but credit and debit cards are generally favored for their universal acceptance and security features.
Which payment method is commonly used in the UK?
In the UK, debit cards are the most frequently used payment method, accounting for more than half of all transactions. Cash, credit cards, contactless payments, and digital wallets are also quite popular.
Which payment method is commonly used in the USA?
In the USA, credit cards are commonly used, with Visa, Mastercard, and American Express being the most prevalent. Digital wallets such as PayPal, Apple Pay, and Google Pay are increasingly popular, especially for online purchases.
