A modern approach to the classic loading mechanism

Subscriptions are regular, recurring fees or charges charged monthly, quarterly or annually to an individual or company.

The origins of subscription services date back to the 15th century, when newspaper publishers using the newly invented printing press realized that they could generate recurring revenues by charging readers a set amount to regularly receive their publications.

The obvious business benefit of set-it-and-forget-it subscriptions is that it is a much easier business model than having to resell a product or service every time. Not only is this a relatively cheap way to retain customers, but it also generates a relatively predictable revenue stream.

This is especially valuable for high-growth digital companies that don’t have a long track record but are going through a series of funding rounds and want to demonstrate their credibility to potential investors.

Giving customers more

E-commerce subscription services also make it easier for companies to sell additional services.

A good example is the app market, where major brands have managed to add additional services to customer accounts, often without realizing that they are paying more for these services. In many cases, this is due to the seamless nature of payment services where customer details are already in the system.

The analogy is that if a customer makes five $20 purchases rather than one $100 purchase, they will be exposed to the brand more often and therefore more likely to spend more money. Subscriptions also make it easier to increase prices to keep up with inflation or rising costs of doing business.

In many transactions, the power in the relationship ultimately rests with the consumer, but this dynamic varies depending on the service being offered. So the streaming service will want to offer as many options as possible because it has a lot of competition, while the utility company will have less incentive to provide the same variety of payment options.

Impact on new market segments

The subscription model is well established in markets ranging from software to gym memberships. Two very different sectors where it has gained significant traction in recent years are fashion and electric vehicles. In the former case, many brands offer monthly clothing subscription services, some of which are provided directly by the brands, although service providers are becoming increasingly influential.

Additionally, electric vehicle owners pay a subscription fee to access charging stations, but this business model is being extended to other aspects of ownership. For example, drivers can pay extra for additional features, such as the ability to increase the power of their vehicle.

These services highlight how technology-enabled enterprises can increase the availability of incremental services and how a subscription model enables these revenues to be captured in a more customer-friendly manner.

Regional differences

The way subscription-based models are offered differs in North America and Europe, the Middle East and Africa (EMEA). In the US, credit card payments dominate, and the wallet concept is a more fringe play than in Europe, where open banking is much more advanced.

Even in Western Europe there are significant differences. UK consumers prefer card payments and although direct debits have become more digital and therefore more viable as a subscription payment method, they are not the preferred option for pure e-commerce businesses.

However, in France and especially in Germany, direct debit is much more common and the use of credit cards is much lower, not only for paying for media, but also for paying for streaming services.

As payment services continue to evolve, it is important that new payment methods facilitate repeat transactions, which has been one of the main challenges in designing and introducing new payment alternatives in an environment of stringent regulations and strong customer authentication.

In some of the more advanced open banking markets, variable recurring payments are a hot topic because recurring transactions are more challenging than one-time payments due to the need to store customer data. However, it is important to make repeat transactions easier, especially for newer payment types.

Where do we sign up?

Looking ahead, future innovations in the subscription e-commerce space will come from the combination of existing and new businesses. Newer payment methods will support subscription, and payment options will become more popular as companies begin to realize that there is value in providing services outside of their own ecosystem.

The likely evolution of the point of sale will be a quasi-subscription model, where the merchant stores wallet and/or card details. Examples of this are fully automated stores (where the customer enters, shops and leaves) or “car as payment”, where the driver goes to a gas station, fills up and drives away because intelligent technology recognizes who they are and how much they have consumed. and built into this journey is payment through a wallet with a card that is automatically charged.

Perhaps this has more to do with the “set it and forget it” nature of being a consumer than with a subscription-based business model, but the payment experience will nonetheless become ubiquitous.