Brite Payments, Lena Hackelöer: How instant bank payments help subscription businesses escape churn

As the role of recurring payments continue to grow in 2023 and beyond, Lena Hackelöer, Founder and CEO of Brite Payments writes for Payment Expert on how instant bank payments can boost subscription businesses when it comes to escaping churn. 

One of the biggest trends in service consumption over the past ten years has been the growth in the subscription economy. Whether it’s the increase of direct-to-customer (DTC) box services, such as Bloom & Wild and HelloFresh, or the popularity of software-as-a-service (SaaS) business models, such as Spotify and Netflix, the shift has been driven by ever-evolving consumer preferences and their demand for these services.

Subscriptions aren’t only popular with consumers. In fact, up to 70% of apps used by businesses today are also SaaS-based, showing that business customers clearly value the benefits of subscription-based models too. It’s easy to see why; at its best these services are convenient, reliable, and customisable. For small businesses especially, it is easier to manage expenditure and remain agile with SaaS-based solutions.

Good for customers, great for merchants 

One significant benefit of subscription-based models is they often help users to save money. Individuals and businesses can access valuable services with an advantageous payment model with flexibility and the ability to cancel at any time. The ease with which these services can be cancelled works both ways however, and also ensures that merchants are continually incentivised to innovate and deliver value to their customers.

Therefore, while clearly advantageous for consumers, subscription-based service models can also be great for merchants, who benefit from recurring revenues that contribute to sustainable business growth. What’s more, these models allow merchants to offer services at a lower initial outlay cost, which often makes them more accessible to customers.

Subscribing to success 

Subscription-based pricing and business models have had an enormous impact across numerous sectors in recent years. However, despite years of popularity and increasing adoption rates, there are pain points that continue to cause frustration for merchants and consumers. One of the most glaring issues is customer churn – a persistent and growing challenge for businesses offering SaaS and DTC services.

According to commentators, SaaS providers should expect a monthly customer churn rate of 5-7%. However, many companies suffer rates far in excess of this. To a degree, customer churn is an expected occurrence within subscription-based models, but excessive churn rates reflect a deeper problem. Technical inconveniences are a key contributor  – resulting in unintentional failed payments, often caused by changing details, or expired payment cards. In these instances, services can end up being cancelled without the knowledge, or consent, of a customer.

Nobody benefits from this unfortunate scenario. Customers forfeit access to services they may never have intended to give up, while merchants’ recurring revenue decreases. Merchants must then redouble their efforts to regain lost customers, with the additional expenditure needed to “re-acquire” them. But it’s an entirely avoidable scenario, especially considering recent advancements in the payments facilitated by open banking.

Opening up opportunities

Much like the world of subscription-based businesses, the payments sector has undergone a major transformation in recent years. Specifically, the introduction of open banking has fundamentally altered the landscape of payments across Europe. As a result, third party providers (TPPs) can offer customers a level of service and convenience that was previously unimaginable.

However, despite the benefits, open banking solutions are frequently underutilised by those who stand to benefit the most. This is partly due to a lack of widespread education and understanding around the application of open banking. Unfortunately, many businesses remain unaware of newer solutions – such as recurring payments facilitated by open banking – that address major pain points. Effective recurring payments can help reduce customer churn and unlock opportunities for subscription-based businesses.

A new era for subscriptions 

Subscriptions redeemed via card sign-up have traditionally come unstuck when cards cyclically expire or are changed. An open banking-based recurring payments solution allows monthly payments of a fixed amount to be automatically sent directly from a customer’s account to the merchant, without the need to ever update or change card details. The result? Greater reliability than traditional direct debit models, while providing the same flexibility.

The benefits are significant. Notably, recurring payment solutions significantly reduce the likelihood of unintentional subscription cancellations, which in turn helps reduce unnecessarily high levels of customer churn across DTC and SaaS business models. Reduced churn gives companies more stability in terms of cash flow.

Right now, businesses face an increasingly gloomy economic outlook, meaning that securing reliable cash flow has never been more important. With account-to-account (A2A) recurring payment solutions, companies across different verticals can help ensure cash flow stability and protect themselves from economic headwinds.

Recurring benefits of A2A payments 

A2A recurring payments offer extra benefits beyond reducing customer churn. Merchants immediately gain an efficient and frictionless way to accept recurring payments from customers. What’s more, A2A recurring payments remove many of the pain points associated with traditional models, enabling customers to sign up with only top of mind information. Customers can authenticate themselves quickly with standard login details. All of this makes the solution perfect for businesses looking to reduce/removethe barriers to entry during sign up.

Open banking recurring payments can also run without a finite end date, enabling businesses to reduce unintentional card churn, while offering a perfectly transparent solution for consumers. In short, A2A recurring payment solutions are more user-friendly and reliable than their predecessors, and the benefits can no longer be ignored.

The time is now for businesses that stand to benefit the most, to adopt A2A payment solutions; fortifying their subscription operations, ensuring cash flow is secured and preventing accidental customer churn.

Brite days ahead 

Over a decade on from subscription-based models first demonstrating their value, there are still many areas that can be developed and improved further.

Fortunately, with A2A recurring payments, it’s never been easier for subscription businesses to sustain a steady cash flow and maintain their customer base. At Brite, we can deliver this with our own recurring payments solution, but wide-scale success and adoption will require a collective industry effort.