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Evolution of Subscription Based Businesses
Subscription based business models have seen tremendous growth over the past decade. What was once limited to magazines, newspapers and book clubs has now expanded to include software, streaming services, grocery deliveries and more. The recurring payment structure provides both businesses and customers with benefits that have fueled this expansion. For businesses, Subscription and Recurring Payment create reliable, predictable cash flows that allow for better budgeting and growth planning. Customers benefit from the convenience of having goods and services delivered automatically without having to remember to purchase each time.
The software industry has led the subscription revolution. Starting with the widespread adoption of Software as a Service (SaaS) in the late 2000s, software companies realized they could generate stable, long-term revenue streams through monthly or annual subscription fees. This gave way to new subscription models across various industries looking to replicate this success. Now both B2B and B2C companies across multiple sectors have incorporated subscriptions into their offerings.
Consumer’s Shift to Subscriptions
On the consumer side, buying via subscriptions has become increasingly popular. Subscriptions solve problems around uncertainty of consumption by ensuring a steady flow of goods or services without over-purchasing. The convenience of having items delivered like clockwork also saves time that would otherwise be spent shopping. Now more consumers choose to pay a little each period for access, rather than pay a larger upfront fee.
This is reflected in spending patterns. According to one report, subscription commerce grew at a compound annual rate of 24% globally from 2012 to 2017, compared to 10% growth for e-commerce as a whole. Another study revealed 28% of consumers in the UK alone hold at least one ongoing recurring payment for a subscription service. This trend is expected to continue growing as more industries look to transition to the subscription model.
Managing Recurring Payments
While subscriptions provide value for both businesses and customers, managing the recurring payment portion brings its own challenges. For customers, recurring expenses can pile up quickly if not monitored carefully. Unexpected charges or stealth increases are a major source of frustration. Businesses also face issues around managing cancellations, payment failures and declining authorization rates over time as payment methods expire.
To address these challenges, both sides need robust payment systems that support subscriptions smoothly. On the business side, platforms that facilitate setup, tracking and cancellation of subscriptions along with payment collection are essential. For customers, payment choices that allow oversight and control are important. Tools showing a unified view of all subscriptions in one place make it easier for consumers to manage their recurring spending. Consent and transparency around any payment changes are also key to build trust in subscription relationships.
Developing the New Subscription Economy
As more consumers embrace subscriptions and businesses adopt innovative models, an entire new subscription economy is emerging. Just as e-commerce transformed traditional retail, subscriptions are revolutionizing industries from software to goods delivery. This evolution brings opportunities to rethink legacy business approaches and experiences through a recurring revenue lens.
Some industry analysts even predict subscriptions will become the default purchasing model for many common services and items. Entertainment, wellness, clothing and household items are just some categories exploring subscriptions more extensively. Newer startups are also launching with subscriptions at their core to disrupt existing competition. Technology will continue improving subscription experiences through better payment management, tailored recommendations and integrated shopping experiences.
Frictionless payment processing will remain a priority as both customers and merchants look for seamless subscription experiences. Electronic payment methods like cards are most conducive due to built-in security features and instant cancellation abilities. Industry watchers believe this shift could drive overall non-cash payment transaction volumes higher. There are still challenges around balancing convenience with consumer protection for recurring charges, but overcoming those will unlock wider subscription adoption across society overall.
In conclusion, Subscription and Recurring Payment have undergone rapid growth and transformation enabled by digital technology and payments. As both businesses and customers increasingly appreciate the mutual benefits of recurring revenue models, the subscription economy is positioned to expand further. Constant innovation in product, pricing and payment experiences will be needed to maximize subscriptions’ potential and outlook remains positive for this new economy to continue flourishing in years ahead.
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- Source: Coherent Market Insights, Public sources, Desk research
- We have leveraged AI tools to mine information and compile it
