The subscription model has cemented its position as the oasis of revenue predictability and customer loyalty. However, the effectiveness of subscription models relies heavily on the efficiency and seamlessness of the payment processing infrastructure that underpins it—with different functionalities that make recurring payments easier, faster, and more straightforward.

If you're a rising star in the subscription-based business cosmos or a seasoned veteran looking to reinforce your payment approach, our deep dive into subscription payment processing is your roadmap to success.

In this extensive guide, you will delve into every aspect of recurring payment processing. From the intricacies of subscription payment services to the benefits they bring, such as data-driven decisions for enhanced customer experiences. 

What is subscription payment processing, exactly?

Subscription payment processing is a structured approach to handling recurring payments for services or products consumers receive on a periodic basis. It encompasses more than just executing the transaction: comprehensive subscription payment processing solutions that handle billing cycles, tiered pricing structures, and a customer self-service component that ensures flexibility and satisfaction.

What once was a mere transaction has evolved into a sophisticated partnership of buyer and seller, facilitated by cutting-edge payment technologies. Payment technology advancements have taken credit and debit card transactions to a whole new level—making it possible for a business to accept secure payments remotely using a physical card or mobile device, online on a website, or a mobile app.

New state-of-the-art subscription payment models are replacing old point-of-sale merchant PCI systems with more versatility and features, as well as accommodations for new payment processes, recurring revenue, and alternative payment methods such as PayPal, ApplePay, and Venmo.

The three parties in payment processing

In global online credit card payment processing and similar systems, there are essentially three parties: there is a merchant who is selling something, the customer who is paying for it, and the third party is the technology itself.

Some people look at this type of three-party system as the “devil’s triangle,” especially if it leads to excessive latency and one party keeps the other parties waiting for any length of time, as every millisecond counts when it comes to processing online payments.

Source: Jan van Bon, LinkedIn

Modern point-of-sale technology is different, though, in that it happens very close to real-time. Those payment transactions only take a few seconds—if that—so we tend to forget that there is actually an elaborate process behind getting merchants paid by customers. In reality, payment processing has to navigate a complex financial network and get a myriad of things done quickly.

The online payment processing model, explained

Subscription payment processing plays a pivotal role in subscription-based services and products. These payment models handle payments in regular intervals and billing cycles, ensuring that subscribers are charged accurately for the services they receive. 

Let's look inside this process a bit.

First, there are the payment gateways and online payment processors.

The payment gateway sends the request to the processor. The processor does the transaction with the issuers' and customers' banks. Conceptually, some of this work involves tying the monetary amount to a particular good or service being sold. Then, the processor has to get the transaction approved, debit the customer's bank (or make sure that that amount is debited), and then add funds to the merchant’s bank.

That’s it in a nutshell—but other intermediate steps often apply, too, and systems have to be set up differently to handle different types of subscription pricing models and payment options, such as credit cards, debit cards, or alternative payment methods.

In order to do that in a PCI-compliant way, the system has to be set up with certain standards, including encryption, point-of-sale security, verification tools, and much more.

Processing a credit card payment flowchart

The efficiency and reliability of online payment systems are essential to deliver seamless customer experiences. Subscription businesses must prioritize a well-designed and secure payment processing infrastructure to foster trust, enhance customer satisfaction, and sustain a steady revenue stream.

Online payment processing providers

When it comes to selecting a subscription payment processing solution, there are numerous options available. Each platform offers unique features, integrations, and pricing models. 

One well-known player in the space is PayPal. Merchants can embed PayPal in their site or send customers to PayPal to facilitate a transaction. Other platforms, such as Amazon Pay or Adyen enable you to ensure customers are charged regularly without manual intervention–simplifying the payment process for both customers and the business.

Check out our recurring payment gateways guide to learn more about the most popular gateways based on integrations, ease of use, cost, payment types, support, and more.

Types of companies that use subscription payment models

As the subscription economy continues to burgeon, a kaleidoscope of industries has adopted this model:

  • SaaS companies: Software as a Service (SaaS) businesses like Userlike and LiveChat set the bar high for subscription payment experiences. Their agile models and robust payment systems are not only industry benchmarks but also catalysts for the continuing evolution of the subscription economy.

  • Media and entertainment: The explosion of streaming platforms like Paramount+ and Twitch has revolutionized entertainment. At the heart of this accessibility is a payment ecosystem that seamlessly delivers movies, music, and more to the devices of content-hungry consumers.

  • Consumer goods and retail: The business-to-consumer sector has experienced a paradigm shift with the rise of subscription models. Businesses like AllTrails and FabFitFun have not only embraced these models but have also become synonymous with them.

What are the benefits of a subscription payment processing system?

The allure of subscription payments extends far beyond the financial. Their impact on customer acquisition, retention, and satisfaction is akin to a magnet, attracting and retaining clientele.

Predictable revenue streams

One of the most significant draws of subscription payment processing is the predictability of recurring revenue. Instead of the peaks and troughs of traditional sales, recurring revenue paints a picture of consistent income, enabling businesses to plan with greater certainty.

Enhanced customer experience

Subscription models are inherently customer-centric. They offer a level of personalization and control that traditional models often struggle to match. Customers can tailor their subscriptions, add on services, select their preferred payment options, and manage their accounts with unprecedented ease, fostering a sense of ownership and engagement.

Data-driven decisions

The data goldmine that subscription models provide is invaluable for making informed business decisions. Insights into customer behavior, churn rates, and revenue forecasting can steer your strategy with precision, leading to smarter, more calculated moves.

How to set up customer payment processing with Recurly

Gone are the days of manual invoicing and the laborious task of chasing down late payments. With an automated recurring billing and payment solution, you set the schedule for future transactions, and the system does the rest. 

Recurly, does a lot of work behind the scenes with gateways, online payment processors, and other parties like associations, issuer banks, and customer banks. It's like having a diligent assistant who never sleeps, never forgets, and never misses a beat–except it fits neatly within your digital infrastructure.

Recurly is integrated into your company’s payments ecosystem, combining subscription management, advanced features, and billing elements in a solution that supercharges revenue growth. 

Subscription payment service FAQs

To wrap things up, let’s address some common questions surrounding subscription payment services:

What is the purpose of payment processing?

Payment processing serves to facilitate the transfer of funds from the customer to the business in a smooth, secure, and compliant manner.

How do I receive subscription payments?

You receive subscription payments through a subscription payment service or a recurring billing platform. Recurly, for example, can easily integrate your payments ecosystem, combining subscription and billing elements to supercharge your revenue growth.

Why is subscription payment processing beneficial?

Subscription payment processing automates the billing cycle, provides a predictable revenue stream, and enhances the customer experience, leading to improved business performance.

Who should use recurring payments?

Any business that offers products or services regularly, such as weekly, monthly, or annually, can benefit from recurring payments. This includes software, content, and service companies, among others.

Processing subscription payments is more than just a convenience. It's a strategic component of customer management and retention for modern business. By understanding and harnessing subscription billing capabilities, companies can solidify their positions and provide superior value to their subscribers.