Imagine this: A shopper wants to purchase your subscription, but their preferred online payment method is a card in their mobile wallet and it isn’t available at your checkout.

Broken experiences like this can stop online transactions as some customers would drop the whole checkout process if they have to do much work to connect their mobile wallets to your store. 

Repeated instances of shopping cart abandonment can lead to significant revenue and market share losses. For subscription businesses, this situation is compounded by the loss of the potential customer lifetime revenue that could have been generated if the subscriber had completed their purchase. This becomes an even bigger issue internationally.

If there’s one thing we’ve learned from our State of Subscriptions research, it’s the need for alternative payment methods. They’re non-traditional ways to make online payments, such as digital wallets like PayPal, Amazon Pay, and Apple Pay. Some advantages of digital wallets are convenience, reduced checkout friction, and increased security. They can also let you take contactless payments when your business wants to reach out to more than online shoppers.

While mobile payments are an afterthought for many businesses, they are an essential part of any growth strategy. Payments are integral to personalization, churn reduction, and operational efficiency. If you want to generate more revenue and retain more subscribers, alternative payment methods (APMs) are the way to go.

Top payment preferences by method overall

  • Debit card transactions: 52.9%

  • Credit card transactions: 26.7%

  • Alternative payment method - PayPal: 18.8%

In 2022, PayPal is the most used non-traditional card in your customers’ digital wallets globally, accounting for 18.4% of total transactions and 91.9% of all transactions made with APMs. It was the third most popular payment method overall and the most popular option worldwide.

Additionally, Apple Pay and SEPA are becoming increasingly popular payment options, experiencing 182.0% and 33.2% year-over-year growth in 2022, respectively.

Recurly merchants saw a 119% revenue lift by enabling PayPal and a 154% revenue lift by enabling SEPA.

Churn rates by payment method

  • Credit: Overall churn (5.9%), Involuntary churn (1.9%), Voluntary churn (4.0%)

  • Debit: Overall churn (9.7%), Involuntary churn (4.9%), Voluntary churn (4.9%)

  • Alternative payment methods: Overall churn (7.7%), Involuntary churn (2.7%), Voluntary churn (5.0%)

Generally, APMs outperform debit cards in churn rate management with a 7.7% overall churn rate versus 9.7% for debit cards. The involuntary churn rate for APMs is 2.7% compared to 4.9% for debit cards, and the voluntary churn rate for APMs is 5.0% compared to 4.9% for debit cards.

Overall decline rates by payment method

  • Credit cards: 5.4%

  • Debit cards: 11.1%

  • APMs: 5.8% 

APMs’ average decline rate of 5.8% is 5.3% lower than that of debit cards. Additionally, APMs had the lowest average initial transaction–the first transaction on the first invoice for a subscription–decline rate at 5.4%. 

Some APMs come with their own account, such as PayPal, but Google Pay or Apple Pay can act like direct debit payments. The variety of options for digital payments allows your target audiences to use exactly what they can offer to make an electronic payment.

Percentage of total APM transactions by industry

  • Business & Professional Services: 6.8%

  • Consumer Goods & Retail: 16.1%

  • Digital Media & Entertainment: 23.0%

  • Education: 17.5%

  • Software: 15.5%

Merchants in the Digital Media and Entertainment industry had the most transactions by APMs, accounting for 23.0% of total transactions. When it comes to digital currency, APMs appear to be the primary payment preference when buying the most accessible forms of entertainment.

Highest percentage of sites using APMs in Recurly by industry

  • Digital Media & Entertainment: 41.8%

  • Education: 41.4%

Furthermore, the Digital Media and Entertainment (41.8%) and Education (41.4%) industries had the highest percentage of sites using APMs in Recurly.

Alternative payment methods are one of the most effective ways to generate more revenue and better manage fraud. While any physical card can be part of a major card scheme, the alternative payment providers have additional layers of security to make it one of the most secure options for online shoppers. The payment technologies underlying a single digital wallet subscription purchase offer more protection against security concerns.

When subscribers used APMs, Recurly merchants saw a 1.5% lower rate of fraudulent declined transactions compared to that of credit and debit cards. In 2022, fraudulent transactions from using APMs accounted for 0.1% of all APM transactions in Recurly, whereas fraudulent transactions from using credit and debit cards made up 1.6% of all non-APM transactions.

APM usage continues to grow rapidly, and, for many consumers, debit and credit cards are no longer the most preferred payment method. Now’s the time to diversify and strengthen your subscription payment strategy with alternative payment methods. 

Alternate payment method usage continues to grow, and they are projected to remain the leading payment method globally in ecommerce for years to come.

According to Worldpay’s Global Payments report, digital wallet growth continues to accelerate as the leading payment method globally in ecommerce with a 49% share and a 12% annual growth rate. In total, digital wallets account for nearly $18 trillion of consumer spending. On the contrary, credit card spending only accounted for $13 trillion across all channels in 2022. While it’s forecasted that usage for most payment methods will stay the same or decline, digital wallet payments are expected to grow from 49% share to 54% share by 2026. 

Undoubtedly, alternate payment methods—particularly digital wallets—are becoming the preferred payment method for online shopping. This year, we anticipate payments will play critical roles in two facets of subscriptions:

Personalization to increase customer LTV

Subscriber growth is directly correlated to customization and personalization strategies that will cultivate long-term subscriber relationships. The idea of subscriber growth stems from maximizing consumer lifetime value–how much value does a subscriber need to see from your service to stay? And with macroeconomic pressures, consumers are more likely than not to seriously evaluate their subscription budget.

To create incomparable value, allow more of your customer base to customize a subscription that caters to their exact wants and needs, whether that be billing frequency, the ability to pause a subscription, or choosing their preferred forms of payment at checkout. In fact, adding alternate payment methods to your business is one of the best personalization options to remedy high decline rates and generate more revenue opportunities. 

They have become increasingly popular among modern-day consumers, and Recurly merchants saw a 1.4% lower rate of fraudulent declined transactions with APMs compared to credit and debit cards. A diverse selection of payment methods means more opportunities for your target market to pay how they want, and the ability to customize their experiences is a critical factor in consumers’ purchase decisions.

Payments through a growth lens

Our research found that combined with expert decline management techniques, alternative payment methods (APM) are one of the most effective ways to generate more revenue and minimize risk of fraud. With some of the lowest decline and involuntary churn rates, the case for APMs is high, yet innumerable subscription businesses still haven’t adopted more payment options.

As times change, more and more consumers expect and demand a variety of digital payment options to pay how they want. Expand beyond traditional payment methods to attract and retain more customers, have greater control over decline and involuntary churn rates, and position your business for global readiness. As always, having a subscription management and recurring billing partner that understands the complexities of subscription payment gateways, alternative APMs, fraud management, and more will allow you to focus on perfecting your core product or service.

Although implementing new payment methods on your website has logistical and operational challenges, we believe that the positive impact on business growth from accepting more digital wallet payment cards outweighs the effort. Recurly supports a wide variety of global payment options. Talk to us today about adding alternate payment methods to ensure a seamless checkout experience for your subscribers and prospects.