What are recurring payments? Everything you need to know

Recurring payments are a convenient and automated way subscription businesses collect payments from customers regularly, typically for subscriptions, memberships, or services rendered over time. Instead of requiring customers to initiate each transaction manually, recurring payments allow businesses to charge customers' accounts at predefined intervals automatically.

Examples of recurring payments include:

• Subscription services: Netflix, Spotify, Amazon Prime

• Utilities

• Insurance premiums

• Gym memberships

• Regular donations to charities

There are two types of recurring payments, fixed recurring payments and variable recurring payments. 

Fixed recurring payments

Payments that occur regularly at predetermined intervals for a set amount. These payments are typically automated.

Variable recurring payments

Payments that occur regularly, but the amount may vary from one payment to the next. Unlike fixed recurring payments, where the amount remains constant, variable regular payments fluctuate based on usage, consumption, or other variables. 

Here are the six steps for a successful recurring billing journey:

1. Authorization: The customer authorizes the service provider to charge their payment method (such as a credit card, debit card, or bank account) on a recurring basis.

2. Payment setup: The customer and service provider agree on the terms of the recurring payment, including the frequency (e.g., monthly, annually) and the amount to be charged.

3. Payment information storage: The service provider or a payment processor securely stores the customer's payment information. This information typically includes the payment method details (e.g., card number, expiration date) and the billing address.

4. Payment processing: At the scheduled intervals, the service provider or payment processor automatically initiates the transaction using the stored payment information.

5. Authorization check: Before processing the payment, the service provider or payment processor checks if the stored payment method is still valid and the customer has sufficient funds or credit available.

6. Payment execution: If the authorization check is successful, the payment transaction is executed at the agreed timing, and the specified amount is charged to the customer's payment method. 

In today's business landscape, embracing recurring payments offers numerous advantages for customers and enterprises. From enhancing convenience to ensuring financial stability, the benefits of recurring payments are multifaceted. Here are some key reasons why you should consider implementing recurring payment solutions: 

• Convenience: Recurring payments enable customers to pay with the payment methods they want since they’re not bound to a specific payment type like credit cards. This offers convenience and flexibility for customers, and enables subscription businesses to incentivize their customers to use the cheapest payment methods like Pay by Bank.   

• Predictable revenue: Recurring payments provide a steady income stream for subscription businesses, allowing for better financial planning and forecasting. Businesses can focus their resources on acquiring new customers, which is key to growth, but requires more resources than retaining customers. 

• Improved customer retention: By offering recurring payment options, businesses can enhance customer satisfaction and loyalty, leading to higher retention rates.

• Efficiency: Automating payment processes saves time and resources for both businesses and customers, streamlining operations and reducing administrative overhead.

Accepting recurring payments involves setting up a system that allows you to charge your customers or clients regularly for ongoing goods or services. Choosing the right payment processor or platform will reduce any issues that could impact the billing process. Here’s how to pick the right payments partner:

Features: Ensure the payment processor offers features that are important for your business, such as subscription management and automated billing. The processor should also offer reporting features and multiple payment methods as well as state-of-the-art encryption and security features. 

Compliance: Make sure your payment processor complies with accounting standards and regulations, such as the PCI/DSS regulations. It should also comply with other statutory regulations for taxes and refunds. 

Strategic: Your payment processor should be aligned with your current and future business strategy with regards to revenue optimization, lower subscription churn, and fraud prevention.

Implementing robust fraud prevention measures for recurring payments is crucial to safeguarding financial transactions. Monitoring transaction patterns, employing multi-factor authentication, and utilizing advanced encryption techniques are key strategies in preventing fraudulent activities within recurring payment systems.

Directives to be aware of:

PSD2:The Payment Service Directive 2 (PSD2), also known as The Revised Payment Services Directive, is a European regulation that creates a more open, competitive, and secure payments landscape across Europe. The PSD2 provides requirements for Strong Customer Authentication (SCA). 

PSD2 SCA: Strong customer authentication (SCA) is a requirement of the PSD2. It's a combination of three elements businesses can use to authenticate a payment. These elements include something you know, own, and are — for example, a password, phone, or fingerprint. 3D Secure is one example of how SCA is used to authenticate payments.

Coming soon: PSD3

Are there any associated costs with recurring payments?

Fees for recurring payments can vary depending on the payment processor or service provider. Some fintech platforms may charge processing fees for recurring payments.

Adyen’s single platform is the perfect home for businesses seeking to streamline and optimize recurring payment processes. By harnessing our robust platform, subscription businesses can effortlessly manage scheduled billing, loyalty programs, and billing with unparalleled efficiency and reliability. Our seamless integration options, advanced fraud prevention measures, and global payment capabilities empower your enterprise to focus on growth and innovation while ensuring a seamless experience for their customers. With Adyen, the journey toward maximizing recurring revenue and cultivating lasting customer relationships becomes achievable, remarkably simplified, and sustainable. Want to learn more about recurring payments with Adyen? Visit our homepage