Orchestrating Subscriptions: How Payments Orchestration Supports Recurring Payments

Traditional subscriptions such as  the daily paper and cable television have undergone a major overhaul in the last few years. It’s not an exaggeration to say that almost everything seems to be available as a subscription these days.

It’s not surprising because the benefits of subscription models are clear. Customers demand the reliability and predictability of receiving their shaving supplies, meal kits, makeup, clothing, pet food alongside their streaming media and news. Merchants and platforms offering these subscriptions benefit as well with higher customer retention, better engagement, and more predictable revenue streams.

It’s also not surprising that the payment processes that support the subscription economy are complex. Unfortunately, it’s typically the last piece of the business model many organizations consider when it really should be one of the first.

Subscription Payment Pains

Subscription payment processing is a vital component of the subscription-based business model, serving as the infrastructure that manages the recurring revenue cycle. It involves securely capturing and storing customers' payment details and automatically handling the periodic billing, in what is commonly referred to as a Merchant Initiated Transaction. This ensures that subscribers enjoy uninterrupted access to their chosen services, from media streaming to meal kits, while merchants benefit from a steady cash flow. The effectiveness of this system lies in its ability to reduce payment failures, thereby minimizing involuntary churn.  For businesses, it's a strategic tool that supports scalability and global reach, adapting to various payment gateways and regional preferences. It’s so effective in increasing revenue that subscription revenue businesses have grown 4.6x faster than the S&P 500 according to Zuora.

Subscription Payment Pains

It is core to most subscription-based businesses to closely monitor and manage customer lifetime value (CLV) and customer churn. This is especially important as the transaction is not done at one time but over the course of the engagement with that brand.  For payments this means ensuring the stored payment credentials are kept in a ready to transact state without direct customer involvement for each transaction.  An example of such a pain point is when customers need to update their credit card, potentially leading to a service disruption if the new information isn't captured in time.

Payment failures can often be the biggest pain for an organization reliant on subscriptions. A common issue is soft declines, which occur when a bank temporarily rejects a charge against a customer's card. Soft declines can be due to various reasons such as expired cards or spending limits. Most payment service providers (PSPs) have mitigated this risk with retry logic, allowing merchants to automatically reattempt the charge after a failure. Merchants and platforms can set various parameters to retry a particular payment method, hoping that subsequent attempts will be successful. Historically, this retry strategy has been one of the primary tools available to combat transaction failures. But as the networks impose limits on the number of times a transaction can be retried, this is not the only tool a merchant can rely on.

Enter the Multi-Processor / Gateway Strategy

Because a subscription payment has the added benefit of more time to process versus an immediate, one-time purchase, an additional layer has emerged where a payment can be cascaded from one failed gateway to another in an effort to capture the subscriber’s payment. This has helped bolster traditional retry logic.

Core in a successful multi-processor strategy however, are the integrations required to each of the payments services or gateways being used. The number of integrations multiplies quickly when you take into account a merchant expanding into new countries or regions and need to accept payments from new customers. The right payments strategy can quickly overwhelm the internal development resources to build  and maintain these integrations to keep payments moving through smoothly.

Add in the complexity of a subscriptions platform who needs to integrate with many different merchants — all with their own preferred gateway or payment service. It becomes virtually impossible to build and maintain all of the required connections.

Optimizing Subscription Revenue With A Payment Vault

While retry is an important tool for subscription based merchants, that is a tool applied at the transaction level. As subscription-based merchants are relying on the reuse over long periods of time of stored payment credentials, it makes sense that optimizing at the vault level is essential. Spreedly's Advanced Vault offers a comprehensive system to manage subscriber payment details, both at time of vaulting and on an ongoing basis. By integrating with a SaaS provider's platform, it actively updates and manages payment information, like preemptively refreshing expiring credit cards, which is vital for uninterrupted service access and reducing involuntary churn. In this way, Spreedly works alongside subscription services to enhance customer satisfaction and maintain consistent revenue streams.

• Card Lifecycle Management: Automatically updates expired card details, as when a customer's credit card nears expiration, the system refreshes it to prevent service disruption.
• Data Enrichment: Adds essential payment information, such as BIN metadata, which helps in assessing transaction risks and tailoring customer offers.
• Automated Compliance: Manages cardholder data, reducing the business's burden of PCI compliance, like securing a customer's new card information with minimal input from the customer.
• Network Tokenization: Creates network tokens for transactions, leading to higher authorization rates, exemplified by converting card details into tokenized data to facilitate secure recurring payments.

Payments Orchestration for Subscriptions

In order to enable subscription payments in a multi-processor / gateway schema, payment credentials of course need to be tokenized and vaulted, but done so in a manner where those stored values can be used across any gateway. Doing so in a Payments Orchestration layer facilitates the easy integrations required to onboard (and off-board) providers as needed while easily sharing the payment credentials in the most secure and compliant manner. This also limits the PCI scope.

Add in the value of other ways to dramatically improve payment authorization rates like Network Tokenization, and you have a winning payment strategy to improve customer experience, reduce churn and substantially add to the bottom line.

Again, the ability to integrate with and easily share payments data is all facilitated with the Payments Orchestration layer.

Subscription Management Services

So why not just use a subscription management service like Chargebee? Many organizations do, and very successfully! Payments Orchestration is not a replacement for these services but rather an additional layer in the process that further enables payments flexibility.

An example of where this flexibility might be needed would be with a merchant selling subscriptions as well as one-time purchase items. The subscription management service isn’t needed for the one time purchase. Payments Orchestration is  the best tool to integrate with the right combination of gateways and services needed for a unique mix found in each customer’s purchase.

Additionally, many subscription management services also leverage Payments Orchestration to help them easily add more value-added services to their platform. For a recurring billing platform who is typically working with large and growing merchants, they need to be able to easily connect to the merchant’s current gateways, PSPs, fraud vendors, etc. One example is how Chargebee works with Spreedly.

A Case Study

Spreedly works with a merchant who offers their customers a one time as well as a recurring sales model. Prior to using Spreedly’s Payments Orchestration platform, the organization had low success rates and high involuntary churn.

Payments Orchestration has allowed the organization to multiple strategies to combat their lower than desired success rates.  First, they applied a strategy of cascading failed transactions through a series of payment processors, a strategy also known as decline salvage.  This strategy led to the salvage of over 1% of their failed transactions, which when deployed over an entire year, amounted to almost $3 million in recovered revenue.    

Once this process was in place, the payments team adopted Account Updater, to automatically update credit card details directly from the issuing banks and help prevent even the initial failures they were seeing.  This further moved the needle to improve success rates, in particular by drastically reducing failures due to Invalid Card/Lost/Stolen which are often resistant to retry. 

Finally, the merchant began leveraging Network Tokenization, which when used in the salvage case, helped recover an additional 6% of previously failed transactions.

At the end of the day, the customer experience is paramount. Your subscriber must trust you with their payment information as well as be engaged enough with your product or service to allow you to charge them on a recurring basis. Building the best payments infrastructure to seamlessly meet customers where they are, goes a long way in building the required value to add your next subscriber.

Increasing Revenue With Orchestrated Subscription Services

The shift to subscription-based models demands complex payment solutions capable of addressing complex challenges. Spreedly's Advanced Vault and Payments Orchestration platform offer simplified solutions, with advanced features for managing payment methods and enhancing transaction success rates. By proactively updating payment details and leveraging network tokenization, these tools help businesses to maintain continuous service, reduce churn, and secure revenue. Ultimately, Spreedly's technologies empower merchants to deliver a trusted, seamless payment experience that supports the growth and retention of their subscriber base.

Get in touch with Spreedly today to unlock the full revenue impact of recurring payments for your business.

Download the Multiple Payment Gateways eBook Below