Over the past decade, subscription-based businesses have seen tremendous success. They provide stable revenue, allowing businesses to continually operate and improve their operations for excellent customer experiences.
But running such businesses behind the scenes comes with unique challenges — especially when it comes to managing payments. From ensuring seamless transactions to preventing fraud, a reliable payment processing solution can make or break your business.
In this Payment Nerds blog, we discuss what a subscription-based company is and what issues they often have. We’ll also explore solutions your business can get from payment processors, like subscription billing software, multiple payment options, and much more.
What Do We Mean By “Member or Subscription-Based” Businesses
“Member-based” or subscription-based businesses rely on recurring customer payments, typically weekly, monthly, or annual. Unlike one-time purchases, these companies depend on predictable, long-term customer relationships to sustain revenue[1].
This business model spans various industries, catering to different needs and interests. There are many different businesses today that are commonly considered subscription-based. Here are some you might recognize:
Types of Subscription-Based Businesses
- Video & Music Streaming: Think Netflix, Spotify, or Disney+. These services deliver entertainment on demand, with payments typically tied to monthly subscriptions[2].
- Online Learning: Platforms like Coursera and MasterClass offer ongoing education for a flat monthly or annual fee. Customers expect seamless billing as part of their user experience.
- Magazines & Journals: Print and digital publications like The New Yorker or scientific journals use subscriptions to ensure steady readership and income[2].
- Gyms & Fitness Centers: Many gyms and fitness apps rely on subscription models to manage memberships and access to exclusive services or facilities[2].
- Box Subscriptions: From meal kits like HelloFresh to lifestyle boxes like FabFitFun, these businesses depend on recurring payments to deliver curated products to customers[2].
- Payment Processors: Several payment processors follow a subscription-based pricing model, providing several services and access to their specialized software platform for a monthly or annual fee.
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Common Issues Subscription Companies Have
Running a subscription-based business isn’t without its challenges. While the recurring revenue model provides a steady stream of income, it also presents many unique challenges. Here are some of the most common issues your subscription service may face:
Failed Payments
Failed payments can disrupt your revenue stream and lead to customer churn. Common reasons for failed transactions are expired credit cards, insufficient funds in customer accounts, and technical errors in either your own or the customer’s payment systems.
Managing failed payments is essential for maintaining customer satisfaction and ensuring predictable cash flow. A thorough payment processor, like Payment Nerds, will provide continuity and subscription payment solutions, such as secure subscription billing software and analytics, to ensure you collect payments and automate your recurring billing schedules.
Subscription Fraud
Fraud is a growing concern in the subscription industry. Some of the most common types include:
- Friendly Fraud: A customer disputes a legitimate transaction, claiming it wasn’t authorized, resulting in a chargeback.
- Stolen Payment Information: Cybercriminals use stolen credit card details to sign up for services without paying for them. In addition to gaining access to your platform through illegal means, this may also further make businesses vulnerable to attacks.
- Trial Abuse: Customers sign up for free trials with fake or temporary payment information to avoid legitimate subscription charges.
These fraudulent activities hurt your bottom line and damage your business’s reputation. Your subscription business can face significant losses without robust fraud detection tools and chargeback management.
Limited Payment Acceptance
Depending on the size of your business, your customer base can be diverse, and so can their payment preferences. Limiting payment methods to credit cards or a single platform can alienate potential subscribers.
A big hurdle many businesses face today, whether small or enterprise-level, is broadening their accepted payment methods to include digital wallets, ACH or bank transfers, BNBL, and more.
Security Compliance
Subscription businesses often handle sensitive customer data, including payment details, names, addresses, and other pieces of important billing info. Meeting security and compliance standards like PCI-DSS (Payment Card Industry Data Security Standard) will ensure your business stays compliant within your industry while also using systems designed to protect against data breaches.
Compliance can be achieved and maintained with the right payment processing partner. Learn more about how Payment Nerds implements effective payment processing solutions.
Payment Processing Solutions That Subscription Services Need
To overcome these challenges, subscription businesses need robust payment processing solutions tailored to their specific needs. Here are some ways that the right payment processor can transform your operations:
Assorted Payment Methods
A worthwhile payment processor will ensure you can offer a variety of payment methods to your customers[3]. This will improve customer experience and expand your reach to different demographics and markets.
A robust payment processing solution will also ensure you can accept payments from major card networks, as well as newer and more reliable payment types like digital wallets, payment apps, and ACH bank transfer payments.
Efficient Subscription Management
Recurring billing is the backbone of subscription businesses. A reliable payment processor can help provide and integrate a subscription billing management software platform that automates billing, provides insights into customer transactions, and ensures customers are charged accurately and on time[3].
Secured Recurring Billing
Many payment processors, like Payment Nerds, set themselves apart by providing billing solutions and payment gateways that ensure the secure storage of customer data. These features include tokenization (replacing sensitive payment information with unique identifiers) and encryption to enhance security and minimize the risk of data breaches.
Fraud Detection & Chargeback Prevention
Subscription businesses are vulnerable to fraud, but advanced payment processors will provide robust fraud monitoring tools and chargeback prevention services. These often involve machine learning to identify and flag suspicious customer activities, reduce fraudulent transactions, and minimize potential chargebacks[3].
These don’t just protect your revenue — they also help maintain your company’s reputation and secure future customer trust.
Seamless Accounting & Billing System
The best payment processors ensure you can integrate your payment processing with accounting and billing software that will help streamline crucial operations in your business. You can:
- Automate invoicing and receipt generation.
- Reconcile payments easily, reducing the risk of errors.
- Generate detailed financial reports for better decision-making.
This seamless integration saves time, reduces administrative overhead, and ensures your team can focus on growth and customer satisfaction rather than manual accounting tasks.
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Conclusion
Subscription businesses need payment processing solutions that address their unique challenges, from failed payments to fraud prevention. With the right tools and subscription billing software, you can simplify recurring billing, ensure compliance, and enhance customer satisfaction.
Ready to find the perfect payment processing solution? Work with Payment Nerds. We provide tailored solutions to businesses of all sizes and across a wide variety of industries. Apply now and learn how we can help today.
Sources
- Investopedia. “Subscription Business Model Defined, How It Works, Examples.” https://www.investopedia.com/ask/answers/042715/how-do-subscription-business-models-work.asp. Accessed December 18, 2024.
- HubSpot. “What’s a Subscription Business Model & How Does It Work?” https://blog.hubspot.com/service/subscription-business-model#types-of-subscription-models. Accessed December 18, 2024.
- U.S. Chamber of Commerce. “How to Accept Recurring Payments From Customers.” https://www.uschamber.com/co/run/finance/smb-recurring-payments-guide. Accessed December 18, 2024.