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How do consumers want to pay for recurring purchases? 3 key insights from 13,000 consumers

Wednesday 31 July 2019 | 08:10 AM CET

Duncan Barrigan, VP of Product, GoCardless: ‘When it comes to payments, beware of a ‘one-card-fits-all’ approach. Businesses need to understand how consumers want to pay for recurring purchases’

How do the world’s consumers want to make recurring purchases? Our new research into preferences for recurring payments suggests two contradictory answers to this question. The first answer would be that the preference varies, as it is influenced by culture as much as technology. On the other hand, consumer choice does not actually vary that much – as consumers expect businesses to allow them to pay in whatever way they want; otherwise they may choose to go elsewhere if they can’t.

Partnering with You Gov, GoCardless asked 12,785 adults across ten markets (the UK, France, Germany, Spain, Denmark, Sweden, Canada, the USA, Australia, and New Zealand) how they preferred to make four kinds of recurring purchases: household bills, traditional subscriptions (eg to gyms), online subscriptions (eg to software), and instalments (eg for a holiday or high-price item). Together, these countries represent two-thirds of the world’s recurring payments by volume. The four methods we studied were credit cards, debit cards, bank debit (or direct debit as it is called in Europe), and digital wallets.

Here are some of the most intriguing findings:

1. Cards are popular, but not a panacea

North American consumers like and trust credit cards. McKinsey estimates that last year, they accounted for more than half of payments there, significantly higher than in any other region. Our research shows that 29% of respondents in Canada were ‘very likely’ to use them to make a recurring purchase and they were the preferred method of payment for online and traditional subscriptions in the US.

European consumers are significantly warier. On average, 43% of British respondents and 40% of Germans said they were ‘very unlikely’ to use credit cards for recurring purchases. Attitudes to debit cards did not vary as greatly, although German consumers were much less likely to use them to make any recurring purchase.

Credit and debit cards are so ubiquitous that many global subscription services offer them as their only payment option. Our research suggests this could alienate potential customers. In 9 of the 10 markets surveyed, around a third of consumers indicated they were likely to pay for online subscriptions by bank debit – yet only 1 of the top 44 global subscription sites offered this option (and, even then, only in Germany).

As John Phillips, managing director of Europe, Zuora Inc, says: ‘In a perfect world, businesses would use one payment gateway everywhere to find economies of scale but, in reality, the lack of flexibility would cut their revenue potential short.’

2. Time to give bank debit some credit?

Outside North America, consumers in all eight countries surveyed were ‘very likely’ to pay for their household bills by bank debit. And in Denmark, Germany, and the UK, bank debit was the preferred payment method for all forms of recurring purchases that we tested.

These findings come as no surprise to Neil Proctor, Global Head of Customer Systems, Hive, who says: ‘You need to tailor the way you take payments in accordance with customer preference. Initially we took a broad brush approach to going global and thought credit cards would work everywhere, but that wasn't the case. You have to give customers options if you're going to crack the recurring payments problem.’

For businesses collecting payments in Europe, there has never been a better time to consider bank debit as it solves another big, immediate challenge: Strong Customer Authentication (SCA). The rules on SCA come into force on 14 September 2019 as part of PSD2 and primarily affect online card payments.

Many commentators have predicted that the rules could hit vendors hard: with the additional friction at checkout causing significant, overnight conversion drop off. There are a number of tactics businesses can leverage to reduce the impact: but none so clear as introducing bank debit/direct debit, which is PSD2 compliant, and to which SCA does not apply. In a GoCardless survey of 5000 consumers in UK, France, Spain, Germany, and Italy, 56% said they were likely to pay for a subscription by direct debit if it meant a smoother checkout.

3. The new digital divide

The inherent flaws in a broad brush approach to recurring payments are shown most starkly in attitudes to digital payment technology. In Denmark, 44% of consumers said they were ‘very unlikely’ to use digital wallets to make any recurring payment, with only around 5% ‘very likely’ to do so. Contrast that to China where, in 2017, one in three users of the WeChat app used digital wallets to pay their utility bills. This is even more remarkable when you consider that the first Chinese credit card was launched as recently as 1985.

Our research found there was slightly more enthusiasm for digital wallets in some markets – notably Spain, where 22% were ‘very likely’ to pay online subscriptions with them – but they have certainly not captured the consumer’s imagination in the rest of the world as they have in China.

The power of payment

Making a payment is the final step in a complex journey – the difference between intent and revenue, between a missed opportunity and conversion. Presented with unparalleled choice in many product categories, consumers are enjoying that freedom, becoming less loyal to brands, and prioritising convenience and speed. But are they getting the choice they’re asking for when it comes to payment methods?

In a market that is becoming ever more fiercely competitive, businesses need to understand how their customers want to pay today and how they might want to pay tomorrow. As management guru Peter Drucker said: ‘It is impossible to see the future, but it’s still coming.’

View the full report: Payment preferences for recurring purchases The consumer payer 2019

About GoCardless

GoCardless is on a mission to take the pain out of getting paid for businesses with recurring revenue. We’ve created a global bank debit network to rival credit and debit cards. On top of it, we’ve built a platform designed and optimised for taking invoice, subscription, membership and instalment payments.

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