Everything to Know About Subscription Payment Processing

Jan 15, 2023

What is Subscription Payment Processing?

Subscription payments are quickly increasing in popularity because of the convenience to both the business and the customer. Subscription payment processing allows customers to automatically be charged a certain amount on a specific day without the business needing to do a thing.

Subscription payments are also known as recurring payments. They can be charged monthly, weekly, yearly, or any other way that makes sense for the business. For example, a gym membership is a type of subscription payment. A customer gets charged a set amount on a set day each month to gain access to the gym equipment.

Subscription payment processing is a special type of payment processing that allows for these recurring payments to be safely charged to customers. The payment processor has the ability to store the customer’s payment information and the ability to automatically send the charge.

With the help of subscription payment processing, businesses can streamline part of their income, reducing the need for payment reminders, invoices, and customers that don’t pay. This saves the business time and money without having to chase down customers for their money.

How Subscription Payments Work

To properly charge customers a subscription, it is important to understand how subscription payments work. The subscription payment processor works together with a payment gateway to store and charge the customer’s preferred payment information.

1.Customer signs up for subscription. They enter their payment information, choose their subscription pricing, choose the payment frequency, and any other information the business needs for the recurring payment.

2.Customer agrees to have their information saved. For a subscription payment to work, the customer information needs to be saved on file, which requires customer permission.

3. Subscription payment gateway stores information. After the customer agrees, the customer information is saved in the subscription payment gateway for the payment processor to use in the future.

4. Stored payment information used to charge customer. On the agreed upon schedule, the subscription payment processor will charge the customer’s information stored in the payment gateway the agreed upon amount.

5. Funds get sent from customer bank to merchant account. After the subscription payment processor charges the customer, the funds get sent from the customer’s bank account to the business merchant account. In some cases, the funds might be held by the merchant account.

6. Funds released to business. If there is no hold on the funds by the merchant account, the funds will be immediately released to the business. If there is a hold, the funds will be released after the holding period is up.

The subscription payment process is pretty easy and doesn’t take much to set up. It is important to make sure the right payment processor and payment gateway is chosen for the business, as not all offer the ability to accept subscription payments.

Choosing a Subscription Payment Gateway

Part of the subscription payment process includes a payment gateway. Not every payment gateway will be able to handle the business needs of processing subscription payments. There are different features in payment gateways, and some features give the gateway the ability to handle subscriptions that others don’t have.

Store Payment Methods

Most payment gateways have the ability to store payment information that customers input, but it is important to double check that this is a feature offered by the payment gateway. The more security the payment gateway offers for stored payment methods, the better.

Ability to Suspend, Cancel, or Reactivate Subscriptions

Customers don’t like to have to jump through hoops to cancel their subscriptions, pause their payments, or reactivate a previously canceled subscription. Make sure the business chooses a payment gateway that offers this feature for customers directly on the business website.

Payment Method Changes

If a customer wants to change how they pay for their subscription, they should be able to do so easily. Ensure the payment gateway can allow a customer to hop on the business website and quickly change their preferred method of payment.

Pricing

Pricing is a major point to consider when determining what payment gateway makes sense for a business. Choose a price that fits the budget of the business and can easily be paid for by current income, not predicted income. 

Choosing a Subscription Payment Processor

When it comes to choosing a subscription payment processor, there are a few things that need to be considered separately from choosing a payment gateway.

Number of Monthly Transactions

Payment processors limit the number of monthly transactions a business is allowed to process. If the business charges a large number of transactions each month and expects to have a large number of subscriptions, it is important to make sure the payment processor can handle this.

Pricing

Just like a payment gateway, it is important to choose a payment processor that the business can afford with current income. Payment processors can charge a monthly fee and a per-transaction fee on top of the startup costs.

Payment Holding Time

When the payment processor charges the customer, there is likely going to be a holding period. The payment processor will hold the funds in the merchant account for a time period between one and seven business days. If the business needs the funds sooner, try to find one with a lower holding time.

Payment Methods Accepted

While customers might prefer to use their credit and debit cards for subscription payments, some might prefer to pay with their bank account information. Choose a payment processor that allows a wide variety of payment methods for customers to choose from.

Businesses That Should Consider Subscription Payments

Subscription-based payments might not work for every business. For example, if a business only offers one-time purchases of an item, subscription payments do not make sense for them. Assess the business needs before purchasing a payment processor and gateway for recurring payments.

Businesses that should consider subscription payments include:

  • Service providers. This might include childcare centers, lawn care, housekeeping, or fitness training
  • Monthly lesson/tuition fees. This might include the gym, dance lessons, music lessons, and tutoring services
  • Subscription or club boxes. This might be a monthly book subscription, monthly snack subscription, monthly makeup subscription, etc.
  • Social media memberships. This might include subscribing to see an Instagrammer’s posts or subscribing to a blog to gain access to exclusive content
  • Online services. This might include monthly software subscriptions (ex. Microsoft Office or Adobe), mobile apps, gaming, etc.

When determining if subscription payments make sense for a business, it is important to really take a step back and look at what the business offers now and what it wants to offer in the future. 

If subscription payments don’t make sense for the business now, but might in the near future, it makes sense to get the necessary tools now. This saves the business money because they won’t have to buy a whole new payment system to start accepting subscriptions.

Benefits of Subscription Payment Processing

If the subscription payment processing makes sense for a business, or will make sense in the near future, there are plenty of  benefits of implementing it into the website for customers to subscribe to the business.

Predictable Income

One of the biggest benefits of subscription payment processing is the predictable income the business will receive. The business can easily predict their income because they know how many customers are subscribed and how much they will be charged each month.

Subscription billing also reduces the need for a business to send out late payment notices because the customer will be billed before the service or product is provided. This ensures the business will be paid consistently.

Satisfied Customers

Subscription payment processing is an easy way to streamline the customer experience and leave them happy with the business. Customers don’t have to wait for an invoice to pay for their services or products, they can just be charged automatically and get what they ordered.

Payment Tracking

Both customers and businesses benefit from the ability to keep track of recurring payments. They both know how much is going to be charged, when it is going to be charged, and what payment method the charge is going to. This makes it easy for both customers and businesses to accurately budget.

Reduced Debt Collecting

By charging the customer before providing them with the product or service, the amount of collections accounts a business has to open significantly decreases. This saves the business money and time.

Disadvantages of Subscription Payments

While there are plenty of benefits to keep in mind about subscription payments, there are also some disadvantages to consider as well. 

  • Fraud and chargebacks. Maybe a customer forgot to cancel their subscription and is trying to get their money back. It’s also possible someone’s credit card information was stolen to sign up for the subscription. It is important to be prepared for this
  • Increased transaction rates. Subscription charges count toward total monthly charges and can cause problems if the payment processor chosen can’t handle the transaction volume

Is Subscription Payment Processing Right for Your Business? Start now with Bankful!

If subscription payment processing sounds like something that might benefit your business, check out Bankful. They offer subscription payment processing for all different types of businesses and can easily meet your business needs.

Get started processing subscription payments by signing up with Bankful today.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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