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The Benefit of Recurring Payment Management

The Benefit of Recurring Payment Management

February 3, 2022

In recent years, technology has significantly impacted the financial sector, particularly in the realm of fintech payments. This has led to an expansion of innovative payment methods available to businesses, including the option for recurring mobile payments. As a result, companies that offer products and services can now offer a wider range of payment options to their customers, thanks to the advancements in financial technology.

Based on the report by The Economic Intelligence Unit in 2014, 80% of customers demanded new consumption models; subscription is one of them. Eight years later, the subscription business model has risen significantly, which leads to the innovation of a recurring payment system.

So what are recurring payments? And how does it benefit the payment business? Let’s see the brief explanation below!

Types of Payment Methods

The growth of fintech has led to a shift in the way people make payments, moving from traditional methods to digital. This trend is reflected in the data that according to Statista, the total transaction value of digital payments through various services increased from $4.1 trillion in 2019 to $5.2 trillion in 2020, and is expected to reach $6.7 trillion in 2023. In Indonesia, four digital payment methods have recently gained popularity as payment solutions.

1. Electronic Money (e-money)

In Indonesia, there are two types of electronic money or e-money available for use: one that utilizes a chip system and the other that relies on a server. The chip system can be found on e-toll cards, which are used for toll road payments, while the server-based e-money can be accessed through digital apps that support QRIS barcodes, such as Gojek (Gopay), OVO, DANA, LinkAja, for both online and offline transactions. E-money allows for convenient, cashless transactions and is a secure payment option.

2. Digital Wallet

A digital wallet is a type of financial technology that functions like a traditional wallet, but instead of carrying physical cash, it stores an outstanding balance that can be topped up by the user. This balance can then be used to make transactions, eliminating the need to physically search for cash when making online or offline payments. Digital wallets are often offered as a feature by financial payment platforms. At times, a digital wallet platform is also a server-based electronic money platform. Therefore, it’s not surprising that digital wallets became the most popular payment method in 2021, especially among younger users (Gen Z), according to the JAKPAT E-commerce Trends 2nd Semester 2021 report.

3. Buy Now Pay later

Buy Now Pay Later, also known as paylater or BNPL, is a payment method where customers can make purchases immediately and pay for them later through one-time payment or installments. It’s a type of short-term financing that is often interest-free. BNPL is often offered by e-commerce companies such as Tokopedia or Shopee through payment applications.

In Indonesia, the buy now pay later (BNPL) feature is a prominent payment infrastructure, with data from the Q2 2021 BNPL Survey showing that BNPL payment in Indonesia is projected to increase by 94.7% annually to reach $2669.3 million in 2022. This growth is attributed to the use of fintech innovation in mobile payment platforms. Additionally, Indonesia's BNPL Gross Merchandise Value is expected to rise from $889.7 million in 2020 to $9,222 million in 2028, driven by advancements in payment initiation and payment technology in Indonesia.

What does it mean for fintech payment when utilizing recurring payment management (RPM)?

A recurring payment is a technical bill payment system where businesses can provide a subscription-based business model that enables users to transact with  electronic payments or cloud-based information. It can be said that recurring payment is a billing system carried out by third parties such as APIs platform or licensed fintech companies where transactions are carried out periodically at relatively the exact payment amount.

One of the noticeable characteristics of recurring payment methods is the use of a membership system, enabling companies to set payments based on the agreed billing date. For example, a recurring payment can be set according to the desired schedule such as yearly, monthly, weekly, or custom as needed.

Recurring payment methods can provide benefits to both companies and consumers. For consumers, these methods can streamline the payment process by eliminating the need to manually enter payment information for subsequent subscriptions, saving time and reducing the risk of errors. For companies, recurring payment methods can help to ensure timely payments and can help to maintain customer loyalty by automatically processing payments. Overall, recurring payment methods can increase efficiency and convenience for both parties.

How Does it Benefit Payment Business?

Recurring payment is one of the best solutions for the payment business that fintech offers. According to Bluefin, consumer spending on the top 100 subscription apps has risen by at least 30% globally. It gives them benefits that simultaneously ensure their company's performance while attracting new consumers. Some of the benefits include:

1. Increase User Experience

By implementing a recurring payment method, businesses can give an excellent user experience for their customers. The better their experience, the better their satisfaction will be. Utilizing a recurring payment method might increase customers’ satisfaction since they do not have to add more effort and waste more time as their next subscription will be paid automatically.

2. Avoiding Fraud

Fintech payment is still prone to fraud or fake invoices. Using recurring payments will help companies reduce the chances of fraud as it will decrease traditional invoice mechanisms. By aggressively protecting your business against fraud, you can improve your reputation and your bottom line. While it's challenging to entirely eliminate the threat of fraud, you can help to protect consumers against it by continually updating your network security systems as well.

3. Increase User Retention

Every company wants their customers to come back buying their products. This is what we call user retention. It refers to a cycle in which customers are willing to pay continuously for your products. User retention is essential for any business because according to recent studies from SmallBizTrends, a company that can maintain 5% user retention will boost its company profit by 25-95%. A recurring payment method can improve your user retention as it continuously makes payments on every billing cycle. 

The development of fintech has created a more advanced payment system with the utilization of cashless transactions. Therefore, it is essential to ensure your consumers that this transaction will only give them comfort and easiness. The recurring payment method can provide simple access for not only consumers but also a relief for the business. With a recurring payment method, businesses can maintain their customer loyalty and satisfaction by giving them a hassle-free payment experience.

Ayoconnect builds leading payment APIs to help businesses #moveforward with RPM Solution. Want to explore more about our RPM solution and ready to grow your recurring revenues? Contact our team today to learn more about what we can help you build.