Why you should offer payment plan options to your customers

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How consumers pay for things has always kept pace with technology and recent growth of digital commerce is transforming consumer payment methods like never before. Payment plan options are not just for memberships, car payments, utility payments and loans anymore. Recurring payment options have become commonplace in the eCommerce world. Customers and businesses both benefit from having such options, and thus it’s considered a win / win scenario for most businesses.

Recurring payment options are a great way to mitigate late payment issues, make invoicing easy, provide flexibility to customers, collect payments on time without having to chase down customers. Offering payment plan options can boost sales, increase cash flow and provides freedom for customers. Letting customers choose to pay at a rate that matches their financial throughput and/or allowing clients to break down large purchases into multiple payments provides significant flexibility to the customer but it also helps the business close sales it would not have if the payment options were not in place.

The e-commerce industry is growing faster than other channels and expected to reach $.5 trillion this year (2018); and the growth of mobile commerce has an even more impressive forecast expected to almost double reaching 242 billion by 2020.

Payment options are a way for customers to afford and pay for things they really want but might not be able to purchase with a single payment. They are useful with expensive products people want and they know are worth the price but ultimately are intimidated by the price. Offering different options for payment increases the average purchase value and can mean the difference between a customer leaving and making a purchase. In one report, up to 30% of customers would have passed on a big ticket purchase if it wasn’t for a 6 month financing offer.

Example: Adobe Photoshop
From its original concept developed in 1988,to the introduction of the Creative Suite in 2002, and expanding in 2013 to the Creative Cloud, Adobe has transformed their product and the ways you can purchase and use them.You used to have to buy the whole program then use it, but as more program options were introduced for graphic design, video editing and web development they needed to develop a way for the various users to purchase the license to use each program specific to their industry.

In 2013 with the introduction of the Creative Suite they changed the licensing scheme to a SaaS (Software as a Service) rental model that is offered on a monthly or annual subscription service.They have subscription plans geared and priced for individuals, businesses, students or teachers, and for schools or universities.They also allow you to try the program and then decide if you want to buy in or not.

As their products expanded getting more industry specific and expensive, their payment options for desired products also expanded becoming affordable for all customers no matter their interest, industry, or budget.

Offering payment plan options helps customers and provides businesses with a stable, predictable source of revenue. Businesses have more payment platform options than ever before and each with advantages and disadvantages depending on your industry. When deciding to offer recurring payment options or when switching from another recurring payment platform you should make sure the company you choose to manage your payment plans provides the key features you need for type of plan you wish to provide.For example PayWhirl provides options at checkout like subscriptions, build a box, digital goods, payment plans (layaway), and custom recurring donations, all of which you can customize per your industry and needs.

Offering customers payment options is an important convenience and increases a customer’s perceived value. Such as: the ability to skip subscription installments, adjust their subscription options between shipments, or the ability to switch payment methods from debit card to credit to ACH, or even cancel without having to contact anyone at the business. Customers can become hesitant if they feel like they don’t have control over their own accounts.Flexibility eases this uncertainty about setting up a payment plan, or purchasing products / services.Consumers who feel like they can work with a business and make alternative payment arrangements, if necessary, are more likely to commit and be loyal.

Recurring eCommerce revenue is the driver force behind the trend that has started around “default payments;” which are payments made with Credit Card, Debit Card, and Bank Account details that have been stored for ongoing and future transactions. According to the Deloitte Center for Financial Services study 84% of all digital payment transactions are Default Payments. They are the dominate mode of payment in digital transactions used extensively in online shopping with mobile apps, and mobile wallets at the physical (POS). In line with current trends theses default payments on eCommerce sites and mobile apps/wallets is only expected to increase over a period of several years.

In this Deloitte University study on default payment methods 74% of payments made on websites were made using default payment options and 87% of consumer payments for in app purchases. Discretionary payments are dominate here and expected to increase as opposed to non-discretionary payments.

Of the 84% of transactions that are classified as “Default Payments” only 30% are non-discretionary, meaning payments which are a fixed part of a consumer’s budget for ongoing expenses like electric/utility bills, mortgage/car payments etc., and 54% of the Default Payments are discretionary, which means customers have more budgetary discretion depending on cash flow and credit appetite. These payments are mainly made on websites and online market place sites.

Offering payment options that lead to Default Payment methods being setup is attractive for all age groups any industry would want to sell to.Millennials (18-35 years old) are comfortable using default payment options; and Gen Xers (35-55 years old) account for the highest share of spending through default payment options. Since the age range of consumers is so vast it’s important to accept all forms of payment options not only for convenience, but you don’t want to lose customers because you only accept one or two forms of payments. According to the Deloitte Center for Financial Services Study 46% of Default Payments were made through Bank Accounts, 20% with Debit Cards, and 34% with Credit Cards.

So what does this all mean? Payment plans, like default payments, are the dominant mode of payments now and will continue with changes in technology and eCommerce. The continued merging of the physical and digital world, coupled with the acceleration of eCommerce will ensure default payments will stay relevant for decades to come. Now is the time for payment providers and retailers to develop strategies that take advantage of this consumer behavior and capitalize by staying ahead of the curve.