How consumers pay for things has always kept pace with technology. The 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 are commonplace in the eCommerce world. Both customers and businesses benefit from having such options, and so 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 chasng down customers. Offering payment plan options can boost sales, increase cash flow and provide freedom for customers. Letting customers break down large purchases and choose a pay rate matching their financial ability is a significant option. 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). The growth of mobile commerce has an even more impressive forecast expected to almost double reaching 242 billion by 2020.
Payment options are useful with expensive products people want, but are ultimately are intimidated by the price. They allow customers to pay for things they really want, but can’t purchase with a single payment. Offering payment options increases the average purchase value and could mean the difference between a customer leaving and purchasing. 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. 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 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. They became affordable for all customers no matter their interest, industry, or budget.
Offering payment plan options is helping customers and providing businesses with a stable, predictable source of revenue. Businesses have more payment platform options than ever before, each with advantages and disadvantages depending on your industry. When deciding to offer recurring payment options or switching payment platforms make sure the company you choose provides the key features you need.
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. Things like: having the ability to skip subscription installments, adjust options between shipments, switching payment methods, or cancelling without contacting anyone, they will love. Customers can become hesitant if they feel they don’t have control over their own accounts. Flexibility eases this uncertainty about setting up a payment plan, to purchase products / services. Consumers who feel they can work with a business and make payment arrangements are more likely to commit and be loyal.
Recurring revenue is the driving force behind the trend that has started around “default payments”. These 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’re the dominate mode of payment used extensively in online shopping with mobile apps, and mobile wallets at the store. In line with current trends default payments on eCommerce sites and mobile apps/wallets is expected to increase over several years.
This study found 74% of payments made on websites were made using default payment options, and 87% of payments for in app purchases. Discretionary payments are dominate here and expected to increase.
Of the 84% of transactions that are classified as “Default Payments” only 30% are non-discretionary. This means payments that are a fixed part of a consumer’s budget for ongoing expenses like: utilities, mortgage/car payments etc. That leaves 54% of the Default Payments as discretionary. This 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. Millennial’s (18-35 years old) are comfortable using default payment options; and GenXers (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. This isn’t just for convenience, 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. Merging physical and digital worlds, coupled with eCommerce acceleration, will ensure default payments relevance for decades to come. Now is the time for payment providers and retailers to develop strategies that take advantage of this consumer behavior. Capitalize by staying ahead of the curve.