How Bank Debits Are Driving Subscription Commerce Growth

Recurring payments and commerce are taking the world by storm as businesses seek to expand their global operations, and consumers of all types get more comfortable with online subscriptions. However, significant challenges still exist that serve to slow the growth of subscription commerce — not the least of which is how to move money in the most efficient way possible.

That’s where innovation and disruption come in. PYMNTS recently caught up with Pranav Sood, vice president and general manager of International Expansion for U.K.-based recurring payment services provider GoCardless, to talk about what needs to happen to promote further growth — and the role that bank debit for recurring billing can play.

“There is a huge amount of growth in the recurring business model globally,” Sood told Karen Webster. “Businesses are moving toward these forms, partly because of consumer preference and partly because of cloud technology.”

That’s only one of the trends fueling innovation in recurring payments. Desires for global expansion also play a role. Indeed, 72 percent of U.S. businesses want to grow globally in the next five years, Sood noted, with a comparable rate in the U.K. and Germany.

“But not all are set up to take payments from outside their home countries,” he said, identifying one of the main problems in achieving that desired global growth. “It’s a factor holding back their growth overseas.”

A general example from Sood serves to illustrate that point. Imagine a U.S.-based software company that sets up shop in Australia. Under the traditional way of doing things (the way generally controlled by traditional financial institutions), that software company would have to set up a local Australian bank account, and deal with hedging, remittances and other often-cumbersome tasks common to cross-border transactions.

Global Debit Network

Working with TransferWise, which provides tech services for international transactions, GoCardless launched on Wednesday (Nov. 6) what it calls the first global network for bank debit — a tool that could not only bring fresh energy to B2C-focused recurring payments, but B2B transactions as well.

The new global network for bank debit aims to provide a fix for that problem by not only enabling pull payments from customers’ bank accounts, but doing so in home currencies. The idea is to work around banks that tend to have a dominant role in such international payments. Consider again the previous example about the software company.

“Now, we are making it really easy to use our payments network to collect in Aussie dollars and settle in U.S. dollars,” Sood told Webster.

This new network can, for now, take U.S., Australian, Canadian and New Zealand dollars, as well as U.K., Swedish and Danish currency. More to the point, the network enables users to collect and pay out from some 30 countries that, together, represent some 70 percent of global recurring payments volume.

The Wednesday launch announcement follows other recurring payments news involving GoCardless, news that further demonstrates the growing reach and importance of recurring payments and subscription commerce — a topic that is the subject of ongoing and regular PYMNTS research.

In late October, GoCardless and subscription commerce company Recurly teamed up to give businesses access to the “first global network designed for recurring payments,” according to a press release. Businesses will be able to collect recurring payments through bank debit, and Recurly merchants will be able to attract customers from around the world, while reducing the fees charged by other payment methods. Merchants will also have the ability to receive payments from SEPA, Bacs and ACH, which will help businesses expand.

The move is important for GoCardless as it continues to expand in the U.S. The company recently launched ACH debit and opened a new office in San Francisco. GoCardless works with 50,000 businesses around the world, varying in size from large corporations to small businesses.

B2B Potential

The stakes are high in subscription commerce — which, of course, needs a strong foundation of payments and payment methods. According to PYMNTS research, subscription commerce is increasingly global in nature. A recent study found that 71 percent of consumers across 12 countries have subscription services, up from roughly half who had them five years ago. Seventy-two percent of consumers have completed a cross-border purchase — those purchases are dominated by digital goods and services, with 75 percent of shoppers who purchased digital products also buying internationally.

B2B is also fertile ground for subscription commerce growth. Sood told Webster he could see how this new GoCardless offering — the one announced on Wednesday — could, perhaps, help the company play a larger role in invoicing, and a role in helping more businesses move away from push payments, such as checks.

Granted, there is often much more involved when it comes to such B2B transactions, not the least of which is convincing buyers and suppliers to agree to a seemingly new payment process. In addition, invoices, while often regular, are not exactly a monthly gym membership fee that costs the same every time.

However, Sood seemed optimistic. Bank debits are already a preferred method of B2B payments, he said, meaning they are familiar and would not constitute a revolutionary change for many suppliers and buyers. Not only that, but many types of invoices are based on the number of hours or amount of usage for a particular service or product — and that can be translated into the language, so to speak, of recurring payments. That said, using such a system when it comes to B2B payments would likely best work between companies similar in size.

“It tends to work where there is parity between businesses,” Sood told Webster, although he added that’s not always the case. For instance, pull payments can work really well, he said, when large firms are invoicing smaller ones.

Larger firms tend to have much more power over small companies, of course, and will usually set the tone for payments. Even so, there is no doubt that B2B and B2C are both becoming more entrenched in the world of subscription commerce and recurring payments — meaning there is little doubt of more innovation, and even disruption to come.