The Subscription Economy: What The 2020s Have In Store

It’s not too far-fetched to say that one day soon, perhaps, much of our lives as consumers will run on subscriptions.

Growing in scope and power, eCommerce promises to bring more subscription retail and services into our daily lives. It’s not just streaming media, or food, or cosmetics that will drive this. Subscription commerce also encompasses or will grow to encompass such areas as gaming (an extremely lucrative part of the digital ecosystem), designer socks, high-end and luxury apparel, and even cars, trucks and boats. All that will not only bring further changes to consumer attitudes and behavior, but challenges and massive opportunities to payment services providers and other participants involved, directly or indirectly, in subscriptions.

That may seem like a lot to take in, but in a new PYMNTS discussion, Karen Webster caught up with Dan Burkhart, CEO and co-founder of Recurly, to get a sharper sense of what’s happening now with subscription commerce and payments, and what’s coming over the horizon. Recurly has a front-row seat into subscriptions, given its role in providing recurring payment services for that sector. Indeed, the discussion served as a crystal-ball exercise for subscription commerce over the next 12 months or so. As Burkhart encouraged, feel free to think of all this along the lines of an “everything-as-a-service model,” given the trends and consumer preferences involved, preferences that in general are shifting from notions of ownership to the desire to rent or share products that range from clothing to automobiles.

Big Shifts

Significant shifts are taking place in that world, according to Burkhart. Not least among them is how potential subscription commerce operators are approaching entry into the business. Even five years ago, he said, many such businesses would approach Recurly with recurring payment potential top of mind. But as subscription commerce has grown and evolved, taking in more consumers, those questions have changed.

“Now, the introductory conversations are more sophisticated,” he told Webster. The jumping-off point for subscription commerce tends to be not Subscription Commerce 101 inquiries about those payments, but something else. “It’s more about how to marry the process of collecting revenue with marketing and merchandising insights, and how to optimize it. It starts at the 201 or 301 levels. It’s not just about how to collect payments.”

That makes sense, given how subscription commerce, while certainly centered around payments and revenue, is itself changing in 2020, and becoming more complex. For one, the presence of artificial intelligence and especially machine learning is becoming more prevalent in subscription commerce. Sophisticated algorithms and ever more data can greatly help the subscription commerce operator, for instance, figure how to best offer free trials, and to what consumer groups — or even whether to offer them at all. “There’s an opportunity to optimize the pre- and post-conversion lifecycle,” Burkhart said. Such determinations can even take place at the individual consumer level, he added, and also provide data about how long a free trial can be extended. That directly impacts costs and marketing efforts, of course.

Indeed, the results of such machine-aided judgments are not always what one would assume. “Sometimes there are counter-intuitive results,” Burkhart said. Instead of an outright free trial, for instance, the data and algorithm might find a greater opportunity to win over a consumer or consumer group via what he called a straight offering — perhaps even one where a consumer doesn’t have to provide his or her card right away.

As that happens, more information is emerging about payment card decline rates in subscription commerce operations — lessons that can also guide future offerings, marketing programs and merchandising. In general, as is the case in other parts of retail, debit cards tend to have higher decline rates than do credit cards — in fact, as much as twice the decline rate when it comes to subscription commerce, according to what Burkhart told Webster during the PYMNTS discussion. Not only that, but certain issuing banks can also have two times the decline rates as other financial institutions.

Studying such data points, he said, “can be used to the advantage of the sophisticated subscription provider. When you start to pull apart this matrix of the composition of all the consumers who sign up, this becomes material. It can determine your tolerance for risk. Everyone has to fine-tune their dials accordingly.”

Larger Trends

To put it even more bluntly, subscription success will increasingly depend on those fine, data-supported details. And that certainly includes the realm of subscription payments. “There is no single gateway or processor that is across-the-board best,” Burkhart said. “There is no silver bullet, it’s almost like a Chinese buffet out there.” Even so, he could offer this as a guidepost of sorts: “Intelligent payment routing is the really important part of the new subscription frontier.”

Burkhart also spoke more broadly about the future of subscription commerce, including how the younger consumer segments of millennials and Gen Z are helping to drive growth in that area of retail, a trend that seems impossible to reverse at this point in the early 21st century. “Why own it when you can just rent it?” he said, describing one of the main mindsets among those shoppers. That’s not all that is helping to fuel the ongoing rise of subscription commerce, either — the increasing availability of different payment methods is also helping. Indeed, to hear Burkhart tell it, the situation for subscription commerce seems pretty bright even with the inevitable stumbles and failures.

“There will be winners and losers,” he said. “but one thing I would bet on is that it’s the absolute way of the future.”