An article from Western Union focusing on the impact and benefits of recurring billing for merchants.
The article references conversations with Yogesh Oka from Edgar, Dunn & Company's San Francisco office.
THE BENEFITS OF RECURRING PAYMENTS
Recurring payments offer a win-win for billers and customers by simplifying the payment experience and removing barriers to on-time payments. More consumers are using recurring payments to help them stay on top of their bills. In fact, an estimated $143 billion in recurring payments will be made next year, up from $112 billion three years earlier.
And as of last year, nearly 30 percent of consumers were enrolled in a recurring payment plan for a student loan or tuition bill, up from just 3 percent in 2009. However, the pace of growth in recent years has been relatively slow in some industries, leaving room for billers to increase awareness of this convenient service. For example, enrollment in recurring payments for auto loans and mortgages —the most popular areas for recurring payments — has remained steady since April 2009.
Recurring payments offer consumers and billers many benefits. Consumers like knowing that their bills will be paid without having to mail in a check and can be assured that their payments will be received on time. In fact, convenience and timeliness are the top two reasons consumers use recurring payments. Consumers who use recurring payments are more likely to stay current on their bills, thereby reducing bill delinquencies, says Dr. Patricia A. Sahm, managing director at Auriemma Consulting Group, a business consultancy specializing in payments, lending and retail banking. For billers, collecting customer payments on time is essential to a company’s bottom line. When customers use recurring payments, businesses don’t need to wait for checks to arrive in the mail, which creates more predictable cash flow.
“If a company is able to enroll its customers in a recurring payment plan, that really helps ensure that the business is getting paid before other bills,” says Lori Beck, director of product management for Western Union.
Another benefit to billers is that customers who have signed up for recurring billing are more likely to stay with the business, in part because it’s easier to maintain the service than to unwind it. Various studies have indicated that recurring billing helps improve the “stickiness of the customer relationship,” says Yogesh Oka, manager at Edgar, Dunn & Company, a payments consultancy.
Recurring billing can also enhance the relationship between biller and customer by de-emphasizing bill collection, while emphasizing innovation and efficiency.
The top reason people don’t enroll in recurring billing is they want to decide when funds are deducted from their account. Secondly, they want to remain flexible regarding when or how they make a payment, Sahm says. Businesses may be able to offset this perceived lack of control by allowing customers to choose the terms of their recurring payments, such as the payment method, frequency and amount deducted. “That flexibility becomes very important from a customer perspective because it helps people budget,” Beck says.
If payment amounts will vary, customers should also be able to decide which amount would trigger an automatic notification before any deductions are made. For example, a customer might decide that any amount over $300 would need his or her approval.
Another barrier to recurring billing has been the enrollment process, which sometimes requires customers to send in a voided check. Billers can make the sign-up process easier by allowing customers to register online, Sahm says. Before implementing recurring payments, billers should capture customers’ authorization and satisfy other guidelines put forth by the government and NACHA. Fortunately, billers have the option to rely on reputable recurring payment services that can provide expertise in this area, Beck says.
Billers can also simplify the process by enrolling new customers into recurring payments from the get-go, rather than waiting weeks or months. According to Sahm, the first step for billers is to ask themselves one key question: “How can you get this first payment to be a recurring payment?”
Aite Group Survey, July 2010 “Recurring Payments, U.S. Edition, 2011: Volume 17, Issue 11,” Cardbeat, Auriemma Consulting Group, Inc.