Subscriptions, which allow customers to pay a regular fee to use services or products for a limited time, have become an indispensable part of our lives. And with the market expected to continue growing, one of the key factors for a successful subscription-based business is having a suitable payment method.
In this article, we explore different types of payment methods, including which ones are appropriate for subscription-based businesses, the key points to consider about them, and more.

What’s in this article?

• Subscription payment methods
  
• Companies and industries that provide subscription services
  
• Advantages and disadvantages of subscription payments for users
  
• Advantages and disadvantages of subscription payments for business owners
  
• Things to consider when choosing a payment method for your subscription service
  
• Key points when introducing subscription payment methods
  
• Selecting a suitable payment method
  

Subscription payment methods

If your business does not support the payment method a customer wants to use, the customer might decide not to use your subscription service. Offering desirable payment methods is important for the success of a subscription business. Let’s take a closer look at the various options.

Credit card

Credit cards are one of the most popular payment methods on ecommerce sites and are particularly important for subscription-based businesses. The option to pay by credit card is beneficial for both customers and business owners.

For customers, credit cards are an easy-to-use option. Unlike some other payment methods, credit cards can be charged automatically on a recurring basis, which means customers don’t need to remember to make manual payments. Many customers also use credit cards to take advantage of cashback and point redemption campaigns offered by their card issuers.

For business owners, credit card payments greatly reduce the amount of work involved in managing payments, since they can be billed automatically on the payment due date.

Debit card

Debit cards are also a suitable payment method for many subscription services. Visa, Mastercard, and other internationally recognized debit card brands can typically be used. However, not all issuers allow their debit cards to be used for online payments.

Additionally, some customers don’t like to use debit cards online because they are concerned about their security. This is why it is important to offer alternative payment methods.

Direct carrier billing (DCB)

In Japan, carrier billing—which allows customers to pay other bills together with their cell phone bill—is provided by major cell carriers such as NTT Docomo, SoftBank, and au.

Mostly minors without access to credit cards use this service, so this billing option is particularly important if a subscription business is geared toward young people.

User ID payments

Identification (ID) payment is a method that lets customers make payments using pre-registered accounts for external services, such as PayPay, Amazon Pay, or Rakuten Pay. With the User ID payment method, a customer doesn’t need to enter their credit card information on an ecommerce site—they simply enter their login information for the third-party service that has their payment information saved.

While these kinds of cashless payment methods are becoming more common, they can’t be implemented on all platforms. So it is important for business owners to ensure alternative payment options are available.

Direct debit

With direct debit, a user registers a bank account in advance, and the system automatically deducts a payment from that account each month. Once registered, there are no extra fees, and users do not need to re-enter their payment information. This method is well suited to subscriptions and other recurring payments.

Convenience store payment

Convenience store payments are popular for people who are uncomfortable using credit cards online or who do not use a designated mobile carrier. This is a particularly common payment method in Japan. However, as this option is not suitable for recurring payments, most subscription services do not support convenience store payments.

Cash on delivery (COD)

Cash on delivery (COD), also called payment on delivery, is a payment method in which a customer receives goods or services before paying for them. The customer then pays a bank or convenience store for the goods or services at a later date, often in cash. For the customer, the advantages of this payment method are the ability to pay for a service without using a credit card and not needing to pay up front. A disadvantage of COD is that the customer has to pay the bank or store quickly (i.e., there are short repayment deadlines). Also, companies don’t want to risk customers not paying what they owe, so they typically limit the amount a customer can pay for goods and services at one time.

As with convenience store payments, many subscription businesses do not accept this payment option.

Gift card

In some cases, customers can use gift cards to pay for subscriptions in Japan. For example, they can load an Apple gift card with money to pay for an Apple ID, or use an Amazon gift card to pay for a Prime membership.

However, customers need to regularly check that they have sufficient funds to pay for their subscription when using this option. Ideally, they should register a backup payment method or change to a rechargeable gift card to avoid interruption of service due to insufficient funds.

Prepaid card

A prepaid card is good only for the amount that has been pre-loaded onto it. Prepaid cards are a convenient payment method for people who want to avoid registering their credit cards or bank accounts to use subscription services. However, some prepaid cards do not support automatic recurring payments.

Companies and industries that provide subscription services

Below are some examples of subscription-based businesses that typically accept the payment options discussed above.

Video and music streaming services

Video and music streaming services let users pay a flat fee to access content such as music, movies, dramas, and anime. Examples of these kinds of services include Netflix, Amazon Prime, and Spotify. Monthly fees are usually relatively low, making these services very accessible.

Consumers also often make use of free options, trial periods, and sales, such as Black Friday, to use these services.

Creative Cloud

Everyone, from beginners to professionals, can use creative tools related to design, such as Adobe Creative Cloud (a service that includes Photoshop and Illustrator) and Canva. Many of these programs offer a free trial period, allowing even casual users to sign up and try out the tool.

Gyms

Most gyms offer monthly membership plans for health-conscious users. Recent years have also seen an increase in online fitness subscription services that allow customers to train at home without going to the gym.

Advantages and disadvantages of subscription payments for users

There are many advantages to paying for a subscription, but there are also some disadvantages. Consumers should make sure they have a clear understanding of the advantages and disadvantages before paying for subscriptions.

Advantages

• Services can be canceled at any time: A customer can cancel when they no longer need a service. For example, they might choose to use a video streaming service for a specific sports event and then cancel, or only use an initial free trial.

• It’s easy to manage household finances: The fixed monthly fee makes it easier for users to plan their budget.

• The latest services are available: Subscription-based businesses, specifically streaming platforms, regularly update content, so customers often have access to the latest media.

Disadvantages

• Payment methods are limited: Depending on the service, there might not be a payment method a customer wants to use.

• Fees apply even if a customer doesn’t use the service: Subscription businesses still charge the customer even if they don’t use a service much or at all.

• It is easy to sign up for multiple subscriptions: Because the cost of subscriptions is often low, it can be very easy to sign up for multiple subscriptions, causing people to overspend.

Advantages and disadvantages of subscription payments for business owners

There are also advantages and disadvantages to subscriptions for business owners.

Advantages

• Stable revenues: Payments from customers are regular and predictable, allowing you to maintain a steady cash flow.
  
• Improved customer lifetime value (CLV): If you can foster long-term customer relationships, you can maximize CLV.
  
• Reduction in late payments: Customers make payments regularly on a specific date, reducing the chances of late payments.
  

Disadvantages

• Initial setup costs: There is typically an initial cost involved for a subscription business to implement a payment method.
  
• Risk of failed payments: There is a risk of payment failure due to a customer’s card expiring or running out of funds.
  
• Risk of cancelation: Subscriptions are easy to cancel, so you need to constantly work to prevent customer cancelations.
  

Things to consider when choosing a payment method for your subscription service

Customers normally pay for subscriptions on a regular, recurring basis and use them for a fairly long period of time, so determining the best payment methods to offer them is important. Read on for key points to consider when choosing a payment method for your subscription service.

Consider payment methods other than credit cards

Think about how to handle younger customers who might not have access to credit cards, or customers who have credit cards but don’t want to use them. Look at which payment methods these customers might prefer to use. Preferred payment methods usually vary greatly between different age groups. Consider your target age group, and use this to inform your choice of payment method. For example, if the target audience for your company’s products is younger, it could be better to have options such as carrier billing and ID payments, because they don’t require credit cards.

Automate your processes

Subscription payments are generally ongoing, regular payments. The more people who register for your service, the more it is in your best interest to automate as much of your work as possible. Automation can not only reduce your workload but also the potential for billing mistakes.

Use payment processing services

It can be time-consuming and inefficient to make individual agreements directly with lots of different payment services. Using a payment processing agency can greatly reduce the amount of work involved, as they will handle relationships with payment companies on your behalf.

However, you must first ensure the payment processing agency offers your chosen payment method. You should also check whether the commission and fee structure is appropriate for your company’s sales and future growth. Additionally, you’ll need to make sure all transactions are secure and that the payment processing agency protects customer payment data.

Key points when introducing subscription payment methods

Here’s what you should look out for when introducing a subscription payment method.

Focus on subscription management

Usually, the payment cycle for subscriptions will vary from customer to customer, and the payment date won’t be the same for everyone. It is important to respond to flexible billing cycles. Your company needs to be able to react quickly to renewals and changes in customer subscription plans. You should also check that there is a backup system that can automatically retry payments if they fail.

A subscription management function is important for business owners to smoothly carry out regular billing. Check what management functions are available before you make a decision.

Implement payment methods based on region

The payment methods that consumers trust can vary between regions. For example, in Japan, cash payment at convenience stores is very popular. And young people who do not have credit cards often use carrier billing. In other countries, these payment methods aren’t common or even available.

Some payment methods are unique to Japan, so you should check which payment methods are usable in your chosen region if you are considering expanding overseas.

Put security measures in place

The security of your chosen payment method can directly impact customers’ trust in your company. Ensuring your payment method is secure is important to minimize the risk of data leaks and unauthorized access.

For example, you could implement Secure Sockets Layer (SSL) and Transport Layer Security (TLS) to encrypt all communications. Be sure to use HTTPS instead of HTTP for your website, as well.

You should also check to see if your site complies with the international Payment Card Industry Data Security Standard (PCI DSS). To increase your security, try implementing systems such as 3D Secure, AI-based fraud detection systems, and tokenization of card information.

Selecting a suitable payment method

There are various payment methods for subscriptions, but the key to success is choosing a payment method that is right for your company. Having a wide range of payment options can also increase customer satisfaction.

However, if you use many different payment methods, it can be more straightforward and cost-effective to use a payment processing service rather than having individual agreements with each provider. As you expand your subscription business, check that your payment processing service has sufficient management functions and security measures to meet your needs.

Stripe is a payment processing service that provides online payment services, including subscription payments. Stripe Billing supports automatic and continuous billing, customer management, and various payment methods, and it has the functions important for subscription businesses. It also supports multi-currency settlement for businesses looking to expand internationally. Plus, it is PCI DSS-compliant and meets high security standards.

Consider Stripe to support you as you expand your subscription business.