How to handle recurring transactions (subscriptions)?



Especially merchants selling products or services on a recurring basis are looking for ways to efficiently capture payments from their consumers and provide an buyer-friendly purchasing experience and billing. Not every online payment method offers merchants a recurring option. However, credit cards and direct debits do facilitate recurring charges to consumers on a pre-defined and pre-agreed frequency.


Especially merchants with subscription plans for content services and memberships, but also utility companies, largely benefit from the ability to generate recurring payments where no consumer involvement is required (only for the first initial payment). The common and nowadays widely embraced technology used to facilitate for recurring payments is so-called "tokenization". Besides empowering recurring payments through tokenization, it also provides the option to simplify checkouts for returning shoppers.




In the context of online payments, Tokenization is the process of replacing sensitive payment data with a non-sensitive equivalent, referred to as a token, which has no extrinsic or exploitable meaning or value. The PCI Council defines tokenization as "a process by which the primary account number (PAN) is replaced with a surrogate value called a token". The token maps back to the sensitive payment data through a tokenization system. In an online payment environment, this system is to be offered by the Payment Service Provider or acquirer of the merchant. This payment provider can develop and maintain a highly secure system that generates tokens for payment related data (whether related to cards or bank accounts).


The token can be used to initiate new payments for recurring billing purposes, but also for one-click buy types of checkouts. When the payment is to be made, the token is provided to the PSP system which then decrypts the token to retrieve the original payment information. That information is subsequently used to process the transaction and transfer funds from the buyer's card or bank account to the merchant. Tokenization is a perfect way of mitigating the risk of sensitive card data getting stolen and significantly lowers the PCI DSS requirements for (recurring) merchants as no sensitive data is stored within the merchant environment.


Recurring payments


Recurring payments are a perfect low-cost way for merchants to accept credit card and bank account payments for content site subscriptions, newsletter fees, recurring donations or utility bills. Not every Payment Service Provider is able to process recurring payments, so merchants should be conscious when seeking for a PSP to process their recurring payments. Besides the actual recurring payment processing there is also the need for some sort of subscription program feature which helps the merchant to manage specific subscription plans.


Subscription program


Especially digital content merchants often do provide several subscription plans and promotions, like free-trial memberships and subscription upgrades. Besides tokenization the system of the PSP could provide the system to define possible subscription plans based upon the merchant's business model, pricing packages and promotions. Merchants looking to accept subscription-based payments should keep this in mind when seeking for their Payment Service Provider.


One-click buy


Driven by the need for swift and friction-less payment experiences – especially on mobile devices – there has been a huge push for one-click buy checkouts. As the name entails, one-click buy solutions are developed to prevent the shopper from having to enter card or bank information and pay by one single click. Merchants are able to offer these one-click buy checkouts through means of tokenization or other means often supported by the Payment Service Provider. One-click buy checkouts are a great way to improve conversion rates on mobile devices, lower abandonment rates and stimulate impulsive shopping behavior.

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