“Why buy when you can rent?” is the mantra of millennials and Gen Zs born into a world of monthly subscriptions and “as a service” business models.

It’s not just young consumers rethinking how they consume goods and services either. In fact, most Australians are looking for ways to spend less as they tighten their purse strings in response to the cost-of-living crisis. Just recently, The Australian Bureau of Statistics recorded that retail spending dropped for three-quarters straight last year. This trend is likely to continue in 2024.

As modern consumers continue to shift away from traditional buy-to-own models across many sectors, flexible payment options underpin successful growth strategies for subscription service providers. The biggest learning from this change? Your customers’ preferred payment methods are a critical consideration in your business’ payments infrastructure.

Why Payer Preference is important 

Meeting customers’ needs can increase your conversion rates, improve your customer loyalty and reduce your churn – having a considerable impact on your bottom line.

Ignoring your customers’ payment preferences introduces unwanted friction into their purchasing journey and can make your competitors appear as a slick alternative.

One of the key trends in the payments space right now is that businesses and consumers are ending their long-standing love affair with credit cards. The number of credit cards in circulation in Australia has in fact dropped 20% since its peak in 2018, with the average transactions per month now at 22.6.

The high rate of payment failures is deterring businesses and consumers from paying or allowing the option to pay for subscriptions using credit cards. According to GoCardless analysis, the failure rate of credit cards globally is around 7.9%, meaning there’s a chance of disruption in ongoing payments. Direct Debit instead has a failure rate of 2.9%, making it a safer choice. It’s a critical figure, considering that 30% of all the churn experienced by service providers is involuntary and related to payment failure.

Plus, PayTo continues to develop as a low-friction, real-time alternative to direct debit. The technology provides consumers more oversight in tracking their subscriptions and purchases broadly, positioning it as a strong contender at checkouts. 

Set-and-Forget Customer Loyalty 

79% of the respondents in our Demystifying Payments survey said that bank payments are the most accessible form of payment, with 89% agreeing that they were also the most trustworthy.

The strong preference for bank payments translates into customer loyalty. Fortunately, bank payments work well with subscription models due to their reliability and simplicity. The set-and-forget process means customers only have to authorise the payment once and then can relax and enjoy the product or service, without having to worry about cards expiring or failed payments.

With the stability of direct bank transfers, subscription businesses can ensure consistent and hassle-free collections, minimising payment failures and enhancing customer satisfaction. It’s a real win-win scenario.

The connection between cash flow and subscriptions

If you choose the right payment method, adopting a subscription model can improve cash flow and reduce payment administration time, while paying with credit cards can leave your financial team burdened with failed payments. With automated recurring bank payments, manual intervention needed from the finance team is decreased significantly, ensuring timely transactions and time for high-impact work. 

Of course, no single payment method has total market adoption, nor is there a unanimous payer preference. To fully cater for payer preference and give customers the best experience, service providers need a multi-method payment arsenal. Despite that, businesses and consumers are still making their changing preferences clear. In an age where ownership has lost its appeal, both service providers and subscribers are turning to diversify their payment models to satisfy their needs.

Luke Fossett is general manager of GoCardless Australia & New Zealand.