- The COVID-19 pandemic accelerated a number of macro trends that were already in motion, leading to both opportunities and potential risks for subscription companies.
- Consumer behavior has been transformed by the rise of e-commerce, though the payments systems infrastructure for e-commerce subscriptions is being pushed to its limits due to creaky “plumbing.”
- An interconnected global economy will open up new opportunities for subscription companies but also poses increasing risks for payment failures, particularly due to challenges in cross-border payments systems.
- An explosion in “buy-now-pay-later” purchasing has expanded the pool of potential customers but could also lead to more payment failures and shift financial risk onto subscription companies.
- These trends all make it more likely that legitimate payments will fail as their authentication rates silently drop, exacerbating a problem that already costs companies more than $440 billion in lost revenue per year.
If you ask consumers why they chose to sign up for a subscription online—whether it’s for a streaming service or a beauty box—most would likely describe their decision as a personal choice driven by their individual interests. However, larger macro trends have a significant but often hidden impact on consumer buying decisions.
In this article, we examine how several of these longer-term trends—the continued rise of e-commerce, increasing globalization and the emergence of “buy-now-pay-later” purchase models—are likely to affect what we call the “modern subscription economy.” This refers to the ecosystem of online subscriptions that offer incredibly easy sign-up methods, deliver delightful experiences and provide frictionless service over time. The drawback in the modern subscription economy is that these consumers have very little patience for any disruptions to their experience and often blame the subscription companies—rather than their credit card providers—when their legitimate payment methods don’t work properly.
All three trends offer subscription companies significant opportunities but also introduce new risks. While these developments may open up new customer markets, they bring a higher chance of fraudulent activity, difficulties navigating clunky global payment systems and potentially greater financial risk for subscription companies.
Among this increasing complexity, there’s a greater likelihood that legitimate payments may be rejected due to overzealous fraud protection and dropping authentication rates. Revenue lost to false declines could rise from approximately $440 billion today to close to $650 billion within the next five years at the current growth rate. Just as subscription companies will need to stay on top of these trends, they will also need the tools to help keep their payment systems frictionless and maintain the loyalty—and dollars—from their best customers.
E-commerce continues to grow—and has changed consumer behavior
In the past, in-person retail stores represented the main purchasing channel for consumer goods. Even as online options have expanded significantly, physical stores are still the preferred way for consumers to purchase goods that they need to experience in person. For instance, customers will probably always want to smell different perfumes, try on wedding dresses and test drive a car or truck before making a purchase. These are all one-time, point-of-sale purchases, with the experience being an integral aspect of the sales process.
One notable outcome of the COVID-19 pandemic was a significant shift to e-commerce purchasing. According to a report by Statista, global e-commerce sales grew by almost 30% from 2019 to 2020 as a massive number of customers spent more money on goods and services that could be enjoyed at home. While this rapid increase will likely slow a bit going forward as economies fully reopen and the world returns to “normal,” the Statista report still predicts strong growth through 2024, when total e-commerce sales are poised to exceed $6 trillion. This represents nearly five times the total of e-commerce sales in 2014.