One of the greatest things about working for Zuora is the opportunity to work with, and learn from, our customers, who – as the protagonists of the Subscription Economy – are forever pushing the boundaries of their respective industries. This is most apparent at our user groups, where our customers network with like-minded peers, share ideas and pick each other’s brains.
At this month’s European user group, one of the key discussion points was direct debits and the affect they have on customer retention, a subject that is becoming increasingly topical with
the launch of the ‘Single European Payment Area’ (SEPA) for 34 countries from the European Union. Indeed, Zuora’s Global
Services team is building custom solutions tailored to client requirements to help them make the most of this single standard.
According to the European Banking Federation, Direct Debits accounted for roughly one third of all recurring payments in 2011 and are quickly growing as a preferred payment type.
Here are some of the points that were debated amongst our users:
Pros of Direct Debits –
I. For suppliers:
Lower cost than credit cards, as there is no recurring fee
Fewer operational hassles, as the transaction is not hampered by card expiry dates
Additional payment method gives customers more choice
Better customer experience and service for customers
II. For customers:
Paying by direct debit helps improve credit ratings as it builds a history
Added security through the mandate process and by avoiding credit card fraud
Customers are notified and given warning of any pricing changes
Hassle-free, automated payments that are always on time (no late fees or penalties)
Often the cost-savings for suppliers are passed on to the customer
The Cons –
Some subscribers prefer to pay with Credit Cards and Paypal
Penalty fees may incur if there are insufficient funds in the customer’s bank account
Customers may find it more hassle to cancel a direct debit, and therefore may feel ‘trapped’
Those of you currently investigating Direct Debits will hopefully find the above points helpful in your decision-making process, and arguably the ‘Pro’ list outweighs any disadvantages. But what about retention?
Our users were on both sides of the fence; some felt direct debits are crucial for improving customer retention, others do not see an effect. At Zuora we believe that ultimately it all comes down to one thing: your customers’ preferences. It’s important to understand the profile of your target audience: e.g. consumer demographics like How old are they? Are they employed? What are their buying habits? Are they financially stable?
For some of the brands represented at our User Group, offering direct debits as a payment option is a must. For others, customers will always opt for the benefits that come with credit. Successful subscription companies will test and measure to gain the best possible understanding of their customers, thereby tailoring their offerings to match their needs. It is the value of these offerings that most affect retention.
What do you think? Please share your views with us.