Real-Time Recurring Payments: The Core Characteristics and Benefits

By 2027, it is expected that the global subscription and recurring payment market will be valued at $7.43 billion in the United States.

A standing order is a recurring payment, a set of instructions placed by an account holder to their financial institution to pay a particular amount at certain intervals to another account. These instructions enable the retail financial institution to respond to the request of the biller, merchant or retailer on behalf of the account holder.

The account holder, known as the payer, has control of the standing order and is allowed to set the start, and end date, frequency of payment and authorised payment range. This effort helps to highlight the beneficial characteristics of real time payment as an option that billions of recurring payments in the United States can use. In 2018, Research and Markets reports that United States Recurring Payments Market are Expected to Reach $473 Billion.

Choosing real time payments by design helps to ameliorate numerous shortcomings typically associated with recurring payments. It does this by creating a more convenient and faster customer experience by simplifying back-end processing for merchants.

The number of real-time transactions globally reached a record 70.3 billion in 2020, up 41% from 50 billion in 2019, per that ACI Worldwide stud. Real time recurring payments have the benefits of real time payments – being instant, irrevocable and final – as well as having the benefit of providing customers frictionless recurring payments. Considering the massive growth of subscription services in recent years, the demand for real-time recurring payments has also grown, becoming a necessity to enable various industry verticals to expand into real time payments.

It's predicted that, by 2025, instant payments will have a 17.4% share of global payments. Additionally, customer expectations for instant payments have grown as a by-product of their need for immediate access to services and gods. In today’s world, most recurring payments are only settled after a few days. Real-time payments can utilize a “good funds” model, which eliminates merchant back-office processing issues typically related to non-sufficient funds or return items.

A couple of essential characteristics of real time recurring payments are Notification and Authorization.

Notifications

Notifications offer status updates on modifications, payment and setup to parties in the payment ecosystem. This helps to ensure that clear communication of payment processing expectations happens. Notification recipients can include retail and commercial financial institutions, consumers, billers and payment networks. Notifications for real-time recurring payments are essential to both consumers and business entities. Push notifications can be received by 85% of all internet users. While a range of recurring payment notifications are supported, payment status notifications and standing order setup notifications are the most beneficial. Standing orders are managed via the dashboard and assorted notifications. 

These notifications are then communicated via a customer’s preferred channel, dashboard, email, SMS, or application. While it is a core characteristic by design, notifications can be optional, deferring to the service provider's preference or payee.

Benefits of notifications

Notifications offer an improved experience, increasing security and control over the setup process and how recurring payments are used. Without notifications, handling discrepancies in standing orders can be frustrating for merchants. For instance, a “failure to pay” error can take around 30 days to fix, causing the payee to chase down the payer to create another payment. Notifications help reduce this time. 

Consumers or payers can benefit from the transparency given by notifications, since they offer pertinent insight to the customer, enabling them to manage their finances more effectively. Providing confirmation and status for every step should be a natural progression in the design of recurring payments, as this help to build consumer confidence and trust. 

Payees, which are retail and commercial financial institutions, can benefit by delivering value-added services to their end users. Notification can improve the customer’s experience, an important variable for real-time payments. It can also help create customer confidence in creating other real-time recurring payments. Notifications can help lower fraudulent transactions, thereby eliminating procession cut-off times.

Authorization

Customer authorization is an essential component in the creation process of recurring payments. This is because it captures the customer’s consent to that particular standing order. Authorizations must provide customers with the ability to create payment parameters that will need to be validated by their financial institution before payment can proceed. Authorization tends to happen within the customer’s chosen channel. The total value of payment transactions increased by 52 per cent in 2020.

Some important authorization parameters are dollar amount threshold or range, payment type, payment frequency, payment timing, and authorization duration. Customers need to be able to see, change or even cancel their authorization seamlessly. Transparent terms and conditions need to be available to the customer for review and acknowledgement before their authorization is finalized.

The financial institution in question must save authorization information. 

Benefits of authorization

86% of merchants boost their rates by using a range of authorization methods. Authorization helps to ensure the customer’s instructions are received and adhered to, thereby minimizing customer frustration and confusion. It also provides the customer with control. 

Authorization can help consumers or payers mitigate any negative experience, placing them in control of the request timeline and ensuring their requests are paid according to selected parameters. Customers can also independently modify payment parameters or cancel standing orders, reducing any apprehension the customer might have regarding pre-authorized payments.

The moment authorization is given, the payment process becomes automated, ensuring that no further action is required by the customer with every payment.

For payees, the authorization process helps to raise the chances of mass adoption of recurring payments since the process increases security and control. This also helps billers receive funds promptly. For financial institutions, authorization helps to lower the costs and risks from dispute resolution and unauthorized payments. 

These benefits are important as they help to encourage adoption. Customers need to be certain about their recurring payments, while financial institutions need to ensure every payment has the customer’s approval and is carried out in the manner specified by the customer.

Conclusion

Recurring transactions are an appealing choice as they are more likely to have a higher authorization level than cards. Declines linked with fraud or outdated payment credentials are less likely to occur in a faster payments environment. 

Furthermore, financial institutions are able to experience cost savings due to reduced overhead. This, in turn, helps to improve the customer experience. Recurring payments provide increased control, stickiness and security with the customer. These benefits, in turn, increase digital payment volumes, build trust, and reduce fraud, all of which help to foster long-term relationships. These benefits can also lower the chances of customers switching to previous billing or payment preferences.

References:

United States Recurring Payments Market, 2021: Recurring Debit and .... https://www.prnewswire.com/news-releases/united-states-recurring-payments-market-2021-recurring-debit-and-credit-cards-transactions-are-expected-to-reach-473-billion-300753620.html 

Real-time payment transactions by country - Insider Intelligence. https://www.insiderintelligence.com/charts/real-time-payment-transactions-by-country/

Exceeding customer expectations underlies maximising instant payments .... https://thepaypers.com/thought-leader-insights/exceeding-customer-expectations-underlies-maximising-instant-payments-in-europe--1251736  

15 Must-Know Web Push Notification Statistics - Gravitec. https://gravitec.net/blog/15-must-know-web-push-notification-statistics/ 

Payment Statistics - 2020 - Central Bank of Ireland. https://www.centralbank.ie/statistics/data-and-analysis/payments-services-statistics 

How to boost your authorization rate with confidence. https://www.cybersource.com/en-us/blog/2022/how-to-boost-your-authorization-rate-with-confidence.html