Subscription payments explained: best practices for merchants and businesses

Masha Cilliers, senior payments industry expert, elaborates on the evolution and special requirements of subscription payments for today’s merchants and businesses.

Background on the subscription industry

Subscription payments are not new. They have been around for centuries, seemingly starting in the 15th century with the invention of printed press and then further established in the 17th century with insurance, in the 19th century with food products (milk delivery), magazines, and machinery rental, and finally in the 20th century with utilities, telecommunications, media, digital subscriptions, and so on. At the start of this century, consumers and businesses were using subscription widely for a range of physical, digital, and media products – and this trend was given a final (and huge) push during the two years of COVID-19 pandemic, when consumers started subscribing to anything, from toilet paper (my personal favourite) and digital content to cosmetics and food and recipe boxes. 

Now, the use of subscription is very broad, as you can see below, in this breakdown of consumer subscription use by industry (source: Minna and FT Strategies, Subscription Economy: A Transformed World Report).

A couple of decades ago, we saw the emergence of ‘subscription-first’ businesses, where the subscription model was central to the customer journey, thus cementing it as a valid and strong business model to contend with.

According to the recent 2025 Subscription Economy Index report by Zuora, even amid current economic uncertainty, companies operating in the subscription space outpaced the broader economy with 11% growth over the past two years. Furthermore, according to Statista, the global subscription market will continue to grow at a CAGR of 18.4%, reaching USD 1.5 trillion by the end of 2025, compared with 8.5% growth projected for S&P 500 Sales.

So, what explains such rapid growth? Well, in today’s turbulent economic environment, the subscription model offers businesses some very tangible and immediate benefits.

So, over the past decade, many traditional brands have offered consumers a subscription option, often at a discount. Some examples of innovative subscription strategies are groceries and recipe boxes, coffee and sandwich shops, cosmetics, and household eco-cleaning products. These often complement existing ecommerce offerings, allowing consumers to change a one-off purchase into a subscription at checkout – thus, building a stronger bond with the brand.

Billing/subscription platform – is it worth building it in-house?

At some stage in their subscription journey, most merchants have to solve the dilemma of whether to build their own subscription system logic or use an external provider. The choice is never simple, as it depends very much on the requirements and complexities faced by the merchant, as usual with such decisions. An external option is to use a subscription (otherwise known as billing) platform. The rapid growth of the industry has led to the flourishing of providers and solutions such as Vindicia, Zuora, Recurly, Chargebee, and many others. Such billing platforms are able to perform a wide range of services to support subscription business.

Often, the thinking is that it’s better to start with an in-house system – and migrate to an external platform later. Whilst this is a reasonable approach for some, it doesn’t necessarily work for every company. For example, if your business operates internationally, has many product lines, or plans to try a broad range of subscription offers and approaches, outsourcing from the start may be more efficient. However, even if your company or customer base is very large, if your subscription model is going to be very simple, then doing it in-house may make more sense. Below are some examples of the pros and cons of both approaches.

It is worth exploring both options before settling on what is the most suitable strategy for your company. This will give you insights into what is available in the market, best practices, and the direction in which emerging technologies are going.

Payments and subscription management – closely connected

Naturally, subscriptions only work if the payments are successfully collected. Therefore, a good payment process is even more important for a subscription merchant than for a traditional ecommerce one – because all the transactions but the first one are done without the customer’s active participation, meaning there is no opportunity for them to change the payment method or update their details to make the payment go through. Thus, the payment setup must be well thought through, designed, built, and tested.

Key features to get right in payments include:

• Offering the right mix of payment methods for the merchant vertical/country/product,
• Implementing hygiene features for payment methods: account updater for cards, electronic mandates for Direct Debits,
• Managing payment retrials (decline management),
• Allowing flexibility to change payment dates.

Additionally, whilst not necessarily payment specific, the following features are very important as well:

• Churn management (which also offers additional payment options),
• Easy cancellation or pause options (to ensure that the customer does not use chargebacks as a cancelation mechanism),
• Flexible changes for the subscription payment schedule or product selection (to avoid chargebacks),
• Managing ‘mixed baskets’, where a subscription is purchased alongside a one-off product.

If you opt for a third-party billing platform, it is essential to ensure that the platform has an integration and, ideally, a relationship with your chosen payment provider/PSP – because these platforms will apply all the rules and logic, then they will route the transaction for payment, and it all operates much more smoothly if they send it directly to your payment provider.

Summary

The subscription industry has flourished over the years, gaining exceptional momentum during and after the pandemic. It offers consumers the convenience of regular and uninterrupted access to products and services – and businesses a steady, loyal revenue stream. The market has seen the emergence of multiple providers offering outsourcing for subscriptions, and some continue to build in-house systems. Therefore, the choice is wide. Payment processing remains a very important feature for the success of any subscription offer – and it must be built with care, taking into account the specific requirements of recurring payments and the subscription model.

About the author

Consultant, Board Advisor, NED, and Payment Industry Expert with over 30 years of experience in the payments industry, Masha Cilliers has been advising merchants and payment companies on ‘all things payments’ for many years. Masha previously held senior positions at Visa, Microsoft, Mastercard, CyberSource, and GlobalCollect/Worldline, and then became a consultant with Payment Options, as well as a Specialist Partner at Be Shaping the Future Consulting and Board Advisor to Limonetik (later Thunes). Currently, she acts as an Independent Executive Expert and holds positions of Non-Executive Director at Trust Payments and Board Advisor at XanderPay. Masha is a well-regarded and recognised speaker and writer on payments, the shared economy, platform payment orchestration, subscription management, fraud management, and identity verification.