The Subscriptions Surge Is a Game-Changer for Retailers

By James Bradley, Director of Sales and Business Development, DivideBuy

Every business knows that standing still is not an option.

For customer-facing companies, the phrase “adapt to survive” is especially pertinent in the wake of the pandemic, which has transformed consumer buying behaviour. The way people want to pay is very different from just a few years, if not months, ago. And for some retailers, continued success will depend on them taking bigger leaps forward with new business models – and subscriptions could be the unique selling point they’ve been looking for.

One of the biggest emerging trends that arose from the pandemic was the skyrocketing surge of subscriptions for services like Netflix and Spotify among others. Virtually overnight, millions of locked-down consumers were instantly introduced to this flexible, low-cost, and frictionless payment method. Such is their success that in the US, the subscription ecommerce market, worth $13.2 billion in 2018, is set to hit $478.2 billion by 2025.

But what many businesses may not be aware of is that it’s not just media services where subscriptions are taking off. A rapidly growing number of savvy retailers are realising that subscriptions are an ideal way for customers to get their hands on tech items, entertainment services, fashion and leisure goods, which can be rented on a monthly basis.

Of course, subscription or instalment payments are nothing new – anyone who was around in the 1970s and 1980s may very well remember how popular TV and appliance rentals were. But with benefits of the modern breed of subscription services, they far surpass their predecessors – and they’re also now competing with other forms of credit and instalment payments too.

We’re already seeing how the evolution of ecommerce methods, and the payment usage preferences of different consumer demographics, are combining to disrupt how people are choosing to pay. With options like digital wallets and mobile payments at their fingertips, younger millennial consumers in particular are far less likely to reach for the traditional credit card for large upfront payments, when they could split up purchases into more affordable instalment payments.

Almost a quarter of consumers (23%) use interest free payment solutions to manage their financial and budgeting needs, according to price comparison firm Compare the Market, while another survey from Capco found that 46% of UK users say interest free credit is their preferred form of payment over credit cards and other payment methods.

Thankfully, for retailers who have been looking to revamp their customer acquisition strategies, the new generation of LendTech solutions combine innovative payment technology, rapid customer onboarding and vastly lower credit risk to offer interest free subscriptions to a much wider range of potential customers, who may have been excluded by traditional POS finance providers.

Subscriptions are a unique selling point for savvy retailers

An example of this is how large-value tech gadgets like mobile phones, gaming consoles and home appliances are now being offered through subscriptions, meaning that consumers who perhaps couldn’t afford the upfront cost can now try out the latest products without getting tied to long-term hire-to-buy contracts, or costly credit card repayments.

The success of this business model is illustrated by gadget rental firm Grover, which is projected to have 450,000 subscribers by the end of 2021. Tech device giant Samsung is so convinced of the viability of subscriptions that it’s teamed up with Grover to launch rental services for its mobile phones and devices.

One UK retailer, musicMagpie, found that when subscriptions to devices are made available to customers, for every device that’s returned, typically another will be lent out. Consumers are showing clear desire for more accessible ways of paying for the technology and services they crave – offering subscriptions in this way has helped them serve more customers and adapt to fast-chasing e-commerce trends. This generates a steady stream of revenue, and it also reduces customer churn, as customers know they won’t be tied into long-term contracts which could be costly if their financial circumstances unexpectedly change.

And when such items depreciate in value as soon as they’re bought, subscriptions offer a way for consumers to easily upgrade to newer versions without taking a financial hit. Data shows that when offered a no-contract subscription, consumers are 8% more likely to sign up, due to the convenience of a rolling contract.

One of the most appealing benefits of subscriptions is their transparency – the customer gets the reassurance of knowing exactly how much they’re paying each month. When people get more clarity and control over their finances in this way, the more confident they are about buying.

One of the biggest consumer-pull factors retailers are telling us about is that subscriptions also outshine other forms of rental contracts in the flexibility that they offer – customers have the freedom to cancel at any time they want, with no hidden fees or penalty clauses attached. Subscriptions don’t penalise the consumer if their financial circumstances change, or if they simply decide the product or service no longer suits them. That’s hugely appealing to consumers who want to reorganise their finances, and when they see the flexibility that subscriptions offer, customers are more likely to resume the service at a future date.

How LendTech is leading the way

So how can businesses make the most of the subscription surge and offer even more payment choice to their customers? Innovative LendTech providers can help retailers approve and onboard customers in just 60 seconds, helped by soft credit checks, intuitive algorithms and adaptive lending technology. There are no lengthy applications for customers to fill out, or endless forms to fill, or agonising waits for the results of credit checks. Each customer is evaluated on their individual circumstances, which gives them a much more personalised experience. In many cases, DivideBuy’s solution is helping retailers accept up to 35% more customers than other credit solutions.

Perhaps the greatest unique selling point that subscriptions offer is how they can increase financial inclusion. Subscriptions offer a way for younger millennial customers, or those without solid credit histories, to start building up their credit scores effortlessly. Subscriptions are a seamless introduction into making purchases with credit, helping to educate new customers on using instalment payments with the added bonus of crystal clear terms and conditions. For new consumers who are just starting out in life, or buying their first home for example, subscriptions are an easy and affordable way to purchase larger-value home furnishings and appliances in line with their budgets. At the same time, retailers get the benefit of larger average basket values, and much deeper insights into who their customers are and how they can best cater to them.

When POS finance is provided in a such a transparent and responsible way, it drives financial inclusion, empowers customers with better financial management, and promotes responsible lending overall. Subscriptions can also help retailers to generate a valuable pool of consumer data to create even more sales opportunities and deepen customer loyalty with targeted offers and promotions. Around 70% of businesses cite subscription models as vital to their growth plans in the coming years, due to their potential for up-selling and cross-selling opportunities.

With the advent of subscription services and innovative, adaptive LendTech solutions, retailers can tap into growing demand from consumers who want more convenient and accessible methods of payment, and ensure that revenues are bolstered with a consistent flow of returning customers. The year 2021 may very well be the tipping point for subscriptions becoming the world’s favourite way to pay.