In today’s rapidly paced eCommerce industry, businesses are increasingly turning to recurring payments as a promising revenue stream. According to Finder, UK consumers collectively spend an estimated GBP 29.5 billion annually on subscription services. Nearly 80% of adults, about 42.4 million people, are signed up to at least one subscription.
The average Brit spends about GBP 696 annually, or GBP 58 a month, showing that subscriptions are not one-off expenses but consistent, repeatable outgoings. For merchants, this highlights both the scale of the opportunity and the reliability of revenue streams that recurring payments can generate.
Whether you’re a subscription based merchant or a start-up, understanding recurring payments and how they work is essential for long-term growth. In this article, we’ll look at the different types of recurring payments, how they differ from direct debits and the ways they can support your business success.
What is a recurring payment?
Recurring payments, also called recurring billing or automatic payments, are transactions in which a customer authorises a merchant to charge their debit or credit card on a regular basis for a product or service. These charges follow a schedule agreed upon by the customer, which can be weekly, monthly or annually and continue until the customer cancels the authorisation or the subscription ends.
These payments are commonly used for services requiring regular fees, such as magazine subscriptions, gym memberships, subscription boxes for groceries or beauty products and utility bills, among others.
What is a recurring payments lifecycle?
The recurring payments lifecycle can be seen as a continuous journey that shapes the entire customer experience. It begins with the sign-up phase, where ease of onboarding, flexibility in choosing payment frequency and the availability of trusted payment methods are crucial to winning new subscribers. Customers expect transparency at this stage, particularly around automated billing and recurring charges and any friction can quickly lead to abandoned sign-ups.
Once active, the lifecycle moves into the usage phase, where recurring billing takes place. Here, customers want clarity and control: clear overviews of charges, timely reminders, the ability to pause or adjust their subscription and straightforward resolution of payment issues. A seamless experience during this stage not only prevents churn caused by failed payments but also strengthens trust and opens opportunities for upselling or upgrades.
The final stage comes when customers cancel or consider leaving. Easy and transparent cancellation processes are essential, as complicated exits damage brand perception. However, this stage can also be an opportunity for retention and win-back. By understanding the reasons behind cancellations, such as price sensitivity or subscription fatigue, businesses can tailor offers or provide flexible options like pausing instead of cancelling. Done well, the cancellation phase can turn a lost customer into a future subscriber and ensure that even those who leave retain a positive impression of the brand.
Types of recurring payments
Recurring payment models can be classified into two different types:
Fixed, regular or subscription payments
Fixed recurring transactions involve the customer being billed the exact same amount each time their card is charged. Examples of fixed recurring payments could be a gym or sports club membership or a meal plan subscription service that is charged monthly.
Variable, irregular or standing order payments
This type of recurring payment results in the customer being charged different amounts for each scheduled payment, depending on the usage of products or services. Variable recurring payments are applied for expenses such as electricity, water or other utility bills, where the amount that needs to be paid can be altered based on how much the customer consumes.
How do recurring payments work?
As the name suggests, the recurring payment model is repetitive. In most cases, it is also automatic and straightforward to set up. Here’s a rundown of how this form of payment works:
Once a customer opts into the recurring billing system, the process is set in motion, which also includes specifying the frequency of the billing cycle, whether it will be monthly, quarterly or annually. The customer normally provides their payment details (credit or debit card or digital wallet information) and authorises the merchant to charge them regularly.
The customer is also required to accept the terms and conditions associated with the recurring payment model before their card is charged.
To make an initial transaction, the merchant securely stores the customer’s payment details in their payment gateway for subsequent recurring transactions to occur. This usually involves encryption and tokenisation to ensure the customer’s personal data is safely collected as per PCI DSS compliance. This also means the customer doesn’t have to enter their payment information again.
For subscription based services, scheme tokenisation offers an additional advantage. Unlike standard tokenisation, scheme tokens are automatically updated when a customer’s card is reissued or expires. This helps reduce failed payments, protects revenue and ensures a smoother experience for customers who want uninterrupted access to their services. The recurring payment will then be charged until the subscription is cancelled.
Based on the agreed billing schedule, the merchant’s payment system automatically processes the transaction using the customer’s stored payment data. During this step, the merchant’s acquirer, the card schemes and the customer’s issuer authorise the transaction before the funds are transmitted to the merchant’s bank account.
Following a successful transaction, both customers and merchants receive payment confirmation. The customer may receive an email receipt and the merchant’s system records the payment. The merchant also notifies the customer in advance through email about the transaction status, including when the upcoming payment will take place or any follow up instructions, if the payment fails. The business also sends an invoice and receipt to the customer for the billed amount.
Customers should also be able to manage their recurring payment arrangements. This includes updating their payment method, changing the billing frequency (if applicable) or cancelling the subscription if necessary. This means businesses can keep their customers payment details up-to-date, decreasing the chances of a payment failing.
Differences between recurring payments and direct debit
While recurring payments and direct debit both describe the automatic transfer of funds, they serve different purposes in transaction processing, each with its unique traits. As explained earlier, the recurring payment model encompasses scheduled, automated transactions that take place at intervals and are linked to a customer’s debit or credit card.
On the other hand, direct debit equally refers to a type of payment where a merchant pulls funds directly from a customer’s bank account. However, it differs from recurring payments in the sense that the merchant requires the customer to provide formal authorisation, often in the form of a signed mandate.
Now that we have introduced both concepts, let’s dig further into their key differences:
- Ways of authorisation and set up – In recurring payments, the customer initiates it and offers consent to the merchant to withdraw funds from a nominated debit or credit card. By contrast, direct debits require the customer to formally authorise the merchant to bill them. After the customer authorises this, merchants can deduct funds directly from the customer’s bank account.
- Timing and speed – Recurring payments clear faster than direct debits, with the former happening immediately or the following day. Direct debit, however, can take a few business days for initial transactions to clear.
- Levels of flexibility and control – Recurring payments are more flexible, as the customer has greater control over them and can cancel or change their subscription more easily. Direct debits, by contrast, are stricter and involve specific processes to modify or cancel. This also implies that merchants have more control over timing and payment collection.
- Safety and security – When a payment fails to be processed on a customer’s debit or credit card, due to an expired or stolen credit card, it can be more cumbersome to resolve and may lead to loose for the merchant. However, with scheme tokenisation, card details are automatically updated when a card expires or is reissued, which helps reduce these failures and keeps recurring payments running smoothly. With a direct debit, by contrast, the main issue is insufficient funds. In this case, funds will be transferred as soon as enough money is available in the customer’s account to cover the transaction amount, resulting in reduced failure rates.
- Cancellation – Recurring payments allow customers to cancel subscription services through the merchant or their card issuer, while direct debit enables customers to revoke their payments through their bank.
What are the advantages of recurring payments?
Recurring payments provide numerous advantages for both merchants and their customers, which include:
- Higher and more consistent revenue – Recurring payments free merchants from relying on irregular, one-off customer orders. By billing automatically and on predictable terms, businesses can secure steady cash flow. Recent research shows this benefit is widely recognised among SMEs: 86% of owners believe subscription models improve cash flow management by providing more predictable income. Nearly half also highlight that subscriptions enhance customer retention (46%) and support better business planning (46%).
- One-time setup for customer satisfaction – Merchants only need to collect payment information once from customers and then the transactions are automatically processed on each due date. This means that with recurring billing, customers don’t have to keep making the same payment again and again, it’s automatically carried out for them. In fact, 40% of consumers say they prefer subscription plans because of their convenience and perceived value, highlighting how recurring billing can enhance the overall customer experience.
- Customer loyalty – Merchants who use recurring billing models are better placed to nurture lasting relationships with their customers, instead of making a one-off sale. This can, ultimately, help establish customer loyalty.
Challenges to consider
However, there are also some drawbacks to consider:
- Higher risk of chargebacks and disputes – Customers may forget about recurring charges or fail to recognise them on their bank statements, leading to increased chargeback risks. 36% of chargebacks that occurred stemmed from products billed through subscriptions.
- Customer churn – If a customer’s card expires or they decide to cancel unexpectedly, businesses can experience revenue loss. In the UK, a 2024 survey suggests that 31% of consumers have cancelled or removed at least one streaming service in the past year, with 39% indicating they are likely to do so in the next 12 months.
- Complexity in managing subscriptions – Merchants need robust systems to handle billing cycles, upgrades, downgrades and cancellations. Without this, payment failures or customer dissatisfaction can increase.
What types of businesses benefit most from recurring payments?
Recurring payments are not just for digital subscriptions. A wide variety of businesses can benefit, including:
- Software as a service (SaaS) companies: The SaaS market continues to grow steadily, with businesses and individuals increasingly comfortable paying monthly or annual licensing fees for tools that streamline operations or improve productivity.
- E-learning platforms – Online education has become a global growth industry, with recurring billing models enabling learners to spread costs while giving providers predictable income. In the UK, subscription based platforms for courses, training and educational resources are attracting a broad audience, especially among younger professionals.
- Healthcare and wellness services – From gyms and yoga studios to nutrition apps and mental health coaching, wellness subscriptions are a booming part of the economy. Recurring payments support customer retention in this sector, with members favouring predictable, automated billing for services that are part of their weekly routine.
- Streaming services – With over 70% of UK adults subscribed to TV and video platforms such as Netflix, Amazon Prime or Disney+, streaming is the single largest subscription category. Around half of Brits also pay for music streaming, including Spotify, Apple Music or Amazon Music, showing just how mainstream recurring billing has become in entertainment.
- Consumer goods subscriptions – Subscription boxes for food, cosmetics, pet supplies and household products are firmly embedded in consumer behaviour. More than 29% of Brits use a box delivery service and the market is forecast to reach GBP 1.8 billion by 2025.
- Professional services – Accountants, legal advisers and consultants often use recurring billing through retainers, giving clients reliable ongoing support and businesses steady revenue streams.
By diversifying the application of recurring billing, businesses across industries can improve customer convenience while securing predictable revenue streams.
How emerchantpay can help
Recurring payments offer convenience to customers by automating regular payments and delivering steady revenue streams to merchants. At emerchantpay, we provide the tools to make recurring billing more reliable and secure. We support scheme tokenisation, which replaces sensitive card details with secure tokens that update automatically when a card is reissued or expires. This helps reduce failed transactions and ensures a smoother payment experience for your customers.
As a PCI compliant payment service provider and acquirer, we’re dedicated to understanding your business model and catering to your needs. By working with us, you’ll benefit from expert support and a robust product offering, which covers recurring payments. With our support, you’ll be better placed to provide your customers with frictionless and safe payment experiences.
Are you ready to learn how you can accept secure payments and maximise your profitability? Talk to our team of payment specialists today.