What are recurring payments?

Recurring payments are a billing mechanism where a set amount is charged at regular intervals. With this system, businesses can collect payments on a periodic basis—whether fixed or variable amounts—in exchange for providing ongoing access to a product or service.

They differ from one-time payments, which occur only once, such as a single purchase on an e-commerce site.

Why are recurring payments useful?

Recurring payments allow businesses to easily implement models such as subscriptions. As subscription-based businesses have scaled rapidly over the past decade—ranging from streaming platforms to software and monthly product boxes—recurring payments have become increasingly essential.

Types of recurring payments

We’ve already seen that recurring payments let merchants charge customers easily and automatically. Now, let’s look at the different types of recurring payments:

• Fixed recurring payments: the amount is always the same. Example: your Netflix subscription or gym membership.

• Variable recurring payments: the amount changes depending on usage or consumption. Example: your utility bill or a SaaS platform like Mailchimp, where the charge depends on how much you use it.

How do recurring payments work?

To understand how recurring payments work, we first need to distinguish how they’re collected. There are several ways to process recurring payments:

• Recurring payment by card: one of the most common methods of charging for subscriptions.

• Recurring payment by direct debit: in Europe, the SEPA scheme is used.

• Recurring payment by alternative payment methods: PayPal, Bizum, Mercado Pago in Latin America, Pix, etc.

Let’s take a closer look at the two most common.

Card-based recurring payments

In the case of recurring charges by card, when your customer signs up for the subscription and enters their card details on the payment screen, this information is securely stored so it can be reused for subsequent charges.

This card storage process must be carried out in compliance with PCI DSS standards to ensure security. For this reason, it is usually performed by a payments platform—such as Zru—or by a PSP.

A more detailed note:

To be able to process the payment, the merchant needs to connect to a card processor, a PSP, or to a payment orchestration platform.
Example of the steps for a recurring card charge with Zru:

• Operation creation: in Zru, the operation is created (it can be a subscription or a simple authorization of the card).

• Card data capture: when paying, the customer enters their card details on the merchant’s payment screen.

• Card authorization: in order for the payment to be made and the card stored, and to comply with PSD2, it is most likely that a 3DS will be carried out.

• Card tokenization: Zru securely stores the card to carry out subsequent charges.

• Execution of the charge: Zru sends the charge to the PSP or processor chosen by the merchant, and the payment is processed. For subsequent payments, the charge will simply be sent again to the processor automatically or when the merchant decides, so that future payments can be completed.

Recurring charges by direct debit

In this case, the charges are made through direct debit. This works on the basis of an authorization from the customer, called a mandate, which allows the merchant to automatically charge the amount directly from their bank account at the agreed frequency. In this way, each payment is made automatically and does not require the customer to intervene.

Direct debit varies depending on the region.
In Europe, it is carried out through the SEPA Direct Debit scheme, which standardizes these charges across eurozone countries.
In other markets, there are specific local systems (such as Bacs in the United Kingdom or ACH in the United States).

The challenges of recurring payments

As simple as it may seem, the effective management of recurring payments can be a challenge for businesses.

Why? For the simple reason that recurring payments are exposed to issues that depend neither on the customer nor on the business: expired cards, processor errors, fraud attempts, etc.

Let’s now look at the different challenges businesses face.

Challenge 1: Failed payments

Failed payments are one of the most important problems, as they can lead to an increase in involuntary churn. Involuntary churn occurs when a customer stops paying or unintentionally cancels, usually because of a failure in the billing process. It is not due to the customer deciding to leave, but to technical or administrative issues that prevent the transaction from being completed.

According to Slicker, between 12% and 18% of churn in OTT services (video-on-demand platforms) is due to failed payments, not to the conscious decision to cancel.

There are several causes of failed payments:

• Expired or blocked cards.

• Insufficient funds in the account (this happens both with card payments and direct debit).

• Temporary credit limits.

• Technical failures at the processor or PSP.

• Technical failures at the card-issuing bank.

• Transactions rejected due to suspected fraud.

The result is always the same: a payment fails without the customer intending it, and for the business it can mean a loss of revenue if the payment is not eventually recovered.

Challenge 2: Fraud and security

Digital payments in general are often a target for fraud with stolen cards, and this includes recurring payments.

For businesses, this creates direct costs (chargebacks, fines, a lower acceptance rate with processors) as well as reputational damage.

Challenge 3: Regulation and compliance

In Europe, Strong Customer Authentication (SCA) requires reinforced authentication for many online payments. This protects both the customer and the merchant from fraud attempts, but it also adds friction to the first subscription and may generate declines if not properly implemented.

For recurring payments, the regulation allows some flexibility, but each issuing bank may apply different rules (in fact, it is the issuing bank that carries out the 3DS). This complicates international operations and requires working with payment platforms that also have local expertise and solutions.

Challenge 4: Lack of billing flexibility

In subscription models, it often happens that customers need to change plans or pause their subscription for a while. If the payment system used by the merchant does not allow this, the customer experience suffers and the probability of cancellation increases.

Challenge 5: Expansion into other markets

Finally, we must not forget the difficulty a business may face when expanding into other regions, since the payment methods used by buyers can vary from one country to another.

Being able to adapt to buyers’ needs in each country or region is essential if we want to succeed in business and not lose conversions for failing to offer the right payment method at the right time.

The impact of problems in recurring payments

Every failed charge directly affects the most important metric in any subscription model: Monthly Recurring Revenue (MRR).

For example: if a company bills €1 million per month in subscriptions and loses 5% due to failed payments, it is missing out on €50,000 every month. Over a year, the loss amounts to €600,000. And the most serious thing is that many of those customers did not want to leave: their payment simply did not go through correctly.

At Zru, we see that businesses that implement mechanisms to recover failed payments (intelligent retries and automatic card updates through network tokens) manage to reduce involuntary churn by up to 65%.

Why your payments partner makes the difference in managing recurring payments

A charge that is successfully processed on a regular basis means the company will have secured revenue and its customers will be satisfied; a failure, on the other hand, can result in subscription cancellations.

That is why the payments partner you work with has a direct impact on the profitability of your business. It is not only about processing transactions: a good partner helps you reduce failures thanks to tools such as payment orchestration, network tokens, or agnostic 3DS. It also gives you access to different payment methods and PSPs, which allows you to adapt to the local preferences of each customer.

In short, choosing the right payments partner is essential for the retention and growth of your subscriptions.

How Zru improves the management of your recurring payments

Zru helps subscription businesses simplify and optimize their entire payment operation.

With a single integration, companies gain access to a network of processors and payment methods without additional development, as well as tools such as payment orchestration.

Key benefits provided by Zru:

• One single integration, multiple connections:
  Businesses do not have to integrate with each payment method or PSP individually. Once integrated with Zru, they gain access to a network of providers, speeding up time-to-market and reducing technical costs. Zru also allows merchants to create payment links to launch subscriptions without any integration at all, so they can start operating within minutes.
  
  

• Routing rules:
  With Zru’s payment orchestration, each transaction is routed in real time to the processor with the highest probability of success, improving conversion rates and in many cases reducing fees. In addition, Zru allows payments to be redirected to the processor you choose, regardless of which one handled the subscription’s first charge.
  
  

• Failed payment recovery (fallback):
  Zru combines intelligent retries with the ability to route to other processors, helping to reduce involuntary churn and protect revenue that would otherwise be lost.
  
  

• Tokenization and security:
  Sensitive data complies with PCI DSS and is securely stored so that recurring payments run smoothly. With technologies such as network tokens, declines are minimized even with expired cards, and with agnostic 3DS, errors are reduced while complying with SCA requirements.
  
  

• Ease of expansion into new markets:
  Zru enables businesses to offer the payment methods that best fit each market, from local options to international solutions, so that every customer can pay the way they prefer.

To sum up, Zru not only processes payments but turns recurring billing into a driver of sustainable growth, helping businesses focus on what really matters: creating experiences that keep their customers subscribed.

Start managing recurring payments with us today.