Subscription models can offer very attractive solutions for customers who are in constant need, or in some cases curiosity, for specific items or services and which appreciate the commodity of registering once to receive those goods through a long period of time.
In this article we’ll point to the most popular subscription services in Brazil and explore what payment methods and models are offered for their customers.
Brazilian Subscription Services
Subscription services have been around in Brazil in different shapes or forms for decades. A popular service from the 1970’s to the 1980’s for example, was the subscription for books, where clients would register to receive a catalogue by mail each second week to choose what publication they would acquire in that period.
Simpler, more common services, of course, have remained in activity to the present day, like subscriptions for newspapers, magazines and even fresh milk and dairy products delivered at home.
The subscription model in the country, however, has been recently associated with online obtainable services. Digital content platforms for movies, music and other forms of media with subscription-based access are quickly expanding activity in the country, while new subscription services for periodic product delivery are also becoming a trend.
These last ones range from select wine, beer, meat cuts and coffee grains to more niche services, such as young male oriented items, pet accessories, fashion products chosen randomly and even a selection of delicacies specific from the state of Minas Gerais.
A survey by Tech in Brazil covering the most popular subscription clubs, online media content and physical newspapers and magazines in Brazil reveals that credit card-only is the most common payment method offered by subscription services, followed by the options to use Boleto Bancário and direct debit.
While some methods are evidently more accepted than others, each one offers advantages and issues that must be taken into account for the subscription business model.
While credit card is by far the most ubiquitous payment method not only for subscription services but for online transactions in general because of its simplicity for adoption and implementation, there are a number of caveats to its usage that must be highlighted.
Firstly, credit card transactions are susceptible to a number of payment interruption occurrences, such as lack of funds or being blocked by the customer, for a variety of reasons. Banks can decline transactions or issue chargebacks when their clients could be somehow at risk or claiming to be so. This is a problematic scenario for companies who depend on the revenue of recurring transactions handled by credit cards, which is exactly where most subscription services have positioned themselves in Brazil. By depending solely on this method, subscription services put themselves at risk of these unexpected cancellations which can be very harmful for their operations.
Also, Brazilian credit card users tend to change and cancel credit cards frequently. Data published by the Central Bank, or Banco Central do Brasil, on the number of total cards issued and number of active cards suggest a very high number of Credit Cards canceled. Subscription services most commonly register a single card which can easily be replaced or canceled by the clients which will lead to instant loss the recurring revenue from those consumers.
Acquirers also have a threshold for declined transactions that can lead to penalties for companies when surpassed. A single, determinate period in which a high number of declined transactions is registered through an acquirer makes could bring dire consequences for subscription services.
Still, even with a high amount of risks involved with this payment method, credit cards are the best way to handle these transactions, if only for their popularity in the country and the simplicity for the integration with online services.
This payment solution exclusive to Brazil offers some advantages since it has a higher penetration as a result of the unneeded bank account and card by the users.
Boleto Bancário, however, is not the most recommended for the subscription simply because there are no means whatsoever to have a recurring transaction when using this method. This means subscribers necessarily have to manually pay for each period in their subscription. This will normally lead to a higher churn rate than Credit Cards or Direct Debit.
The consequences for lack of payment of a Boleto are also relatively minimal, whether in the form of small fines or a negative record in one of the country’s consumer reporting agencies. Even if some subscription models offer the payment of multiple periods in advance combined in a single boleto, the responsibility of continuous manual payment by the users can be a risk for these services.
Direct Debit or Debit Card
Linking a customer’s bank account for periodic debit, whether through the use of a debit card or by registering the account number, can be a relatively safe method for subscription services since there is very little risk of losing track of the user and there is no responsibility for the customer to take decisions each time the subscription is paid.
This method, however, is harder to implement than most others since the subscription service has to link itself to every bank of their customer base, which can be numerous in Brazil. The majority of banks that offer checking account services can be integrated into online payment systems, and therefore periodic subscription charges, but each one has to be registered separately. The difficulty for implementation is most likely the reason for this method to be one of the less commonly found by subscription services in the country.