Subscription Services Have Exploded. But When Will Consumer Fatigue Set In?

Subscription Services Have Exploded. But When Will Consumer Fatigue Set In?

Subscription Services Have Exploded. But When Will Consumer Fatigue Set In?

Charles Keenan

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people's living rooms thanks to the relaxation of surcharging rules.

More Info

Despite a crowded punch bowl, subscriptions in e-commerce remain all the rage. For merchants that haven't yet offered some kind of pay-by-the-month plan, there's a lot of advice out there on how to best set up the service to capture recurring payments.

Yet if every business were to try to offer consumers pay-by-the-month services, at what point would users balk? To make subscriptions sustainable, merchants will need to continue to offer value as subscription fatigue sets in.  

For consumers, just about every industry offers some kind of recurring payment option. Years ago, software went that route, with products such as Microsoft Office and Adobe Photoshop. Box services, such as Dollar Shave Club, HelloFresh, BarkBox and Stitch Fix, offer various household needs for a monthly fee.

Financial services, such as Acorns and Stash, charge $1 per month for automated investing on some options. Lyft and Uber now offer passes that give discounts on services in exchange for a monthly fee. New streaming services keep popping up. Disney plans to launch its streaming service in November to the tune of $6.99 a month.

Subscription Spending - On average, consumers spend $237 per month on subscriptions.* Yet when first asked to give an estimate in 10 seconds, they said $80.

Subscriptions have crept into our lives in so many other ways: music streaming, cloud storage, web hosting, wellness apps, gaming services, identity protection services and dating apps. And let's not forget Amazon Prime, created in 2005. Despite its annual $119 fee, an estimated 100 million U.S. subscribers have signed up for the service.

Changing how we pay

In the subscription race, the name of the game is recurring revenue, which guarantees a stream of income and an increase in earnings. Long gone are the days of paying for everything a la carte. Yet for the subscription model to sustain itself, consumers will either need to remain complacent, or merchants need to continue to offer value to justify the recurring fees.

So far, it appears that consumers really don't know how much they're spending on subscriptions. They spend an average of $237 per month, according to a survey of 2,500 Americans last year by West Monroe Partners, a consulting firm. Yet when first asked to give an estimate in 10 seconds, they said $80. When given 30 seconds to reflect, they said $112, still less than half of what they are really paying.

"The average consumer has far more subscriptions than they used to have," notes Haroon Mokhtarzada, cofounder and chief executive officer of Truebill, a service that helps people identify unwanted subscriptions. "We've fundamentally changed the way we pay for stuff."

The growth of subscriptions is helping to fuel the U.S. market for recurring debit and credit card transactions, expected to reach $473 billion in 2021, up 25% from this year's estimate, according to Mercator Advisory Group. As a subset of this volume, subscription services have taken off this decade thanks to a wide choice of providers that have made payment collection easy. Some of these providers include Braintree, Chargebee, Chargify, Recurly, Stripe and Zuora. 

"The providers are helping merchants do everything they can to make it as simple and manageable as possible," says Sarah Grotta, director of the debit and alternative products advisory service at Mercator. "Those who can do this will win. Simplicity is everything." 

How much is enough?

Streaming is a good place to look for early signs of fatigue with subscriptions. While many people have cut the cord to cable, content has become saturated. We already have Netflix, Hulu, HBO Go and Amazon Prime. Apple has also announced a product. Disney is entering the market. The stampede to stream comes at a time when about 24% of consumers this year said they have too many online television subscriptions, compared with 14% saying so in 2018, according to Hub Entertainment Research. 

"I can certainly see why people would go for these sorts of things," says J. Jeffrey Inman, associate dean for research and faculty at the University of Pittsburgh’s business school. "It's just you get to this saturation point. We'll get there quicker with different types of subscriptions."

Meanwhile, a cottage industry of financial help to combat the "set it and forget it" mentality has emerged. Truebill, for example, has built a business by scanning through a customer's credit card statements and highlighting subscriptions and bank fees. (It also negotiates with vendors to reduce bills and takes a 40% cut of the savings.) 

"One of the most common financial blind spots is recurring subscriptions and bills," Mokhtarzada says. "Companies are not motivated to remind you that you're paying them."

Inman likens it to how we all became overloaded with app choice once the excitement of having a smartphone subsided. "People get bored with this stuff," he says. "They want the excitement, and excitement wears off, and they sign up for a new service." 

It's not to say the subscription model is going away. Far from it, as there are plenty of businesses thriving with the format. It's just that as consumers wake up to their growing monthly discretionary expenses, they’ll cherry-pick what offers value, and jettison the rest.

The statements and opinions of the writer do not necessarily reflect those of TSYS.

Other Articles by Charles

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people’s living rooms thanks to the relaxation of surcharging rules.

His work at the American Banker included writing about credit and debit cards, merchant processing, and bank stocks. He later freelanced for the Banker and industry publications such as Banking Strategies, Bank Director, Community Banker, and U.S. Banker. He also writes about investing, insurance and health care, and is based in Los Angeles.

Share this story via email or social networks

  1. You Know You've Been Part of the Payments Industry Too Long When…

    Tue Oct 30, 2018 09:00 AM

    You Know You've Been Part of the Payments Industry Too Long When...

    Categories: Articles and Blogs
  2. Winning at the point of sale in the convenience sector

    Mon Mar 18, 2019 12:02 AM

    Winning at the point of sale in the convenience sector

    It’s quite possible that there has never been a more pivotal time in the convenience-store industry. With the obvious exception of e-commerce, the convenience-store and club sectors are the only two other retail channels expected to grow over the next three years – and not nearly as briskly as e-commerce.more...

    Categories: Articles and Blogs
  3. Will Globally Popular Regulatory Sandboxes Ever Crack the U.S. Payments Market?

    Tue Jan 29, 2019 08:59 AM

    Will Globally Popular Regulatory Sandboxes Ever Crack the U.S. Payments Market?

    Categories: Articles and Blogs
  4. Why Your Business Needs to Accept Chip Cards

    Wed Mar 6, 2019 12:06 AM

    Why Your Business Needs to Accept Chip Cards

    It feels like forever ago that the EMV® Liability Switch took place on October 1, 2017. But even now, many businesses have not switched over to taking exclusively EMV (colloquially known as chip cards). more...

    Categories: Articles and Blogs
  5. Why the Payments Industry Needs to Hire More Veterans

    Tue Jul 2, 2019 09:00 AM

    Why the Payments Industry Needs to Hire More Veterans

    Tags: purdy
    Categories: Articles and Blogs
  6. Why It Pays to Be a Payment Facilitator

    Mon Jun 3, 2019 01:02 AM

    Why It Pays to Be a Payment Facilitator

    Payment facilitators. You already know of them and what they do, even if you’re not familiar with the term. In fact, PayPal®—which might be described as the original payment facilitator—is sometimes referred to as a kind of “Super Facilitator,” with Square® being a more recent player.   more...

    Categories: Articles and Blogs
  7. Why Isn't Mobile Pay Usage Spreading Faster?

    Fri Apr 13, 2018 05:52 PM

    Why Isn't Mobile Pay Usage Spreading Faster?

    Categories: Articles and Blogs
  8. Why is Fintech So Focused on New Payment Rails?

    Fri Apr 13, 2018 05:36 PM

    Why is Fintech So Focused on New Payment Rails?

    Categories: Articles and Blogs