Stripe's strategy for subscription payments targets merchants that don't want to do it in house

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More e-commerce companies see recurring billing as a key revenue model, a trend that convinced Stripe to try to lower the bar to entry.

Many larger merchants build this sort of system in-house, and the complexity of recurring-billing payments has kept the model out of reach for smaller and midsize companies — especially those that relied on San Francisco-based Stripe, which did not have the capability on its platform until this week.

The Billing product comes at a time when Stripe says the subscription e-commerce market has grown more than 100% over each of the past five years, and 32% of consumers prefer to buy goods via subscriptions rather than as single purchases.

"Until now, unfortunately, sophisticated invoicing and billing systems have mostly been the province of massive companies who have built up large teams and infrastructure in-house," said Tara Seshan, product manager for Stripe Billing.

Those systems have been expensive to build and complicated to maintain, Seshan said. Stripe Billing is designed to work for companies of any size as a one-click payment option, as an automatic process upon registration, or in some B2B cases as a process in which monthly invoices would automatically be sent.

The process will be made easier because Billing will be integrated into the Stripe platform, along with features like Connect and Elements, available Thursday to all Stripe users in the U.S. and Canada.

Increasingly, companies across all industries are looking to add or build out a recurring revenue line of business, she said, citing examples like ZScaler, Dropbox, Stitch Fix, Docusign, IQiyi and Spotify.

It's also become clear in the e-commerce world that many merchants are in need of ways to streamline their pricing options.

"Most merchants are aware of recurring billing as an option, and those who are growing often have multiple pricing schemes in place and they look to expand options, and thus grow into the need for recurring billing," said Richard Oglesby, president of AZ Payments Group and a senior analyst at Double Diamond Payments Research.

Stripe is making its move into the recurring billing field because it feels it can gain a competitive edge fairly quickly.

"There are lots of entry-level recurring billing solutions that aren't terribly robust, and few specialize in a top-notch end-to-end solution," Oglesby said.

Because expiring cards can pose a big challenge for businesses establishing recurring billing, Stripe has established partnerships with Visa, Mastercard, Discover and American Express to automatically update tens of millions of cards every year.

Such a move stops "revenue leakage" that occurs when cards expire or get declined, Oglesby said. "Payment processors provide a variety of services to keep card data updated and to 'recycle' transactions that get declined on valid credentials."

Stripe says Billing will help businesses increase revenue, speed and flexibility, as it allows the testing of many different pricing models, including trial periods, metered or usage-based billing and one-off invoices.

Billing's core features include integrated invoicing and bank transfers, as Stripe handles the charging of customers on a set day, and supports fully integrated Automated Clearing House payments and wires.

It all sets the stage for merchants not currently using recurring billing to do so, said Jordan McKee, a senior payments analyst with 451 Research.

"Consider a dog walking business that walks the same dog every Monday, Wednesday and Friday," McKee said. "More often than not they are billing for that manually and there’s a good chance—especially for a small business—that it’s having an adverse impact on their cash flow."

Recurring billing can reduce both the manual aspect of collecting payment and the lead time for cash to move from the customer to the business, McKee said.

"I suspect there are many types of businesses that would realize increased efficiencies through recurring billing," he added. "I also suspect that an easy-to-implement recurring billing solution could enable new types of subscription businesses that are not in existence today."

Stripe likely has another prospect in mind as well.

"I see Stripe Billing targeted at businesses that have recurring billing in place today but are not satisfied with their current process," McKee said.

Some businesses may have built their recurring billing process themselves, which can sap developer resources, he added. "Outsourcing this process can be an attractive alternative, allowing the business to focus on their core product or service."

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