Recurring payments: Types, benefits, methods, and how-to guide

New Zealand has one of the world’s highest subscription take-up rates. Surveys show that 80% of Kiwis have signed up to at least one subscription service.¹ Recognising the demand, 36% of local businesses plan to implement recurring payments within the next few years – much more than the APAC average.

It’s not hard to see why. From slashing admin to sweetening convenience and stabilising cash flow, recurring payments can appeal to both customers and businesses.

In this post, we’re covering everything a Kiwi SMB needs to know about recurring payments, including definitions, types, methods, and implementation. We’ll also introduce Wise Business, a cost-efficient solution for international recurring payments.

What is a recurring payment?

A recurring payment is a billing model where customers are automatically charged at predetermined intervals, usually weekly, fortnightly, monthly, quarterly, or annually. Recurring payments are commonly used for subscriptions, memberships, and utilities.

Types of recurring payments

Recurring payments fall under three main types.

Fixed recurring payments

The fixed recurring payment is a common type where the customer pays the same amount each billing cycle. That makes it suitable for services with static, predictable billing patterns, such as streaming services or gym memberships.

Variable recurring payments

Variable recurring payments vary between billing cycles Software automatically adjusts the bill based on the customer's consumption during the previous billing period. Businesses using variable bills include telcos and utility companies.

Hybrid recurring payments

Hybrid recurring payments include fixed and fluctuating charges. One example is a mobile plan that offers 20GB of data for $20, then charges an extra $10 per additional gigabyte used.

Recurring payment methods

In New Zealand, businesses normally charge recurring payments via direct debit, automatic payments, and cards/digital wallets.

Recurring direct debit payments

Once signed consent has been obtained, the business can take money straight from their customers’ nominated bank account using a direct debit. In New Zealand, the Payments NZ Bulk Electronic Clearing System (BECS) governs a range of online transactions, including direct debits.³

Direct debit is suitable for both fixed and variable payments.

Recurring automatic payments

A customer uses their online banking portal to set up a recurring automatic payment at a scheduled frequency – weekly, monthly, annually, etc. Automatic payments require customer action and are suitable only for fixed-price services, such as gym memberships, school fees, and rent.

Recurring card & digital wallet payments

Upon obtaining authorisation, the business uses a secure payment gateway to automatically charge the customer's card or digital wallet at an agreed amount and interval. Most recurring card payments are fixed, though some businesses use this method for variable payments.

Information required to set up recurring payments

https://wise.com/imaginary-v2/3eef1ec71aa0fd41861ca199c1a76de6.jpg

Before setting up direct debit recurring payments, a business must obtain a customer's signed direct debit authority. On this form, the business provides the customer with essential information, including:

• The products or services are provided each billing cycle
• The billing cycle start and end dates and timeframe (weekly, monthly, annually, etc.)
• The amount charged per billing cycle, and/or per unit, with variable or hybrid payments
• The payment due date and any terms, such as late fees.

The business will then collect the following information from the customer.

• Customer details: Full name, DOB, address
• Bank account details: 16-digit NZ bank number
• Signed mandate: Signature authorising the business to debit a nominated account

Once the paperwork has been signed, the business will inform the customers’ bank that they have the authority to bill via direct debit.

In New Zealand, a business must give the customer at least 10 days' notice before debiting the first payment.⁴

Recurring card payments have similar requirements. The main difference is that the card provider, such as Visa or Mastercard, has the authority to debit an account rather than a bank.⁴

How do recurring payments work?

The business obtains consent to bill the customer for a specific amount on a specified schedule, then uses a payment processor or direct debit authority to automate payments.

1. Specifying the services
The business sets out its offer in writing, describing the services or products provided and the timeframe.

2. Customer consent
The customer reviews the offer and consents by signing up for a subscription and providing payment information. Common payment methods include cards, digital wallets, and bank accounts for Direct Debits (BECS).

3. Security protocols
The business securely stores the customer’s payment information, using encryption to safeguard sensitive data and comply with industry standards, including the Payment Card Industry Data Security Standard (PCI DSS).

4. Charging customers
The business uses a payment gateway or direct debit authority to bill the customer a fixed or variable fee for the relevant billing cycle. An advanced payment gateway verifies payment details, checks for sufficient funds, and performs the transaction on the business’s behalf.

5. Automated invoices
The business sends a confirmation invoice outlining the payment amount, date, and billing cycle. Some businesses send automated reminders to customers before a recurring payment is due.

6. Automated payment failure notifications
If the payment doesn’t go through, which is common due to card expirations or insufficient funds, the business sends a notification email and may try to charge the customer again later. Many businesses provide a grace period before suspending services.

7. Managing subscriptions
Customers can update payment information or cancel their subscription by calling customer support or using an online portal.

Pros and cons of recurring payments for New Zealand businesses

Pros
The subscription model offers several benefits to Kiwi SMBs.

• Cashflow management: Predictable billing cycles help businesses better manage their cashflow.
• **Less admin: **Automation means staff don’t have to send invoices or chase late payments.
• Convenience: Customers don’t have to remember to pay bills or worry about late fees from missing deadlines.
• Prompt payments: Customers never forget to pay an invoice, reducing the frequency of late payments.
• Customer retention: Some customers may be too busy or forgetful to cancel a service.
• Higher profits: Businesses in certain sectors (especially software) may earn more money charging customers for a monthly subscription than for a one-off product.

Cons
The recurring payment model also has some drawbacks to consider.

• Higher start-up costs: While recurring payments can reduce long-term admin costs, they may require a higher initial investment.
• Customer churn: Customers may scrutinise the value of an ongoing subscription and feel less hesitant about canceling an automated payment.
• Failed payments: Insufficient funds and expiring cards often caused payment failures, which the customer and business must work to rectify.
• More disputes: Recurring payments may lead to more disputes than standard one-off purchase models, as customers may fail or forget to cancel their plans.
• High-risk classifications: Frequent disputes could result in businesses receiving a “high risk” classification on payment processing platforms, leading to higher fees.
• Security & compliance: Storing customer payment data requires strict security protocols and adherence to PCI DSS standards.

Challenges involved with international recurring payments

New Zealand businesses trading abroad face new challenges when establishing recurring payments.

• Fluctuating exchange rates: Ever-changing FOREX rates could see a customer pay significantly more (or less) from one month to the next.
• Operational complexities: Different time zones, languages, and compliance standards can complicate day-to-day operations.
• Increased fraud risk: Some overseas markets may be more prone to fraud than New Zealand.
• Slow transactions: International payments often take longer to finalise
• High fees: International SWIFT transfers involve sending bank fees, intermediary bank fees (if applicable), receiving bank fees, and currency conversion fees.
• Poor exchange rates: When converting currencies, many banks, cards, and payment processors embed a commission into the foreign exchange rate

Wise Business: A go-to solution for global recurring payments

Setting up recurring payments for your international business tools or overseas suppliers shouldn't be a monthly chore. Wise Business helps solve the complexity of cross-border billing by letting you schedule transfers and set up Direct Debits using the real mid-market exchange rate with no hidden markups.

By automating these payments with the Wise Business account, you can keep your subscriptions active and your global partners paid without the high fees or hidden markups typically found by other providers.

Wise Business helps streamline overseas business payments without foreign transaction fees, saving up to 6x compared to other providers.

• Free to register — Send money to 140+ currencies with no hidden exchange rate markups
• Make up to 1,000 transfers at once with the Wise batch payments feature
• Fast, low-cost payouts to customers, freelancers, employees, investors, and suppliers globally
• Automate invoice payments, recurring transfers, and international payroll
• Fast and fully secure payments through Wise, even for large amounts

Tired of hidden fees and complex processes when making overseas payments?

Start sending with a Wise Business account! 🚀

This general advice does not take into account your objectives, financial circumstances or needs and you should consider if it is appropriate for you.

---

FAQs About Recurring Payments

1. How can I stop a recurring payment?
End users who wish to stop a recurring payment should first contact the merchant. If that doesn’t work, you can log into your online banking portal and look for "Upcoming payments" or "Manage payments" to cancel the payment. Failing that, call your bank and ask them to cancel the payment on your behalf.

2. What are some potential risks of recurring payments?
Some of the most prevalent recurring payment risks include customer churn, payment failures, and compliance complexities.

---

Sources:

1. Insider Retail: NZ has one of the world’s highest subscription rates
2. TechWeek: How subscription and embedded payment are transforming Kiwi SaaS business
3. Payments NZ: Bulk Electronic Clearing System
4. Bank Ombudsman: Direct Debits