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Payment gateway for recurring payments

Recurring payment is a very fast and transparent payment method that does not support 3D Secure protocol. Considered by the acquiring banks as “high risk”, it is one of the most requested and least authorized payment systems for subscriptions and on-going payments.

What is a recurring or subscription payment?

Recurring payments can be defined as no card present payments that a merchant charges periodically on a credit card of a client, with its prior authorization. Recurring payments are ideal for businesses that need to accept payments for temporary subscriptions on daily, biweekly, monthly, quarterly, semi-annually, or annually basis.

How to authorize recurring payment?

  • The cardholder has to enter his name, surname, address, zip code, telephone, type of credit card, credit card number, expiration date and CVC (the CVC number is not stored as the protocol of PCI security does not authorize the merchant to save such information);
  • The cardholder has to choose the fixed amount that he will be charged as scheduled.
  • The cardholder has to choose the frequency with which the merchant will charge this amount on his card, for example, daily, every fifteen days, every month ... etc.
  • The holder has to choose when the recurring payment period begins and ends.

Once the cardholder completes all these steps, the recurring payments gets authorized for automatic charges. Possible future changes of this authorization should be discussed with the merchant prior to the approval.

Types of recurring payments

When settling a periodic charge on the card of the client, there are several types of recurring payments that can be chosen. The most common are: fixed amount recurring payments and recurring payments with variable amount.

Fixed amount recurring payments

Fixed amount recurring payments are charged when the customer authorizes a fixed expanse that the merchant can charge continually on his credit card. This type of payments is usually used for subscriptions, NGOs donations, purchase of goods or services with the option of partial payment.

Variable amount recurring payments

Variable amount recurring payments are made when the merchant has the authorization received by the cardholder to charge a random amount, not fixed, on his card. This type of payment is very risky for the cardholder because he never knows what the exact amount will be charged this month. For the merchant the problem of variable amount recurring billing is a possibility of claims filed by the clients when they see the amounts they were charged. The business models that require this kind of billing are insurance companies, mobile providers, electricity companies and others.

Advantages, disadvantages and risks of recurring payments

Further, we would like to analyze advantages, disadvantages and possible risk that the cardholder and merchant assume when choosing recurring billing method. 

Advantages of recurring or automatic payment method 

  • The cardholder and the merchant are unconcerned with periodic monitoring of payment and its collection, as it will be done automatically on the indicated dates.
  • Depending on the terms and conditions of the company, in majority of the cases the cardholder can change the charged amount, frequency or cancel the payment.
  • Sales conversion rate increases, ensuring periodic fixed income.
  • The recurring payment involves more loyalty from the customer, making it more difficult for him to change providers.

Disadvantages of recurring or automatic payment method

  • In some cases, the policy of the company doesn’t allow the cardholder to cancel the subscription at any time he wants.
  • The subscription payment doesn’t support 3D Secure protocol and, as a consequence, the fraud rate is high.
  • In case of variable recurring billing, the cardholder should constantly review the charges that were made on his card.
  • The merchant is obliged to comply with the security terms imposed by the card brands. In addition, the merchant needs to implement the PCI compliance security protocol on its server.

Risks when providing your credit card info for recurring payments

In order for a merchant to accept recurring payments, it needs to store the following customer information: name, surname, address, zip code, telephone, type of credit card, credit card number, expiration date and CVC.

The latest requirements of card brands establish that this data must be stored on a secure server that complies with PCI DSS regulations. What is the reason behind this data storing policy? Imagine that a hacker has access to all the data on merchant´s clients and its cards information. Logically, the first thing he will do is to sell this data to the highest bidder so that it can be used fraudulently on the Internet. How can a cardholder and merchant protect themselves against this situation?

Token or Tokenization

The solution lies in Tokenizing the credit card information. What is Tokenization? The Tokenization is a cover-up of sensitive information provided by the customer in a line of nonsense encrypted code. An example of a Token can be this kind of code: "mntTjW @ kjs34wfgX", which represents a series of numbers and codes that together have no sense, but internally the payment gateway has a software, called Token, that manages to transform this nonsense information into the card data provided by the customer. The only disadvantage of using Tokenization services is that you necessarily have to depend on a PCI DSS payment gateway and you cannot use these Token in other payment gateways.


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