The subscription economy is growing rapidly, benefiting from a convergence of factors encompassing consumer preferences and technological developments.
The figures are eye-opening.
The recurring payments market is experiencing a compound annual growth rate (CAGR) of 9.5% and is projected to hit $1.5 trillion by the end of 2025, up from $650 billion in 2020. Consumers are seeking convenience, flexibility, and personalisation, which merchants can provide as new technology makes it easier for them to implement and manage subscription models.
There are new opportunities on offer. However, businesses are also facing challenges when it comes to managing recurring payments globally.
Choice conquers churn
Subscription churn refers to the percentage of paid subscribers who cancel their subscriptions within a specific time frame. Churn rate benchmarks vary across sectors, typically ranging between 4% and 9%, but it’s certainly become a prominent pain point for all businesses active in the subscription economy.
“Like any subscription merchant, churn really does matter to us,” said Sandra Alzetta, VP – Global Head of Commerce, Spotify, which is experiencing record growth and has now enjoyed its first full year of profitability. “We want to avoid that leaky bucket.”
One way a merchant can minimise churn is by providing consumers with a choice of payment methods, including local payment methods, and making inroads into different markets. Local payments matter to Spotify, which spends a lot of time understanding the different needs of its users in each market. The company is seeing a huge consumer appetite for new payment methods, especially in emerging markets, and has switched on the likes of Verve in Nigeria and M-PESA in Kenya.
“If businesses want to grow into the subscription model, they need to embrace localisation,” said Breno Oliveira, Head of Product, payabl. “Not just by adding payment methods but by integrating them with local habits – this means payments aren’t only transactions; they’re an integral part of the product experience.”
One powerful example to illustrate this point is Pix in Brazil. An estimated 64 billion Pix transactions were processed in 2024, which was a 53% year-on-year increase. Pix Automático will be rolled out across summer 2025, redefining the payment of recurring bills and subscriptions.
“We’re working with Pix for individual payments, and we’re an early adopter, so as soon as Pix Automático is launched, we’ll be accepting that,” added Alzetta. “It’s similar to what we did in India with UPI, and it’s about expanding our addressable market and letting our customers know we’re listening to them.”
Adopting the latest innovations
The expectation is that Open Banking-powered Variable Recurring Payments (VRPs) will now have a big impact on the subscriptions market.
“When we get VRPs in the UK, I think a lot of people are going to move over to them,” said Dave Birch from Consult Hyperion. “The convenience and manageability of having a single dashboard against your bank account, where you can see all permissions, will begin to displace some of the more embedded card options.”
VRPs are just one of a handful of technological innovations set to shake up the subscription model, with Birch also highlighting stablecoins, which, for a variety of reasons, are now becoming a preferred option in a number of jurisdictions. “I think there’s an inevitability that global businesses will start accepting stablecoins fairly soon,” he said.
Then, of course, there is artificial intelligence. Traditional payment systems are struggling with manual intervention and providing rapid responses to payments issues. AI-driven solutions are introducing game-changing automation to the entire subscriptions life cycle, from initial billing to smarter retries. “Probably the biggest change coming is that soon it won’t be people paying in a lot of markets, it will be their AI tools,” opined Birch.
The checkout is a key enabler for subscription businesses to accomplish their targets, and businesses need to carefully consider how best to integrate these new tools. “Targets are always connected to product analytics and insights,” advised Oliveira. “Create your hypothesis, then iterate and test, and then refine.”
A final word on fraud
One factor firmly at the front of mind for subscription businesses is revenue protection. There’s a twin threat of misuse, where people may abuse family or household plans, and fraud.
“People love Spotify, but we’ve got some bad actors who don’t want to pay, so we need to make sure we’re closing any possible loopholes they can exploit for misuse,” explained Alzetta. “From a fraud perspective, we’re now active in 184 markets, and they’re very different in terms of people’s listening patterns and payments. We’re using a lot of machine learning to help find the right balance between keeping the bad actors out and introducing too many false positives.”
Combating misuse is a compelling future use case for the digital identity infrastructure being rolled out across some markets, with Birch believing that “whether someone is a member of my family or not should be a digital identity credential, not a probabilistic calculation based on what they’re listening to and where they’re listening to it.”
There’s now growing hope across the industry that as more advanced payments technology is introduced, fraud will become less of an issue for those active in the subscription economy.
“We’re moving towards things like account-to-account (A2A) systems and Pix, where you have strong customer authentication, much better fraud controls, and consumer dashboards so you can see everything you’re subscribing to,” said Birch. “I feel very positive about all this.”
Check out the first episode of our brand-new season of Pay it forward, in partnership with The C-Suite Podcast, to find out more about the latest trends shaping the subscription scene.