Management Strategies

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MasterCard Cashes In On Recurring Payments

Merchants follow the card company's lead to improve their bottom lines by cutting processing costs and increasing customer retention with automatic payments.

Because of the advantages they offer, recurring payments have gained popularity. Recognizing an opportunity to improve its merchants' bottom lines, and to increase its own business, MasterCard (Purchase, N.Y.) is getting on the recurring payments bandwagon.

Merchants that promote the use of recurring payments see added benefits to the payment process, says Donna Johnson, vice president, acceptance development, MasterCard. Largely because of their cyclical billing cycles, according to Johnson, the industries that are using recurring payments most are the insurance, telecommunications, utilities and cable markets. But any business can benefit when customers use their credit cards for recurring payments instead of writing checks, she says.

With recurring payments - automatic payments on a weekly, monthly or annual basis - merchants are realizing a significant drop in cost for bill processing. The cost of processing a single-payment transaction can be costly for an organization per transaction, says Johnson. "Traditional billing and payment methods ... cost service providers more than a dollar [per] transaction," she says. "Electronic payments or recurring payments drastically reduce their costs to as little as 40 cents per bill," she asserts.

Johnson says industries are now taking advantage of the incentives MasterCard offers card-holders to get customers to use their MasterCards for recurring payments. "Any consumer who has a MasterCard and a [rewards program] loves the ability to earn incremental miles or points when they are doing a recurring payment transaction," she says. This has resulted in increased customer loyalty, Johnson adds.

In addition, recurring payments also speed the process through which companies get paid, according to Johnson. "For a merchant, this means they are going to get their payment faster and it's going to improve their cash flow," she says. "Customers who normally were paying by check, now, if they are paying by credit card, the merchant is not waiting for the check to clear and is getting the payment much faster through the MasterCard transaction." Johnson also says that by eliminating the check process, fraud is minimized.

Consumers are also enjoying the benefits of recurring payments - there's no need to write the same check every month. "For the cardholder, it is just a matter of convenience," Johnson says. "When you have a recurring payment in place, you know that your bills are going to be paid on time. In this time of fast-paced lifestyles, knowing that there is one part of your financial life that is being taken care of is a stress reliever."

In case a customer's personal information changes, MasterCard automatically updates the relevant billing information. According to Johnson, merchants seamlessly receive account updates - including new card numbers and changes of addresses - to ensure that transactions continue flawlessly, even when a card has been lost or stolen.

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