The global subscription billing service market is on track to hit $12.5 billion in 2026, doubling its size from 2020 as more businesses adopt a recurring-payments model that relies heavily on consumers registering credit and debit account details with merchants.
With many consumers juggling up to a dozen subscriptions for everything from streaming services to gym memberships and car washes, a significant percentage forget to cancel when they're no longer using the services. This gives merchants an undeserved advantage, according to new research submitted to the National Bureau of Economic Research.
Merchants may rake in 14% to 200% more than they would have earned if consumers were attentive enough to cancel unwanted subscriptions, said researchers at Stanford University and Texas A&M University who conducted a deep study of credit and debit card users' habits around renewing online subscriptions.
The 39-page study drew on anonymized consumer account data from a large payment card network between 2018 and 2021 to analyze a subset of transactions charting the cancellation rates of 10 popular online subscription services.
The research underscores growing consumer problems around online subscriptions. The Federal Trade Commission filed a
"Amazon tricked and trapped people into recurring subscriptions without their consent, not only frustrating users but also costing them significant money," said FTC Chair Lina M. Khan, in a press release announcing the complaint. The case will be decided in court.
Friction and costly chargebacks can also occur when consumers are mistakenly billed for an unwanted subscription while they thought they were agreeing only to a free trial, said David Shipper, a strategic advisor at Datos Insights.
"Financial institutions also have operational impacts when consumers close their debit or credit card accounts to stop those charges or attempt to dispute those transactions," he said.
As consumer complaints about unwanted online subscriptions pile up, the FTC is exploring a
The researchers who conducted the recent study suggest that revamping merchant policies to periodically focus consumers' attention on their ongoing subscription payments would remedy much potential consumer harm.
"We estimate that inattention and more passive renewal leads to a substantial increase in revenues for subscription services, which could be as high as three times greater than the revenues they would receive if subscribers were fully attentive," the researchers wrote.
Expecting merchants to ping consumers every month to ensure they still want an online subscription would be inconvenient. But establishing merchant policies that routinely confirm continuation of subscriptions every six months, or after a period of inactivity, could improve industry practices, the researchers suggested.
The researchers observed that when consumers are prompted to update details for a credit or debit card that has expired, a significant portion opts out of the service, suggesting that consumers' inattention caused them to continue paying beyond their actual usage.
Without a prompt to renew details for an expiring card, subscribers would "continue paying for the service even when they 'shouldn't,'" the researchers wrote.
This lack of attention was more pronounced among consumers that had taken cash advances in the past, indicating greater financial instability.
A six-month frequency of "forced" attention would reduce the overall revenue impact of inattention by about 50%, the researchers suggested in their paper.
