Technological advancements and consumer desire for greater convenience are driving more companies to adopt this model
The Latin American subscription market is expected to exceed $30 billion by 2025
The subscription model allows companies to plan their finances and ensure stable, predictable revenue
Stripe, the global financial infrastructure platform, presents the “The Future of the Subscription Economy in Latin America” report, highlighting the growing adoption of this online business model and its impact on the GDP of e-commerce in the region. The growth is attributed to the modality’s ability to effectively plan corporate finances, ensuring stable and predictable revenue.
According to the report, the subscription model has become increasingly natural for consumers in Latin America, who seek greater convenience and simplicity for their product or service purchases. Today, companies from various sectors such as Rappi, Uber, or Síclo, among others, are adopting subscription services to drive loyalty on their respective platforms.
The report lists the advantages of the model, including enabling companies to better understand their customer base and thus develop better products through a constant and close relationship. Some additional benefits include the opportunity to manage operational costs more effectively and understand consumption patterns to optimize inventory or negotiate with suppliers.
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The Subscription Model Landscape and its Challenges
The Mexican case stands out as one of the protagonists in the growth of the subscription economy. It is projected that the local e-commerce market will have an annual compound growth rate of 31% for the period 2022-2026, surpassing the regional average of 25%. For example, Stripe Billing, Stripe’s subscription payment tool, experienced a 139% increase in the Mexican market in 2022.
In a highly conducive environment, companies wishing to join this trend can offer the option of recurring purchases, which means more pricing options, free trials (freemium model), different subscription durations, and other customizable alternatives. Reflecting these possibilities clearly at checkout is more complex than single payments. A robust payment tool is necessary to accompany multiple charge rules at different time intervals for each subscriber.
Additionally, ensuring payment acceptance and combating churn (or customer loss) are crucial. A declined payment for avoidable reasons, such as outdated card information, can disrupt service and lead to customer departure.
Developing a subscription engine from scratch to address the challenges mentioned above is no easy task. It requires many hours of programming and deep knowledge in the digital payments area. Fortunately, the Mexican market has payment technology available for a smooth and efficient experience for both the business and the customer.
How to Build a Subscription Business in Five Steps
Stripe’s report includes a guide to key steps that companies should follow when launching a subscription-based business or incorporating them into their current business model, summarized as follows:
Understand the essence of subscriptions, such as recurring charges, generating and effectively using data to improve the customer experience.
Develop a pricing strategy that offers a variety of charge frequencies to customers and appropriate fee types for each segment.
Create a value proposition that highlights the subscription as the optimal choice to provide a personalized and quality experience.
Develop a payment strategy alongside a technological partner that understands the complexity of the model and its technical requirements.
Monitor the most relevant KPIs such as the number of subscribers, average revenue per user, monthly recurring revenue, or churn rate.
Evolution of the Subscription Economy in Latin America
The report identifies three key stages in the evolution of the online subscription model in Latin America. The first stage, between 2010 and 2014, initially emerged in media and streaming, with some limitations such as reduced access to credit cards and international transactions. Then, from 2015 to 2020, during the expansion stage, the modality was driven by the strengthening of the e-commerce ecosystem, the adoption of recurring digital payments in mobile applications, and the Covid-19 pandemic. Finally, starting in 2021, the region entered a new phase where the subscription market is expected to double by 2026, thanks to factors such as generational preferences, expansion in credit card issuance, and the digital economy.
The report notes that today, media, software, and digital services sectors are consolidated in this business model. Retail, gaming, digital education, and health are growing. Business services, mobility, devices, and hospitality fall into the ’emerging’ category.
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