Recurring Payments
What Are Recurring Payments? Definition and How They Work
Definition
Recurring payments are a series of charges made at regular intervals, weekly, monthly, annually, under a pre-authorised agreement. The customer authorises the arrangement once; the merchant initiates subsequent charges without requiring the customer's active participation in each transaction. Recurring payments underpin subscription services, membership fees, insurance premiums, and instalment plans.
How it works
Recurring payments on card rails operate through the stored credential framework. At first payment, the customer authenticates and consents to the recurring arrangement. The merchant's provider stores the card credential together with the initial transaction identifier that links future charges to this agreement. The stored credential may be held as a securely stored card number or, increasingly, as a network token; tokenisation is best practice rather than the stored-credential requirement itself.
Subsequent charges are initiated by the merchant as Merchant-Initiated Transactions (MITs) with the stored credential token and a reason code indicating recurring billing. The issuer processes against the stored credential without requiring re-authentication, subject to the original agreement. MIT transactions are exempt from SCA under PSD2 when the original setup and subsequent charges comply with scheme stored credential rules.
Failed recurring payments, from expired cards, insufficient funds, or issuer declines, require smart retry logic: retrying at optimal times (such as after payday cycles) improves recovery rates. Account updater services automatically refresh card details when a card is reissued, preventing failures from expiry or replacement.
Why it matters
Recurring revenue is the foundation of SaaS, streaming, insurance, and subscription commerce. Infrastructure that reliably executes charges and minimises involuntary churn, cancellations caused by failed payments rather than customer intent, directly affects revenue retention. Effective recurring payment infrastructure can recover 30%–50% of initially failed payments through smart retries and account updater.
Regulatory compliance for recurring payments is increasing. Card scheme stored credential rules require specific reason codes, original transaction references, and scheme-specific data elements. Non-compliant recurring charges face increased decline rates and potential scheme fines.
With PXP
PXP supports recurring and stored-credential payments with tokenisation, network tokens, and retry logic to keep billing running. Talk to our team about how PXP can support your recurring payments.
Frequently asked questions
What is the difference between a recurring payment and an instalment payment?
A recurring payment is an open-ended series of charges at regular intervals for an ongoing service, a monthly subscription. The number of future charges is not fixed. An instalment payment is a defined series paying off a specific amount over a fixed number of payments. Both use stored credentials, but instalments have a defined end date and total amount.
How does account updater work for recurring payments?
Account updater is a card network service allowing merchants to query for updated card details when a stored card has been reissued. When a customer's card expires and their bank issues a replacement, account updater automatically updates the stored token with the new details, preventing recurring payment failures from outdated card information.
What are the card scheme rules for stored credentials?
Scheme stored credential rules require: explicit cardholder consent at initial authorisation specifying future charges will recur; the initial transaction as a CIT with full SCA; securely storing the card credential (as a stored card number or a network token) together with the original transaction reference; tagging all subsequent MITs with the correct reason code referencing the original transaction; and complying with each scheme's specific data field requirements.
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