In the latest instalment of our Direct Debits Explained series, we are exploring the best payment methods to use to collect gym membership payments and other similar regular payments. Find out the pros and cons of Direct Debits, recurring card payments and standing orders for your organisation and your members.
There are over 10 million members of health and fitness facilities in the UK – making 1 in every 7 people a member – according to The 2019 State of the UK Fitness Industry Report from LeisureDB. Beyond fitness memberships, Brits are increasingly accustomed to subscription services and now spending more than £2 billion every year according to comparison site Finder.
Health and fitness memberships, along with other types of subscriptions, require a careful approach to collecting customer payments on a recurring basis. What methods are available to collect membership and other payments?
3 Key Ways To Collect Gym Membership Payments
Collecting gym membership payments and other subscription or membership payments that need to be taken on a regular basis can be challenging. You need to ensure the correct amount is taken, at the correct time and that any failures are effectively dealt with.
There are 3 payment methods that are particularly suited:
- Direct Debit – an agreement between a member/customer and their bank/building society. Direct Debits give you authority to collect a varying regular amount from the member’s account. (See Direct Debits Explained: An Introduction for more).
- Recurring Card Payment – also known as a Continuous Payment Authority (CPA). A CPA allows you to take regularly take amounts from the member’s credit or debit card until permission is cancelled.
- Standing Order – with this method the member instructs their bank to make a fixed payment to you at a regular interval until the instruction is cancelled.
How do these methods differ? Which would most suit your organisation whether you are looking to collect gym membership payments or other subscription-based payments?
Setting Up Recurring Payments
In order to start taking payments by Direct Debit, you firstly need to decide whether to opt for direct access managing payments internally or indirect access managing payments through a third party. For more detail on these options check out the previous instalment in our Direct Debits Explained series – How To Take Direct Debit Payments.
After this, typically each member will complete a digital Direct Debit instruction form (this can be integrated into your joining process). This is then forwarded to the member’s bank authorising agreed payments to be collected from account.
Recurring Card Payments
Firstly, you will need the ability to take credit and debit card payments. For this you will need a merchant account, as well as a card machine, virtual terminal and/or payment gateway. This can be costly with various fees incurred in the set up and when taking payments. You may even be charged when payments fail.
With this in place, members can set up recurring card payments online, in person and/or by phone providing details of their card and giving permission for future payments to be taken as seen necessary by your organisation.
Unlike Direct Debits and recurring card payments, standing orders are a push payment method that can only be set up by the member. The member will give the standing order instruction to their bank providing details of your bank account, a payment reference, the fixed amount to be paid each time and when payments should be made.
Flexibility & Control Over Collections
A pull payment, Direct Debits provide you with flexibility to adjust the amount collected and the timing of payments. If a change is required, the member will need to be notified of the amount, date and frequency of payments at least 10 working days before the change takes place and the collection occurs.
This puts you in control to collect gym membership payments and make changes, while offering protection for the member.
Recurring Card Payments
Also, a pull-based payment, recurring card payments allow you to change the amount and timing of payments collected. It is best practice to notify the member of changes, although there are no clear requirements to let members know of changes to the amount or timing of payments collected.
While this puts you in clear control when collecting membership payments due, if adequate notifications of changes are not provided it could impact member experience and retention rates.
Once set up, standing orders are fixed with the member paying a set amount on a recurring basis. If changes are required, the member will need to cancel the old standing order and set up a new one.
You are therefore not in control should there be a need to change the amount or timing of membership payments.
Receiving Funds Collected
You will typically receive payment within 3 working days of submitting a payment file to Bacs for processing. Payments will be simultaneously debited from the member and credited to your bank account on the third day.
If a third party provider is collecting Direct Debit payments on your behalf, these timings may differ. Typically, you will receive payment of cleared funds from the provider on a monthly or bi-monthly basis. It’s important to choose an FCA authorised Direct Debits payments provider, so that you can rest assured that your income is fully protected once collected from members.
Recurring Card Payments
Once a recurring card payment has been processed you will typically receive payment immediately or the following working day. This set up works well for transactions where payment is needed quickly (for example subscription services where physical goods are sent out).
Once set up, on the set date/increment the fixed amount will be debited directly from a members account to your bank account.
Payment Failures & Defaulters
Direct Debit payments can bounce or fail for two reasons – there are insufficient funds available in the member’s bank account or the member has cancelled their instruction with the bank.
While you will be unable to reattempt collection where the instruction has been cancelled, it is possible to auto-resubmit on your behalf where insufficient funds were available. At Harlands, we offer this as part of our Direct Debit collection service. As Direct Debit instructions are frequently cancelled in error, we also notify members with a cancelled instruction of this so it can be reinstated, and payments resumed.
Auto-resubmission for failed payments, as well as alerts around cancelled instructions, reduces default rates when collecting gym membership payments. Ultimately improving your ability to retain members by reducing attrition due to payment issues.
Recurring Card Payments
Credit and debit card payments can fail for several reasons. Failure rates tend to be higher than Direct Debits as cards expire and are often cancelled due to loss or theft.
Card updater services are available. These allow you to confirm card details are still valid and update them where needed before payments are processed. Not all cards will be covered by card updater services. Opt in from the issuing bank’s processor is required and banks need to ensure Visa or Mastercard are promptly updated with changed card details.
It is not possible to resubmit for a failed card payment, although you may get access to a list of failed payments which can be used to manually follow up with members.
Like Direct Debits, standing orders will fail if insufficient funds are available or the member has cancelled the payment instruction with their bank.
No reports or alerts are available to let you know a payment has failed. With standing orders, you will need to manually reconcile payments received with those due to identify missed payments. You’ll then need to manually follow up with members.
Protections For Your Members
The Direct Debit Guarantee gives your members complete reassurance that they are protected by several safeguards. These include:
- An immediate money back guarantee from their bank/building society if money is taken in error
- Advanced notice at the start of the agreement and if the amount/date/frequency of the Direct Debit changes
- The right to cancel the Direct Debit with the bank (providing suitable notice is provided to you according to the membership agreement in place)
The guarantee helps ensure that you provide a positive and consistent payments experience to your members.
Recurring Card Payments
The level of protection in place for your members should something go wrong regarding a payment differs depending the recurring card payment is set up using a credit or debit card.
If a payment is taken in error, it will be easier for members paying via recurring credit card payment to request a refund from your organisation, or via their bank or card scheme. Protections do not always apply to debit cards.
As there’s no requirement to notify members of changes to the amount, timing or frequency of payments collected, there’s less peace of mind for the member that changes will not occur without advanced warning.
Members can cancel the recurring card payment with their bank or credit card provider and if further payments are taken after this they will be entitled to a refund from the bank. The member will also need to ensure they are adhering to agreed membership terms before cancelling the payment.
Although some banks may be willing to help, there are no legal or regulatory consumer protections in place to safeguard members once a standing order payment is taken. As the payment is for a fixed amount and sent on a fixed time, the member is assured that unless they cancel the standing order the payment will not be changed without notification.
Quick Comparison: How To Collect Gym Membership Payments
|Direct Debits||Recurring Card Payments||Standing Orders|
|Set Up||Need indirect or indirect access from Bacs to take Direct Debit payments. Members can then complete a quick digital instruction form to authorise the Direct Debit collection.||Need a merchant account and a card machine, virtual terminal and/or payment gateway to accept card payments (set up and ongoing costs apply). Members can then set up the card payment online, in person and/or by phone giving appropriate permission for future payments to be taken.||No set up requirements to accept standing orders except having a bank account. Member sets up the standing order with their bank for a fixed amount to be made at set intervals to your account.|
|Flexibility & Control||Giving at least 10 working day’s notice to the member, you are able to change the amount, frequency and timing of payments taken.||Change the amount and timing of payments collected with no need to notify the member. No reassurance for members that they will be made aware of changes.||Cannot change the amount, frequency or timing of posts. Member will need to cancel the standing order and set up a new one if a change is needed.|
|Receipt of Funds||Timing dependent on whether you are a direct or indirect submitter.||Immediately or next working day after card payment processed.||Same working day as the fixed amount is debited from the member account.|
|Payment Failures & Defaults||Automated resubmission processes minimise payment default rates.||Higher failure and default rate due to expiring and cancelled cards due to loss or theft, as well as lack of available funds. Card updater services available but can be costly and coverage poor.||Manual work required to identify payment failures.|
|Member Protections||Direct Debit Guarantee protects members against erroneous collections, unexpected changes and inability to cancel payment.||Few protections in place for recurring debit card payments. More protections in place for recurring credit card payments, however no requirement to alert members to changes in amount, frequency and timing of payments.||No protection should something go wrong with a payment.|
Collect Gym Membership Payments Via Direct Debit
Direct Debits offer a cost effective and reliable way to collect recurring membership payments compared to other payment methods.
Whether you are already collecting payments via Direct Debit or are looking to get started, allowing us to manage your collections will help you get the most from this method. We are an FCA authorised payments institution with proven processes in place to minimise payment defaults while maximising revenue for your business.