The first of a new series of the c-suite podcast that we’re producing in partnership with payabl. and their ‘Pay It Forward’ podcast. This series aims to shine the spotlight on the ever-changing world of payments with insights from merchants and leading industry experts. in this episode we focus on subscription models and the challenges that exist in managing recurring payments on a global basis. Graham Barrett was joined online by Sandra Alzetta VP, Global Head of Commerce and Customer Service at Spotify, Dave Birch, author and thought leader in digital identity and digital money and finally, Breno Oliveira, Product Lead at payabl. Show notes will follow soon. In the meantime, below is the full transcript. Graham (00:05) Welcome to this latest episode of the c-suite podcast that we’re producing in partnership with Payabl. and their ‘Pay It Forward’ podcast. This series shines the spotlight on the ever-changing world of payments with insights from merchants and leading industry experts. Today, our focus is subscription models and the challenges that exist in managing recurring payments on a global basis. One of the most successful businesses in this space is, of course, Spotify, so I’m delighted to introduce Sandra Alzetta who’s the VP, Global Head of Commerce and Customer Service at Spotify. And joining her on the panel are to offer their thoughts and expertise are Dave Birch, author and thought leader in digital identity and digital money and Breno Oliveira, Product Lead, payabl. Welcome to you all and I’m really looking forward to this conversation. Sandra, maybe I could come to you for the first question. Now, Spotify has seen, as I think we’ve all read in the press, impressive growth in MAUs, subscribers and revenue. So maybe you can give us some insights into how the commerce platform has played a role in achieving those milestones. Sandra Alzetta (01:09) It was a great year for us in terms of growing our MAU, was our record growth, growing our subs and, so importantly, it was our first full year of profitability. And with all of that comes a large responsibility from a commerce platform perspective, because it’s our job to make sure that we’re supporting the innovation that drove all of that. And from a commerce perspective, there’s really three key areas that we focus on. The first, obviously, is performance. We need to make sure that we’re doing everything we can to enable a successful transaction to take place. So, a consumer decides they love Spotify, they think it’s a great product, they want to buy it. We want to make sure that, assuming there’s no fraud and assuming the funds are there, that they can actually do that. So, a lot of work around acquisition. Of course, a lot of work around minimising churn. That’s so important to any subscriptions business. Of course, so important to think about giving consumer choice and doing all of that at the best possible commercial rates. So that’s then performance. Secondly, enablement. We started off providing one single individual plan and since then we’ve added household plans to people living in the same household, family plan up to six family members living in the same household. We’ve added podcasts, we’ve added audio books for people who listen on our free solution, they can buy audio books a la carte, you can top up with some extra hours and so on. We need to make sure that we’ve got a platform in place that allows that to happen in a seamless manner. We’ve got a lot more innovation in the pipeline, which involves changes to the commerce platform as well. So that’s very much top of mind for us. And then thirdly, obviously, revenue protection. People love Spotify. That’s great. We do have some bad actors who don’t want to pay, so we need to make sure that we’re closing any possible loopholes that they might see to prevent any kind of misuse, and we really want to make sure that we’re clamping down on any kind of fraud that we see potentially coming in. Graham (03:16) Perfect. I have a family plan myself, so I know all about the different plans that you offer. but no, thank you, Sandra, for explaining that. Dave, let me come to you. How do you assess the current subscription space? Dave Birch (03:28) Well, first of all, think Spotify is an unusual example in that I’ve got a family plan as well, and we all love Spotify. So, it’s an easy example to talk about. But to give you a better picture of the general state of subscriptions, I thought I’d look up a couple of articles on my way in here so that I could appear clever and informed and make some incisive comments. And I found a fantastic piece in Marketing Week about whether we are getting close to peak subscription or not. Unfortunately, when I clicked on it to read it, it says that I have to pay £7 a week for a subscription, which I have absolutely no intention of doing. So, no sale. Last week, I won’t say the game, but there was a particular football game I wanted to watch on TV. So, I went to, I won’t name the name of the app. I click on it to watch the football game, and it says, well, this is a special premium service. You have to subscribe to something else. I can’t remember what it was called. And it was, I think, £7.99 a month or something, which obviously I didn’t do. So, there’s an issue here because for some people, like Spotify, it works great. But actually, we’re getting to the limits of the subscription model in the economy as a whole. In both cases, neither Marketing Week nor the streaming company made any money out of me. Had they just said, look, just click this button and pay a pound and you can read it, I would have done it. So, this is why I think it’s like an interesting time and why I think some of our assumptions about things that have worked okay in the past have to be questioned. We have to look again at some of them. Graham (05:02) So are you suggesting that there are maybe just too many platforms or rather that when we actually get to that purchase point there aren’t enough flexible options for us to be able to view or to read that particular information? Dave Birch (05:17) I think what we lack is it would be nice if there was an extra button on the keyboard that just said pay them a pound or pay them a dollar or something. Like I come to some web page, I want to read something, pay them a pound. We’ve never had that from the earliest days of the internet. From the earliest days of the internet, you’ve seen very, very prescient, I think, comment which says, look, if you build the internet on other kinds of models, largely advertising, you end up with what might not be the best kind of internet for society as a whole. So, this idea that we need to rethink payment mechanisms, I think is more important than simply generating a bit of revenue here or there. It’s also true for Spotify, by the way, because it’s entirely possible Spotify could offer me some extra services that I want, but you know, I don’t want it all the time. I’ll pay a fiver and do something. I don’t want to subscribe to something more. The only saving grace of cards, I think, in this respect is that, the average person loses their card once every couple of years, or has it stolen, or the number gets compromised, or whatever. And when that happens, happened to me with one of my cards recently, you cancel the card and get another one. And then you start getting all these mysterious emails saying how the payment failed. You forgot your subscription to Windows DZipping 5.1 or something, which, you know. So, I’m not saying some people don’t benefit from it. I’m just saying I think Sandra’s right in the sense that they have a platform which works extremely well and lots of people, e.g. me are very happy with it. Does that mean we can just sit on that and not think about the future? No, I don’t think so. I think we’re coming to a point where we need some more options. Graham (07:00) Sandra, I will come back to you in a second, but I just want to make sure that everyone is introduced to the conversation to start with. So Breno, I’ll come to you. Clearly, this is a very competitive space, as Dave has alluded to there. There’s a lot of players out there. What do you think it takes to succeed in a subscription-based economy? Breno Oliveira (07:16) Yeah, first we need to understand if there is still room for growth as Dave said before, right? Some studies show that the compound annual growth rate between 2023 to 2028 is equal to 9.5%. So, in the payments industry, this is quite a lot. So, we still have some room to grow their in that space. And if businesses want to grow into the subscription model, they need to embrace localization. Not just adding them as payment methods, but by integrating them with the local consumer habits. And what does it mean? It means that payments are not only transactions anymore, but they are an integral part of the product experience. And we can see some examples of that with Pix in Brazil that was launched in 2020. And it was really transformational. Last year, they crossed 64 billion transactions, an impressive year on year growth of 53%. And I think June this year they are launching Pix Automatico, which is the one that is for the recurring payment methods, which is also impressive. But overall, I think that if your business wants to lead into this space, you need to change your product strategy to follow suit with customer habits. Graham (08:32) Sandra I’d be keen to get your take on local payments here. How big a part have they played in driving Spotify’s growth in emerging markets? What have been some of the recent success stories? Sandra Alzetta (08:43) So local payments really matter to us and just picking up on some of the comments, listening to consumers, understanding what they want and providing them with choice is key. So, in some markets, for example, we have Pay as you go. That’s what consumers want. In other markets, actually people, they love Spotify, they want to sign on and they want to know that they’re going to receive the whole product every month. Just back to local payments. We spend a lot of time working on understanding the different needs of our users in each market. And it’s actually Breno, you mentioned Pix Automatico. It’s often used as an example, but such a good example. So we’re, of course, working with Pix in Brazil just now for individual payments and we’re an early adopter. So as soon as Pix Automatico is launched this summer, we will absolutely be accepting Pix Automatico. Very similar to what we did in India with UPI. And the fact is in India, by far the majority of our users choose to pay with UPI. That’s going to happen in Brazil as well. And we can just see across, particularly I would say in some of the more emerging markets, the real consumer appetite for these different types of payments. Southeast Asia, so many wallets now that are really taking over from cards. Cards are no longer our primary method of payments in Southeast Asia. PayPay in Japan, when we switched that on, that made a big difference. We switched on Verve in Nigeria. That made a huge difference, both expanding our addressable market, but also just in the quality of the payments themselves. We’ve got Mpesa, of course, in Kenya. Kakao Pay in Korea. Toss, also in Korea, a bunch of others across all of Southeast Asia. And what it’s really telling us is the importance of letting our consumers choose how they want to pay. So, I couldn’t agree more in that. So, it’s all about for us expanding our addressable market, making sure we’re getting the best performance possible and letting our consumers know that we’re listening to them. Dave Birch (10:53) Can I just ask, in developed markets, Sandra, so in Poland, Sweden, Denmark, places like that, where you have the very convenient and actually very widely adopted account to account payment mechanisms, do people stay with cards for online subscriptions or are they steadily moving to account to account? Sandra Alzetta (11:14) It’s a bit of a mixture but you can definitely see a movement to account to account. Dave Birch (11:18) Because I’m still hoping when we get Poundo Automatico or variable recurring payments as we call it here in the UK, I wonder if a lot of people aren’t going to move over to VRP because the idea of having a single dashboard against your bank account where you can see all the things you’ve granted permission for at once. I wonder whether the convenience and manageability that brings will actually begin to displace some of the really quite well embedded card stuff now. Sandra Alzetta (11:47) Yeah, could be. What’s interesting is each market is behaving differently. But the ones that I’ve just mentioned are the ones where we’ve really seen, I would say, a significant impact on our business. And I think it’s also worth mentioning, we do look carefully at local payment methods, and we make sure that what looked like a good idea continues to be a good idea. So, if it’s not being used by our users, we will deprecate it as well. Graham (12:12) Breno, what do you think businesses need to be mindful of when they are introducing these local payments? So clearly, there’s been this proliferation, this explosion of local payments all over the globe. So how do businesses actually plug these in? What are the challenges behind that? Breno Oliveira (12:27) First it should not be an afterthought. Each payment method is good for something and started off by something, right? And adoption doesn’t say it all. So just because a payment method is widely adopted in the market, it could be used for tax payments. And sometimes it’s not what you expect to use it for. So local payment methods, they cannot be considered like a checkbox. It’s a full integration in the full sense of the word integration. So, we need to understand what they are there for and integrate with your product strategy. And the challenges that we have is to understand how it’s used in the market and to advertise it and to make sure that it’s part of your product strategy and make sure that you use data to back it up. It always comes with a hypothesis. So, what’s your hypothesis behind this local payment method? After some A-B testing, then we can move it forward to full production. Graham (13:25) Sandra you mentioned churn in your first answer of this podcast, and I’d like to come back to that and ask you what specific strategies or innovations have you implemented to minimize churn and ensure a seamless recurring billing experience? Sandra Alzetta (13:39) So like any subscription merchant, churn really does matter to us. We want to avoid that leaky bucket. So, a bunch of things. We’ve just spoken about local payments and making sure that we’re providing consumer choice. That really does matter because we know that if a user can actually choose their preferred payment method, that is likely to reduce churn. And also, it gives them an alternative if for whatever reason the payment methods declined, they’ve got another option that works for them. So that’s the actual payment methods themselves. But in terms of some of the innovations that we’re doing, we’re very mindful, first of all, about the payment partners that we work with in terms of our PSPs. And in terms of our routing, a lot of work done there, making sure that we’re routing appropriately, we’ll also make sure that we’re chaining. So, if we do get a decline and it makes sense to us we will send back through to see if we can get an authorization from another PSP. We’ll look at our grace periods, what makes sense in terms of balancing that. We’ll look at retries, when’s the best time to actually retry. We look at the whole lifecycle management. So, account updates. Dave was talking about expired cards earlier. There is a solution to that. We need the industry to participate there. Tokenization, of course, is something that we passionately believe in from an industry perspective. And then the whole CX experience, so making sure that our customer experience works. We’ve got a team of people whose job it is to make sure that if something does go wrong, that the user is getting all of the messaging, explaining something’s gone wrong and what they need to do. So, I’ve got people whose job it is to really focus on this area because it matters so much to us. Graham (15:27) And Dave, presumably there are areas in which you think businesses could improve upon this? Dave Birch (15:32) You mean in the subscription space? Graham: Yeh Dave Birch: I’d say broadly there’s kind of, I mean I’m not a statistical cross-section of the, but you know the kind of work Consult Hyperion does. We look at sort of what’s coming next, and I would say broadly speaking as a weathervane, I think there are sort of three pointers at the moment. So, one that you haven’t mentioned is stable coins. And I think in a number of jurisdictions, for a variety of reasons, stable coins are becoming a preferred option for a lot of people. And I think it’s inevitable that, I don’t want to, I’m not teasing Sandra into giving away state secrets, but I think there’s an inevitability global businesses will start accepting stable coins fairly soon. So I think that’s one obvious prediction to make. Another prediction is the pressure for these non-subscription solutions, the kind of one-off purchases that depend on some form of prepaid or no credit risk alternatives. And it’s possible that could be done using stable coins, but it could also be done using central bank digital currencies or other things in different jurisdictions. So, I think there’s something bubbling there as well. Probably where I think the most unusual pressure, so just looking out the corner of my eye. Remember we’re moving into an era where Sandra won’t be selling things, well she will be selling things to me, but it won’t be me that’s paying, it will be an AI that’s paying because, and I hate to say it because of the people on the call, but you know, we have to face the fact that, and I didn’t want to be the one to tell Sandra this, but it’s going to come out sooner or later, but you know, payments are just not that interesting. Most people just don’t care. And if an AI can make a better decision for me and it can tell, I don’t want to know, should I pay with my John Lewis card or should I do a VRP or should I use air miles? I mean, whatever. I just don’t care. And it will be an AI that’s making those decisions fairly soon. So, businesses will have to make their payment processes attractive to AIs, not just attractive to people. And that will mean, actually I’m not sure what it means completely, but it certainly means things like, well you have to think, what kind of things would an AI value in these transactions? I mean response time maybe, or service uptime, or stuff like that. But yeah, probably the biggest change coming is that it really won’t be people paying in a lot of markets. It will be their AIs. Graham (17:53) Breno, let me come back to you because Sandra was talking about the billing experience earlier on. So, it’d be great to get your thoughts about how businesses can enhance the checkout experience and maybe use analytics successfully as well. Breno Oliveira (18:12) First thing that we need to understand is that each checkout experience is different because we are selling different products and therefore different services as well. So, we need to understand how our customers expect that checkout to be through and through. One of our recent studies with Payabl. showed that 43% of the consumers will retain from coming back to the website if they have a poor checkout experience. I think it goes to show that checkout is a key enabler for businesses to accomplish their targets, right? And when we’re talking about targets, targets are always connected to product analytics and insights. So, we need to understand what are your initial KPIs and track it against the reality and therefore create your hypothesis. And with hypothesis, product hypothesis will be able to create your initiatives and tweak your checkout experience. And this may vary from payment method to payment method, but what we all want to do for checkouts to make this as seamless as possible and convert that specific purchase, right? So, in a nutshell, create your hypothesis, you iterate, you test, you refine. Sandra Alzetta (19:32) Just on that, I think it’s important to remember Dave’s AI purchases. It’s for a person and let’s not forget just the importance of a person. So, AI is a tool to help make things better, to help Dave continue listening to his Spotify in whatever payment method is best for Dave. Dave Birch (19:53) Yeah, I want to do the fun stuff like choosing the playlists. I don’t want to do the boring stuff. Sandra Alzetta (19:55) That’s great. That’s exactly what we want you to do. No, that’s right. I mean, the whole point of payments is if we get it right, it’s completely seamless. You’re not coming to Spotify to pay; you’re coming to Spotify to enjoy. I think it’s also just talking about that. We use AI a lot, obviously, as a company for all sorts of things, including for our playlists and for our personalization. But it is absolutely hand in hand with our editorial staff. We’ve got people whose job it is to spend half of their day listening to new music coming in and figuring out what actually works in terms of personalisation. So, I think the secret here is just getting that balance right between using technology and also recognising the value add that humans can provide as well. Graham (20:48) Excellent. Sandra, you mentioned household plans, which myself and Dave have, earlier. And you’ve got the other plans as well. The duo, the personal. What about fraud across those plans? What do you do about that? How do you ensure that on a family plan it is only members of my family listening and not extended cousins and all the rest of it? What do you do in that space? Sandra Alzetta (21:12) So first of all, it’s great that so many people love Spotify, love premium. With that comes the fact that some people want to enjoy that without paying. And I think it’s important to remember our origins. We were established specifically to create a viable alternative to piracy. And we created a model where people pay for their music. So, it’s actually sustainable business and the whole creator world is appropriately compensated. So, we want to make sure that people aren’t abusing. And there’s two types of issues here. One is where people are abusing, just as you said, finding loopholes and let’s say misusing and then it’s fraud itself. So, in terms of misuse, I can’t get into too many specifics for very obvious reasons. But one good example would be around family plan accounts. So, family plan accounts, that’s where we make it possible for a family living in the same household to have up to six accounts on the same plan. And here we will continually verify people to make sure that they are living in the same household. And if they’re not, then, if they’re not able to verify themselves, then we will turn them off to our free service. Another example could be that in some parts of the world, we’ve got users who made a purchase premium at a price offered in another country, a lower price. So again, that’s another area that we focus on. That’s the misuse. From a fraud perspective, we’re active in 184 markets. They’re very different in terms of people’s listening patterns, they’re different in terms of payments. Also from a fraud perspective, they’re different. We put a load of effort into getting that balance right between keeping the bad actors out, but not introducing too much, ideally zero, as close as we can get to zero, false positives. And we’re using a lot of machine learning there so that we can really identify patterns. We use networks to link individuals to their payments so we can really understand more what’s going on. And this is just a continual initiative. With fraud, it is never done it, and I can just forget about it. It’s continually looking at how these things are evolving and making sure that we’re doing everything we can to keep one step ahead. And I just think it’s important to remember if someone, for whatever reason, doesn’t want to pay or they can’t pay, we do have a fantastic free service that’s available as well. Graham (23:49) Absolutely. Now, let’s just finish with looking into the future a little bit. Dave, you’ve already mentioned about how you see the future in terms of AI bots managing subscriptions and other tasks that we need to do on daily basis. Just pick up on the point that Sandra made there about fraud, though. You write a lot about fraud and digital identity. What do you see as the main threats coming down the line, I guess? Dave Birch (24:11) Well, the point about households I think illustrates it quite well, which is because we have no working digital identity infrastructure, people like Spotify are forced into using all sorts of inaccurate proxies in order to. Whether someone’s a member of my family or not should be a digital identity credential, not a probabilistic calculation based on what they’re listening to and where they’re listening to it. I think, it’s not going to happen tomorrow, but digital identity is a problem that needs to be solved. And when it is solved, people like Spotify will be able to take great advantage of that kind of thing. And then, of course, there’s also the issue of blacklists, which I’ve suggested once or twice before. Because occasionally on my Discover Weekly, it will occasionally throw up U2, for example, which I can’t stand. And if there was some sort of list where you could put things, oh, you didn’t mean that sort of blacklist. You were talking about fraud again. Fraud, we don’t need to worry about it. We don’t because you’re moving towards things like account to account and picks and things like that where you have strong customer authentication, you have much better fraud controls, you have consumer dashboards so that they can see what they’re subscribing to. I feel very positive about all of this, except the U2 thing! Graham (25:25) Except the U2 thing. You definitely want them off your playlist. Okay, fair enough. Breno Oliveira (25:30) Yeah, I’m with Dave here. Dave Birch: You can’t stand them either. Breno Oliveira: No, no, I’m talking about account to account. I feel that as we move more to account to account, strong customer authentication is there. Also, notifications are instant, and you can create new rules for notifications on the newer banks and then everything becomes more transparent. So, instead of creating disposable cards, just go to a list and you delete from your subscription straight from the bank and off you go. And if you see something that’s out of the ordinary, you can also report. I think the future is bright here on the fraud front for us consumers. Graham (26:11) Excellent. Sandra, I’ll just give you the final words in terms of anything you’re particularly excited about in the payment space at Spotify over the next year, the coming years. Sandra Alzetta (26:20) Yes, we’re really building out the platform with the focus that I mentioned, performance enablement, revenue protection, those are the aiders that we’re really working on and just continuing to think about our user and providing user choice. Graham (26:34) Perfect. Well, that brings an end to today’s conversation. I think that’s been a brilliant insight into the world of Spotify and payments and all of those other things we mentioned today. So, a big thank to all my guess for their contributions to today’s conversations. Please do follow Pay It Forward on Spotify and wherever else you get your podcasts. You can catch up with all previous episodes of the podcast at payabl.com/podcasts. Finally, if you’d like to get in touch with the show, you can do that via the contact form at csuitepodcast.com. But for now, from me Graham Barrett, it’s thanks for listening and goodbye. In partnership with PRCA members receive 10 CPD points for listening to this podcast if they log it on their CPD programme. View episode
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