Recurring and subscription payments: methods, card-on-file, retries and dunning

What is a recurring payment?

A recurring payment is any charge that repeats under one agreement: a monthly software plan, a gym membership, a utility bill or an instalment plan. The amount can be fixed, as in most subscriptions, or variable, as in usage-based billing, and the schedule can be regular or triggered by usage.

The difference from a one-off payment is who starts it. The customer starts the first payment and gives consent to future charges; every later charge is started by the merchant without the customer being present. Card schemes call these merchant-initiated transactions (MIT), and SEPA Direct Debit handles them through a signed mandate.

How do card-on-file and merchant-initiated transactions work?

At sign-up the customer pays or verifies the card, completes 3-D Secure, and agrees to the terms of future charges. The PSP stores the card, or a token for it, and returns a network transaction ID from the first authorisation. Every renewal is sent as an MIT that references that ID, which tells the issuer the charge belongs to an agreement the cardholder already approved.

Under the PSD2 rules, MITs are out of scope for strong customer authentication, so renewals run without a challenge. Visa and Mastercard also require clear disclosure at sign-up and, for free trials and introductory offers, a reminder before the first full-price charge with an easy way to cancel. Skipping these steps is a common source of recurring-payment chargebacks.

Which payment methods are best for recurring payments?

Cards work in every country and suit monthly consumer plans. SEPA Direct Debit is cheaper and stays valid when a card expires, which makes it the standard for euro subscriptions, memberships and B2B invoices. Local methods such as iDEAL and Bancontact do not support repeat charges themselves, but a first payment with them can create a SEPA Direct Debit mandate for later charges.

The table compares common European options. Fees are typical published ranges for 2026 and vary by provider and contract.

How do network tokens and account updaters reduce failed renewals?

Cards expire, get replaced after fraud or are reissued with a new number, and each change breaks a stored card. Network tokens, issued by Visa Token Service and Mastercard Digital Enablement Service, stay valid when the underlying card changes because the issuer updates the token. Visa reports up to 5% higher authorisation rates and up to 50% less fraud for tokens compared with card numbers.

Account updater services, Visa Account Updater and Mastercard Automatic Billing Updater, solve the same problem for stored card numbers by returning the new expiry date or number before the next charge. Most PSPs offer both, sometimes included in standard pricing and sometimes for a fee per update.

How should you retry failed subscription payments?

Failed renewals are the main cause of involuntary churn: customers who wanted to stay but whose payment failed. A soft decline such as insufficient funds or a temporary issuer error can succeed later; a hard decline such as a closed account or a stolen card will not, and the schemes charge fees for retrying it.

Visa limits the number of reattempts per card within 30 days and forbids retrying category 1 declines. Mastercard returns merchant advice codes: 03 and 21 mean do not try again, while other codes suggest when to retry. A dunning schedule combines smart retries with customer emails.

How does SEPA Direct Debit work for subscriptions?

The customer signs a mandate online, usually by entering an IBAN or by authorising a first iDEAL, Bancontact or Pay by Bank payment that verifies the account. You send a pre-notification with the amount and date, by default 14 calendar days before each collection, which can be your invoice. The collection is submitted at least one business day before the due date.

Returned debits for insufficient funds arrive within days and carry a fee of typically €2 to €10, so plan a retry and a reminder for them. Under the Core scheme the payer can still request a refund for 8 weeks, and the mandate lapses after 36 months without a collection.

How do proration, invoicing and plan changes work?

Proration charges or credits the difference when a customer changes plan mid-cycle. On a 30-day cycle, an upgrade from a €30 to a €60 plan on day 10 leaves 20 days, so the customer pays two thirds of the €30 difference, €20, now or on the next invoice. Downgrades usually take effect at the end of the period to avoid refunds.

Every charge needs an invoice with the correct VAT. For digital services sold to EU consumers, VAT follows the customer's country and can be declared through the One-Stop Shop. A billing system that issues invoices, handles proration and triggers the payment through webhooks keeps the ledger and the payments in sync.

How do you run recurring payments across several PSPs?

Stored cards and mandates belong to the PSP that created them, which makes switching or adding a provider hard. Network tokens and a vault you control, or a contractual card-data export, keep the option to route renewals elsewhere. Routing retries to a second acquirer can recover some soft declines when the issuer allows it.

OrsunPay connects the merchant's own PSP accounts through one API, sends renewal events by webhook and can route charges by method, country and decline history. Funds settle directly from each PSP to the merchant.

How to set up recurring payments

1. Choose methods per market Offer cards everywhere, and SEPA Direct Debit for euro customers, with iDEAL or Bancontact as the first payment in the Netherlands and Belgium.
2. Capture consent and authenticate the first payment Show the amount, interval, trial terms and cancellation path at checkout, run 3-D Secure or the bank authorisation, and store the consent record.
3. Store tokens and transaction IDs Save the network token or PSP token, the network transaction ID or the mandate reference, and enable the account updater.
4. Schedule charges and notifications Send invoices or pre-notifications on time and charge each renewal as a merchant-initiated transaction.
5. Configure retries and dunning Retry soft declines on a schedule, stop on hard declines and do-not-retry codes, and email customers a card-update link.
6. Monitor failures and disputes Track renewal success rate, decline codes, returned debits and chargebacks per method every month.