After analyzing the spending habits of millions of online customers around the world, Revuto’s CEO Vedran Vukman arrives at a staggering conclusion: People are losing $1 billion on unwanted subscription charges every year, due to the myriad of gray-area charges including additional fees after free trials, auto-renewal services, and subscription fees that increase gradually.
Image source: Vedran Vukman – Valuewalk
Besides the economic impact of unwanted subscriptions on the pockets of millions of users, there is the frustration and the tiring efforts they make to break free of obligations they acquired due to deceptive practices.
Vukman’s company, Revuto, helps customers get rid of unwanted subscriptions and gives them control on those they indeed want. Vukman explains that deceptive free trials effectively mislead people into a trap by pushing them to subconsciously subscribe to a product or service they just wanted to try.
Most of those misleading free trials can be found in today’s smartphone apps since once users download them, they can often use very limited options. We spoke to Vukman about this issue more in detail, to carve out how the subscription business is performing and how impactful unwanted subscriptions are.
What can be defined as a „deceptive free trial“ and what are some examples?
To use a fully functional app, customers very often have to sign up and subscribe, and “thankfully” it will be „free“ for the first week of use. To subscribe, they enter their card details and the subscription will start once the free trial period is over.
Soon, a lower balance on their bank account will show them they forgot to cancel the subscription. Sometimes they are charged for a week of use, sometimes for a month, but more and more often people are being charged for the whole year at once.
„Free-trial victims” are contacting support, dealing with the problem, trying to unsubscribe and get their money back, but usually, it is too late once the charge has been made. And doing that to one user may not be such a big problem, but doing that to thousands of people every day around the world became the number one problem for the subscription economy.
What is the personal finance impact of unwanted subscriptions according to data?
The data is very telling of the big impact unwanted subscriptions have. In Europe, for example, people spend 130 euros per month on their video, music, and sports subscriptions, which is roughly 5% of all their spending. However, every fifth user never reviews their subscriptions and as a result, half of them are currently paying for subscriptions they either don’t use or for which they get very little in return.
In the U.S., in 2019, people spent $640 on digital subscriptions like streaming video and music services, cloud storage, dating apps, and online productivity tools, according to an analysis by Mint.
In Europe, the problem is such that the European Commission issued a document addressing the “free trial trap” –one of the key business mechanisms that “locks” consumers in for a service they haven’t explicitly agreed to pay, but in which the auto-renewal policy kicked in.
This model was one only used for business SaaS tools but is now an integral part of gaming, dating, betting, and entertainment apps globally, which due to their growing popularity is one of the fastest-growing cashback reasons.
How did the pandemic affect free-trial seasonality and how much have hard-to-cancel subscriptions increased?
By July last year, Netflix Inc (NASDAQ:NFLX) had reached 190 million subscribers around the world after an increase of over 10 million during the pandemic. This happened right after the overall subscription businesses had grown revenue about five times faster than S&P 500 companies –18.2% vs. 3.6%– between 2012-2019.
If we follow the sequence of events, once the pandemic started, a big part of the world ended up in lockdown. Household spending decreased due to the temporary closure of bars, malls, and restaurants, so consumers turned to streaming services like Netflix, Disney Plus –Walt Disney Co (NYSE:DIS)– or Amazon Prime –Amazon Inc (NASDAQ:AMZN)– music streaming apps like Spotify Technology SA (NYSE:SPOT), and gaming platforms like PS Plus and more.
During the Covid era, usage of smartphone apps hit an all-time high reaching 200 billion hours a month. A big part of that includes subscription-based apps so we would say that hard-to-cancel subscriptions found their golden goose, especially when we’re talking about kids who just click the “next” button without reading the conditions while spending their parent’s money –predominantly on games and streaming services.
If we look at statistics, nearly 90% of consumers accept legal terms and conditions without reading them, and within the 18-34 years age group, the rate is even higher at 97%.
In summary, apart from just consumer benefits and a simplified experience, the main guarantee that subscriptions are here to stay is the fact that they reward business owners with significantly higher valuations.
Regardless if you are a big or a small business owner, the P/E ratios of public companies reveal that a major part of the 15 most valuable tech, media, and telecom companies are subscription businesses, while startups reach 10 to 20 times higher valuation if they have a subscription instead of relying on transactional revenue.
What online businesses are currently furthering free trials the most?
To be honest, I can’t remember any company that doesn’t have a free trial period in their subscription model. Even though a lot of people are paying subscriptions to Netflix, Spotify, different clouds, and for the premium features on social networks, I must say smartphone apps are the ones that are furthering free trials the most.
As subscriptions are growing 100% YoY, younger demographic groups simply don’t have the discretionary spending power of the previous generations. So, a small, recurring monthly payment works equally well regardless of whether the product is a cloud-based entertainment content provider such as Netflix or Spotify, or perhaps an insurer like Lemonade, or a car subscription service like Cluno.
The unwanted subscriptions are the negative consequences of this business model and trend, and this is what is costing people so much money.
How often do big companies that offer online free trials deceive customers?
Well, the main problem is that once you are subscribed, the company won’t send you the reminder that you will soon be charged for the next month of use, because by doing that, the opportunity for you to cancel would automatically increase.
By sending only the invoice, people know that, since they have already paid, they can use the app for a month longer, and after that, they will unsubscribe. But of course, they forget to do it on time because the process of unsubscribing isn’t always so simple.
To unsubscribe, you have to log in to the app first, and sometimes I cannot even remember my own password. After dealing with the problem, I have to confirm via mail that I’m unsubscribing. Some apps even have additional fees, penalties, or unwanted actions for unsubscribing – Audible will take all of your paid and unclaimed credits so you have to contact customer support to deal with the problem.
This is evident when you see that 48% of people forget to cancel a free trial before being charged by an auto-renewal.
Why offer cryptocurrency payments through REVU and how does Revuto plan to develop this front?
We strongly believe that crypto will dominate when it comes to online payments in the future. Crypto payments are usually cheap, fast, and very efficient. Still, the biggest advantage of crypto lies in the fact that the token supply is usually limited –by growing a user base, and by using incentives for people to hold their tokens, the price will eventually rise and result in more buying power.
Knowing that, we’re introducing crypto to our users to allow them to pay for their subscriptions less than they would pay with their FIAT money. It’s as simple as that.
Also, Revuto will allow its users to leverage REVU with subscription payments. So, people will actually pay less and save their money when it comes to subscriptions, and with the Revuto app and by staking REVU tokens in the liquidity pools, users will be able to provide liquidity to their peers on the subscription due dates and make their money work for them.
In other words, if you don’t have enough money to watch the finale of your favorite TV series on Netflix, you can easily borrow money from the pool and pay it back later.
Further, since Revuto is issuing virtual debit cards for each subscription, once customers click the “Block” button we won’t top up their specific virtual debit card with money –so the subscription will not be charged, but they also won’t be unsubscribed. The micro-lending feature will provide much-needed liquidity, allowing users to better manage their cash flows and never miss a subscription payment.