The Subscription Economy in Banking’s Future

We officially live in a subscription-consumed society. What was once reserved for magazines and door-to-door Encyclopedia salespeople has become the default way we consume media, order food, hail a ride, and even buy clothing. It’s understandable how we got here. Subscriptions can make our lives easier with the touch of a button, an automatic refill or groceries that arrive on our doorstep just an hour from ordering. And in the digital age, our appetite for instant and easy services has never been higher. 

It’s hard to find someone who doesn’t participate in this modern consumer megatrend. A 2019 study found that 92% of the millennial generation uses a subscription service of some kind. More people are placing value in companies offering subscriptions for products and services, and companies want to create positive experiences in return. As explained by Harvard Business Review, companies in the experience economy “use services as the stage, and goods as props, to engage individual customers in a way that creates a memorable event.”

            Businesses from every industry have grown to love the subscription model in the last decade as well. For good reason! Recurring, and stable sources of revenue tend to make good businesses better. And the customers who opt-in to these types of services are quite loyal; they’re not looking for a one-time purchase. Instead of aiming for single transactions, businesses are focusing on delivering lasting experiences and forming long-term customer relationships through subscriptions. 

So where do we stand in financial services? Our customers are drowning in subscriptions. At every financial services conference we attend, the speaker tells us “look at Amazon, look at Uber!” We’ve been looking, conference speakers! We see it. But we’re confused as to where we fit in this megatrend called the subscription economy. 

Luckily, our friends in fintech have stepped up. 

The Fintech Response to Subscriptions 

One of the first financial pains that the modern fintech community identified as a pain point was budgeting. “PFM” (Personal Financial Management) solutions from companies like Yodlee, Mint, and MX focused their early attention on transaction categorization and aggregated views of your budget, net income, cash flow, and much more. Post-Great Recession, on the backs of Uber and Amazon Prime, subscriptions began to touch every part of our lives. And PFM tools were not first responders to the pain; so a new breed of fintechs began to emerge focused on identifying, presenting, and changing consumer behaviors around their subscriptions.  

A variety of fintechs stepped in over the last five years via direct to consumer (see Truebill) and in partnership with financial institutions (see Minna Technologies and WalletFi as examples). Minna Technologies, a Swedish-based software company, partners with banks to help customers manage their entire subscriptions’ lifecycles and includes promotional opportunities for subscription businesses. WalletFi™ enriches raw transactions with recurring subscription and bill payment data, adding a new layer of enrichment that enables the opportunity to engage with every transaction. 

PFM solutions rolled out new solutions and even banks began to create focused solutions on subscription management. European challenger banks were one of the first to the party and larger U.S. banks have slowly begun to release more of these features to their customers natively in apps and online banking solutions. For many, subscription management services may become as “table stakes” as mobile check deposit became this past decade. 

Could You Subscribe To Your Bank?

The other side of this coin is about value. Is there a subscription model where banking solutions offer enough value that customers would pay a monthly fee? In hindsight, less focus on NSF fees and more on monetization of digital solutions would have made for a healthier balance sheet in the future, but no one was going to take the first step against “free” over the last two decades. Hope is not lost though. 

Consumers appreciate what the subscription business model provides them: flexibility, speed, personalization, and convenience. What if banks could capture that same dynamic (and actually charge a fee because it was such a value-add to someone’s financial health)? There are companies who have done a great job enhancing core financial products like checking accounts, helping adjust the performance of this loss leader into a higher-performing, non-interest asset for financial institutions. See StrategyCorps’ BaZing service as an example. 

But, can we push subscriptions further into the ethos of the financial services model? There have been a few shots on goal over the years, but nothing has been a slam dunk. 

1. Meed Banking Club, a $9.95/month fintech built on bundling, made a bit of noise when partnering with Oklahoma-based Vast Bank a couple years ago, but has since disappeared/been acquired (?) by Austin-based Tend. 
2. Aion Bank, a Brussels based subsidiary of an ETF holding company, has taken a premium services approach to its subscription model that includes a data aggregation tool that helps lower household bills, find better deposit rates, and find deals online. All of this comes with a €20/month price (equivalent to approximately $22). 
3. Newer, niche challengers like Greenlight have simple fee structures (focused on kids financial management in the case of Greenlight). 

It’s fairly obvious that to create a successful subscription model in a bank, you must have an incredibly unique value proposition or audience focus. With the rise of so many “Super Apps” in the industry, packing more investment features, cryptocurrency trading, budget tools, and rewards aggregators, the consumer is going to be quite confused as to what’s a valid, trustworthy service. Bells and whistles do make a lot of noise, but don’t always lead to sustainable business. There is an opportunity for banks to personalize rewards and cashback services for a subscribing consumer, and research shows that financial services should shift from the traditional product-centric offering to focusing on the customer by providing experiences and supporting financial wellness. There is still more that needs to be done to make subscription-style banking have mass appeal to consumers.

The subscription economy is here to stay. How will your financial institution adapt?