Published : 4 years ago, on 12/05/2021

By Michael Mansard, Principal Director – Subscription Strategy

There’s been a lot of speculation around what business growth will look like for the banking and financial services industry post-pandemic, but there is one theme that emerges from all of these discussions; the future needs to be flexible.

Having lived through a time of immense change and uncertainty, customers want services that they can adapt to their needs, and this is where the “Subscription Economy” comes in. The Subscription Economy refers to a new, subscription-based business model where customers pay a fee for their chosen product or service at regular intervals, whether that’s weekly, monthly, annually, or a pay-as-you-go option.

Unlike its predecessor, the “Product Economy”, which relies on one-off transactions to drive revenue, subscription business models are created to generate lifetime customer value. Compared to other industries embracing the shift towards the subscription economy, Financial Services have had a recurring service-based model. The main gaps being the lack of a customer-centricity and flexibility of the business models.

For the financial services industry, a subscription model could mean more opportunities to upsell and cross sell different services to customers, helping to maintain existing customers, reduce customer churn and to unlock new streams of revenue.

Opting in to the Subscription Economy

While subscription services have been around for some time, the subscription economy is just getting started, and use cases will continue to evolve as the technology develops to meet customer demand. Throughout the lockdown periods enforced during the pandemic, digital-based subscription models saw an increase in popularity thanks to their convenient offering and strong business continuity. In fact, research from our recent Subscription Economy Index has shown that companies that embraced subscription-based models grew at 400% on average over the last eight and a half years, outpacing S&P 500 revenues by almost six times during the pandemic last year.

One of the primary success factors for subscription sellers is personalisation. Tailoring service or an experience to suit a customer’s individual needs in a time of change is a great way to gain loyalty and win over those who previously favoured more traditional financial organisations.   Traditional organisations are typically based on an interest-rate or legacy fees based structure, which is decorrelated from both customer value and the customer journey.

Subscriptions can also help organisations to cast a wider net and expand their addressable market. One way in which banking and financial services companies can expand their market is by making their products and services more affordable, not necessarily by reducing the overall cost of the service, but by giving customers the option to suspend or resume their service, pay monthly or to pay by usage. Since subscriptions offer the potential for organisations to expand their addressable market and grow their user base, they can help boost revenue growth in the longer term. Insurance provider, Lemonade, for example, uses an AI bot, Maya, to craft personalised coverage for its users in seconds. Thanks to its simple subscription offering, Lemonade increased licenses 20x, released 1500 software upgrades and performed +10K product and marketing tests in just 2.5 years.

Subscribing to digital services

While the transition to the Subscription Economy is still in the early stages for the banking and financial services industry, we are seeing notable traction from organisations in this area, outlined in our recent whitepaper, A new formula for growth for The Financial Services Industry (FSI), which highlights 30+ concrete case studies in a 4-play matrix framework.

One financial services organisation that adopted subscription services to great success is multinational wealth management and financial advisory company, Charles Schwab. Charles Schwab shifted to a subscription model on just one of their product lines, automating investing to build and manage its client’s portfolios for $30 per month fee, for accounts with at least $25,000. Making this single shift alone brought in $1B in new client assets, primarily from younger investors.

Sberbank’s SberSolutions offers online services for financial, operational, legal and HR outsourcing, and can be used by clients and non-clients. One of Sberbank’s key strategies for 2020 is to “build a foundation for an ecosystem in non-financial industries”. An example of Sberbank’s subscription pricing is its accounting service offered for 6,000 RUB to 29,000/ month depending on volume of employees, documents, and operations.

Meanwhile, Metromile, an insurance provider, used their subscription model to offer its customers pay-per-mile car insurance through its driving app, basing pricing on usage in addition to a monthly base rate. The company claims that the service allows its customers to save $741/year on average.

In the B2B space, Serai (by HSBC) leverages HSBC’s trade banking client network, connecting buyers and sellers around the world and helping them to streamline the complexities of international trade. For “high touch” B2B offerings, the sales force is a crucial building block of sales strategy.

Since most established banking and financial services organisations are using the same operating models they’ve used for decades, a shift to a new approach can seem daunting. Industry transformations don’t happen overnight, and they’re never easy.

But the good news is that financial services companies don’t have to change their entire business model to reap the benefits. Transitioning to the Subscription Economy can be a phased, try-and-learn approach. That said, in a time of upheaval and rapid industry changes, financial services companies can’t afford to rest on their laurels. Industry leaders need to be asking not if, but how they can adopt subscription models to position their organisation for growth and success.