How FS organisations can use subscriptions to get ahead in the API economy

By Michael Mansard, Principal Director – Subscription Strategy at Zuora  

In today’s competitive environment, FS (Financial Services) firms around the world are all looking to do the same three things; increase their growth opportunities, improve their client experience and enhance their operational efficiency. Many are embracing APIs (Application Programming Interfaces) as a means to achieving these goals.

By improving the flow of data and information across operations, APIs open communication channels between programs and businesses and, in doing so, act as a bridge between digital services, allowing one app to access information or capabilities from another. This gives them the chance to monetise a capability and resource directly, making launching new services and projects easier and more effective.

But, whilst the benefits of the API economy could be endless, many FS firms are currently missing a trick. By focusing too much on meeting the immediate regulatory requirements associated with APIs, they are failing to see that they are much more than just a new digital channel. All effort is going into indirectly monetising APIs through service enablement – in the hope that the revenue will be driven by the underlying ‘product’ – instead of directly monetising the APIs themselves. This is where new business models – such as subscription services – can help.

Beyond Banking

In the API economy, the most successful FS firms will be those that investigate new and differentiated monetisation scenarios from the outset. This will enable them to make the most of APIs beyond the requirements and create new sustainable revenue streams.

Subscription models – which charge customers a recurring fee at regular intervals to access a product or service – could enable FS firms to grow beyond their core and maximise revenue from new digitally-powered offerings. At their heart, subscriptions are all about giving the customer what they want. By collating a substantial amount of usage data, they offer the businesses implementing them the opportunity to engage with their customer base and adjust their services to match demand, whether it’s to do with pricing or delivering continuous value. This customer centricity is why their popularity is only increasing, with Zuora’s recent  End of Ownership Report finding that 77% of UK adults currently are signed up to at least one subscription service. In fact, companies that embrace these models have grown 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.

When it comes to the current API-driven landscape, subscriptions could open up a whole new world of possibilities for FS firms, especially those that have a significant audience with homogenous needs and pain points. The current level of connectivity and sharing of data means that a company can use APIs as an activation layer, opening up a suite of services from across its ecosystem – this includes other business units within the company’s group and also third-party services – to solve those key problems.

In the B2B space this means that an organisation could provide a one-stop-shop, incorporating banking, accounting services and payroll services in one package. For example, Starling Bank has used a platform model to create one of the best marketplaces in the UK, offering customers an extremely wide portfolio of products, including insurance services, loyalty schemes and accounting solutions for businesses, as well as mortgage products through its partnership with Habito. Meanwhile, both  DBS and BBVA have invested heavily in APIs, using them to offer customisable solutions and personalised experiences to their clients.

Bigtechs are also starting to use APIs to embed financial services within their core offering. According to Andreessen Horowitz, such an approach “can increase revenue per customer by two to five times.” Shopify is a great illustration of such an approach, which moves beyond “payments-only” and embeds financial services solutions to capture more value. It’s customers can now use one platform to launch their online store, sell through multiple channels, and manage everything related to operating their business: products, inventory, payments, and shipping.

Free to fee

FS firms are currently sitting on an API gold mine. However, with many potential revenue streams up for grabs, they need to be careful not to fall into the age-old trap of offering valuable services for free.

For those in the industry, the traditional freemium model – in which customers are not charged for additional services – does make sense sometimes. For example, when services are given away in hope of acquiring customers or generating additional revenue down the line. When interest rates were high and fees were not as transparent, this was a sustainable cross-subsidisation strategy. However, all too often, FS businesses will now default to this model. It’s become habitual and, like most bad habits, is likely to be difficult to break. After all, once customers are used to getting something for free, why would they want to start paying for it?

However, it’s crucial for FS firms to get strategic and take a hard look at their offerings to determine what they can charge for without losing customers. Services like benchmarks, advisory, audits and data analytics could be monetised as long as the additional value of the service paid for is clearly articulated and accepted by the customer. For example, UK neobank Monzo had to relaunch its paid subscription tier, “Monzo Plus,” after stopping its initial product following a 5-month experiment. The second attempt seems as if it will be a lot more successful in driving more perceived value: it converted 50,000 subscribers in the first month, even though paying for such services is new for UK consumers.

The simple fact is that today’s customer is willing to pay for a service if they see it as valuable. In fact, recent research discovered that over half of consumers are open to paying a bank subscription fee for additional personalised services. This is something that other industries have already cottoned on to. In the B2C space, many media outlets have already shifted from relying on advertising revenue to monetising readership. Meanwhile, when it comes to B2B, servitisation – where companies move beyond their traditional product core to secure growth through customer solutions designed around products and systems – is a trend which has taken the manufacturing industry by storm. No company should turn every free offering into a fee service, however, when handled with care, free to fee transitions can considerably boost the top and bottom line.

There’s no doubt that the FS sector is entering a period of drastic transformation. Digitally-powered services, and the data that they provide, are shaking up the industry and opening the door for organisations to offer clients more than just traditional products, as well as ditch the traditional freemium model. Subscription services could enable banks operating in this landscape to capitalise on APIs, improve their services and get once- in-a-lifetime opportunity to turn data into pounds.

Wanda Rich

Editor-in-Chief since 2011.