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Loyalty, Subscription services and the importance of customer preferences in modern banking

Using contextual engagement to boost loyalty in banking

By John Phillips, General Manager at Zuora EMEA

In the past, traditional banking institutions were generally “safe” when it came to customer retention. Apart from an overwhelming sense of brand loyalty, a severe lack of differentiated, alternative options and time-intensive processes hindered customers’ ability to easily switch banks.

Yet today, new and innovative competitors like Monzo, Revolut and Starling have found a gap in the market, offering consumers a digital-first and flexible alternative to their traditional counterparts. This has, unsurprisingly, put many banks in a position of fight or flight, leaving them with the choice:  evolve or fall behind the competition.

This isn’t the only situation at play within the financial sector.  From the shift to digital and automated services, to the implementation of big data and the unbundling of business models, countless forces have started to shape a new era: The Subscription Economy, marked by broad consumer preference for access to services over the ownership of physical products.

In the Subscription Economy, Consumer Preference is King

Today’s successful organisations – regardless of industry – have found solstice through the subscription model. Not only do subscriptions provide more predictable, recurring revenue, but they enable businesses to obtain and leverage rich customer data and analytics to iterate their offerings, work digitally, and most importantly, embrace evolving consumer preferences. In today’s economic climate, financial institutions need to double down on customer relationships and evolve their subscription offerings to do the right thing by customers and meet their rapidly changing needs.

The modern consumer is driving the demand for flexible and convenient services over the ownership of traditional products. According to an international survey of more than 13,000 adults by The Harris Poll on behalf of Zuora, more than half of all consumers (57%) wished they could own less – and 70% believe subscriptions could free them from the burden of ownership.

This affinity for subscription services is being dubbed the “end of ownership” and has helped a new generation of organisations succeed. Even during COVID-19, many subscription businesses are coming out on top. For example, when it comes to retailers, with millions stuck indoors, the appetite for new ways to buy groceries, beauty and DIY products are seeing subscription businesses boom. This is supported by new data from Zuora’s COVID-19 Impact Report shows 47% of subscription companies have not seen a significant impact to their subscriber acquisition rates. Within this,  20% of companies are seeing their subscription growth rate accelerate and 17% of companies are seeing slowing growth, but are still growing.

The subscription model has helped retailers transform age-old processes to focus on building long-term customer relationships, creating personalised packages which are carefully constructed according to consumer segmentation, individual pricing models, and intelligent data analysis. And this has never been more important as consumers are now looking towards brands to provide them with a sense of value and delight that’s suited to their individual needs.

In the financial services sector, it’s no different. Today’s consumers want three qualities from their banks – convenience, flexibility and variety – and they’re willing to switch institutions or pay more in return. In fact, according to Zuora’s “Banking on the Subscription Economy” survey fielded among 1,000 UK consumers, the results showed that people are specifically interested in banks that can provide subscription-based services, to the point where more than half (52%) would be happy to switch banks for another offering – such as a free entertainment bundle like Netflix or Spotify.

Additionally, they’re looking for more than just financial incentives from their banks. Rather, they want personalised services that add value to their lives beyond a transactional level. The survey also found that 68% of consumers would be open to paying a recurring fee for access to those additional personalised services. In terms of convenience, something that fintech disruptors like Monzo pride themselves on, nearly 6 in 10 consumers would be willing to share their transaction details for services that bundled their subscription payments, eliminating the need to manage separate transactions.

When the Industry Listens

The benefits that subscription business models pose to the financial sector – and ultimately banking institutions – are clear. Not only do these models deepen loyalty and improve the customer experience, they offer banks a way to build and maintain deep, profitable relationships with consumers.

To add, according to Zuora’s Subscription Economy Index, subscription-based businesses, on average, have grown their revenues by more than 350% since 2012. This indicates a huge opportunity for traditional banks to double down on their customer relationships by transforming their businesses to offer smart, creative and meaningful subscription experiences to better service existing customers and attract new ones. In order to define these offerings and create loyalty, it will be important to address the shifting needs of customers in the current climate and provide them with real value.

Unlike many traditional business models, subscriptions have the unique benefit of being data-rich. If used correctly, banks can use these insights to further personalise and tailor services depending on individual preferences. Approaching the consumer from an analytics-driven perspective puts banks in a trusted position to earn loyalty and deliver value-added services to the next generation of banking customers. Those that consider a subscription-based service model will be the ones to expand their revenue streams to stay competitive in the current market.

The takeaway? Delivering and innovating upon a curated, convenient and flexible banking experience fueled by data is the only way to compete in the new age of finance.

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