By Josipa Majic, CEO and founder, Revuto
The subscription economy has experienced significant uptake in the last few years, with McKinsey estimating that the upstart industry of subscription boxes has grown by more than 100 per cent every year since 2011. This growth suggests that there are valuable opportunities within this realm, which is visible from the entertainment and retail industries which include successes such as Netflix, Spotify and Amazon Prime.
Subscription services are particularly appealing to Gen Z and millennials customers, often because they no longer want (or have) the purchasing power to buy assets. Therefore, they turn to the subscription model, where they can have easily recurring payments for everything, from insurance and telcos, to entertainment and shopping. Many challenger banks, such as Monzo, are beginning to notice this appeal and following suit by finding new ways to offer their customers ‘perks’ such as metal cards and phone insurance, all at a monthly cost. Whilst this can be seen as a positive and beneficial way for the banks to generate ongoing and consistent revenue and to maintain retention rates to meet the ever-changing demands of the market, it can also have negative implications for customers, particularly for Gen Z and millennials. Due to their situation, they may often need help to manage their unpredictable and complex cash flow.
Subscriptions in the banking industry
While using a subscription model may be beneficial to financial institutions, it is also their responsibility to protect their customers and ensure they are educating them on their finances. All banks, including neobanks should build and maintain consumer trust and have their interests aligned and provide complete peace of mind knowing that their funds are fully protected.
With consumers dealing with so much uncertainty, one aspect they do want complete control over is their finances. Research has found that more than one in four people in the UK are not happy about their financial situation following the COVID-19 pandemic, banks should be supporting their customers and guiding them on their financial journey, whether it’s by including more transparent chargeback features and policies, as well as helping consumers to proactively cut costs for any unwanted products or services.
Alongside that, subscriptions and recurring expenses are also increasing 100 per cent year-on-year. Banks have the opportunity to become a crucial source of transparency and education in helping their customers to better understand hidden fees, such as free trials that are almost impossible to cancel and other forms of expenses that consumers don’t fully understand yet. Banks should be doing more to advise consumers on how to better manage their money.
Maintaining trust and transparency
A large part of where both traditional and challenger banks are going wrong is that they get wrapped up in strategising and lose sight of what matters, and it all boils down to having a true understanding of their customer base. Understanding this means it helps them to better understand their customers’ needs and allows them to implement the fundamental building blocks to create authentic, meaningful relationships.
Part of building strong relationships with consumers is personalisation and providing a tailored service. Research has found that 90 per cent of consumers appreciate a personalised service, and, with this in mind, banks should be monitoring their customers’ spending habits and providing advice on best practice, particularly when it comes to subscriptions. Nearly a fifth of people never review their subscriptions and as a result, half of them are paying for a service that they either don’t use or get value for money. Consumers will most certainly benefit from a personalised service from their bank that provides complete transparency and allows them to review their subscriptions and easily manage them – whether it is simply approving, snoozing or blocking and cancelling a payment.
Banks and many other financial institutions must remember that they have the responsibility to care for their customers, this must be put first before profiting off bad decision making. Banks, in particular, stand between the individual and the economy, they should advise their customers on how to look after their money and help them become financially secure through genuine guidance. Once banks decide to prioritise their customers, they will then be able to offer alternative services that will benefit their customers, such as perks e.g. travel insurance, free international ATM withdrawals, and discounts at selected retail stores and restaurants.
While there’s no denying that we are going to see the financial services industry move to a subscription model, it’s vital that banks adapt their strategies to focus on building consumer trust, improving their customers’ financial health and offering more personalised value propositions. But what should be at the heart of their strategy is providing a financial wellness service that allows their customers to easily manage and control their payments, as well as complete transparency over their finances and regular communication from advisors who can provide smart financial advice.