By Michael Mansard, Principal Director – Subscription Strategy at Zuora

Over the last decade, the financial services industry has seen more radical transformations than virtually any other sector. Challenging regulatory frameworks and interest rates have been met with ever-increasing customer expectations and competition from a new wave of digital disruptors – including fintech start-ups and challenger banks.

To add to this, within the last year, the pandemic has become a catalyst for the worst economic disruption since the Great Depression, intensifying threats to the industry that have been brewing under the surface for some time. Even if the global economy were to recover completely tomorrow, many FSI businesses would still be in a highly precarious position.

Moving forward, the key to success will be embracing the customer-centric business practices at the heart of a phenomenon currently being labelled the “Subscription Economy”. Unlike the more traditional “product economy” which relied on one-off transactions, this model grants businesses a unique opportunity to build loyal, long-term relationships with their customers. For the financial service sector, this could mean more opportunities to upsell and cross sell as well as the discovery of new revenue streams and a reduction in churn.

By implementing a subscription-focused strategy that is customer-centric, financial services organisations can renew their business model, go-to-market strategy, and value propositions to ultimately achieve accelerated and sustainable growth.

Subscribing to future success 

There is no doubt that the subscription economy is on the rise. During the pandemic and the ensuing lockdowns, for the most part,  businesses with digital-based subscription models fared better than those without. In fact, Zuora’s most recent Subscription Economy Index found that companies that utilise subscription models have consistently grown six times faster than traditional businesses over almost ten years. Subscription models can also help businesses stay resilient, with 4 out of 5 subscription businesses growing in 2020 despite the economic impact of the pandemic.

Business models that incorporate subscription services are already being utilised across many different industries. They are helping organisations to reinvent themselves and build a new foundation for growth, even in the most challenging times. For example, in the technology space, after years of selling on-premise software, companies like Microsoft have successfully adapted to monetising software-as-a-service (SaaS).

Meanwhile, media companies across the world are using subscriptions as a lever to accelerate growth. In fact, the Telegraph recently reported digital subscription revenues increased by £13.7m (77%) in 2020, and are expected to be substantially higher in 2021.  Similar success patterns can be seen across other industries, including  automotive, retail, and heavy manufacturing. These industries did not collapse under pressure, they reinvented their offering and adapted in order to survive.

During a time of immense change, it’s essential that businesses are able to put the customer first and tailor a product or service to meet their requirements. This is a great way to build loyalty from customers who want to feel that a business understands their needs. The offering of a more personalised service has been a contributing success factor for organisations across the board and those that embrace customer-centric business practices more often than not prevail over those that do not.

Subscriptions can also help companies to expand their potential market by allowing customers to suspend or resume their payments, pay monthly, or pay by usage – meaning services are made more affordable to customers without the need to reduce the overall cost, maximizing customer lifetime value. With their ability to help an organisation cast a wider net and grow user bases, subscriptions can boost revenue growth in the long term.

 The FS companies leading the charge

When it comes to the Subscription Economy,  it’s still relatively early days for the financial services industry. However,  over the last 12-18 months we have seen growing interest and several companies are already reaping the rewards, we identified over 30 examples outlined in our recent whitepaper;  A new formula for growth for The Financial Services Industry (FSI).

For example, financial advisory company, Charles Schwab, shifted to the subscription model on just one of their product lines, offering automated investing to build and manage client portfolios for a $30/month fee for accounts with at least $25,000. This brought in $1B in new client assets, primarily from younger investors.

Sberbank’s Sber Solutions offer financial services online, along with operational, legal and HR outsourcing available to both clients and non-clients. An example of Sberbank’s subscription pricing can be seen in its accounting service, offered for 6,000 RUB to 29,000/ month depending on volume of employees, documents, and operations.

The insurtech start-up Lemonade demonstrates one strategy for leveraging the subscription economy within the FSI: reinventing an existing service as a streamlined and customer-centric experience. Through an easy to use smartphone app, Lemonade can onboard policyholders in a minute and a half and fulfil claims within seconds. Customers can cancel and modify policies just as easily, and Lemonade even refers to its policies as “subscriptions” on its website.

In the B2B sector, Serai (by HSBC) leverages HSBC’s network of trade banking clients to connect buyers and sellers around the world – simplifying the complexities of global trade. For B2B offerings that are ‘high touch’, the sales force is an essential component of sales strategy.

The subscription revolution is here

Industry transformations aren’t a quick-fix, and they can be tricky to implement. Since most established organisations in the financial services sector have been using the same operating models for decades, a shift to a totally new approach can seem daunting.

The good news is that financial services companies don’t need to dive in and completely change their entire business model to reap the benefits of the subscription economy. A try-and-learn approach can help businesses to ease into this new world at their own pace.  With such clear benefits – industry leaders should be asking not if, but how they can best adopt subscription models to lead their organisation to accelerated growth and sustainable success.