When you think of subscription-based services, business entities such as Netflix, Hulu and Amazon Prime come to mind. This is no accident.
Over the past decade, the move from cable services to on-demand subscribed alternatives have flooded the consumer market. With other entertainment giants in Disney, HBO and CBS joining in, the trend is clear: people want control over what service they choose. And even with multiple subscriptions present, the total consumer cost for the month is typically cheaper than its broadband or cable alternatives. This leaves very little reason for most people to keep ancient options for regular TV viewing around.
So while it may be true that the subscriber TV segment that’s taken the inroad to this model, it’s important to note that the rest of the world is catching on too.
The Integration Today
Amidst a global pandemic, subscription services are still gaining traction. And with most people in the world working remotely, many subscription-based businesses soared amid the huge demand for digital services. The Covid-19 outbreak had many businesses clutching for digital tools that would keep communication and productivity unhampered. This led to a huge increase in the number of subscribers to Zoom, Microsoft Teams and Salesforce, among others. And it just begins here. While the aforementioned SaaS (Software as a Services) companies are well-known for their subscription-based models, the push to add products on a subscription is in full effect too. And the industries at the helm of the push might not be who you expect.
Companies like Dollar Shave Club have been providing razors and shaving kits on a subscription basis for quite some time. Tonal and a plethora of other fitness and workout applications also offer their services for a monthly charge too. And if virtual workouts weren’t becoming the norm already, ClassPass provides a monthly membership to over 30K fitness studios around the world.
The SaaS model is becoming more ubiquitous than ever before.
2019 was heralded as the “Year of Subscriptions” by GameSpot, and for good reason too. Subscription services by Nvidia, Google and Xbox all amassed considerable popularity. Setting up an entire gaming platform became possible with a monthly plan and an internet connection for the first time ever. No console or setups required either. This, and the fact that automotive pioneer Tesla already offers connectivity packages in its cars on a subscription with plans to offer more driving aids and infotainment options through monthly plans, makes the financial services world increasingly digital. And exciting!
The list of industries that assimilate themselves into a subscription-based model is bound to increase every year going forward. Industries such as home maintenance, hospice and nutrition could well be on their way to incorporating models of this nature already. The intentions are well-understood as well. A recurring system of smaller payments on a monthly or weekly basis offers more returns to companies than sticking to a one-time-purchase model.
What does this mean for fintech?
And how is the existing infrastructure going to handle such a shift in financial and payment paradigm?
Over the past couple of years, the global financial services ecosystem has embraced fintech as an integral part of itself. Since then, fintech startups have been cashing in billions of dollars annually. In 2015 alone, the value of global investment in fintech grew by 75% to $22.3 billion according to a report from Accenture. The value proposition is quite clear and it seems that simultaneous to the growth of new startups, existing financial institutions are trying to get a slice of the pie too. More and more banks are now using fintech to remain competitive in a rapidly evolving financial services landscape.
However, the one area of financial services which saw the largest disruption from fintech was consumer banking. This is in part due to the fact that consumers today are looking for more efficient and frictionless ways to transfer money on-the-go. But a large fault still lies on the financial institutions themselves.
Until now, most banks across the world have handled the shift into the mobile era in the same way: by making mobile-compliant versions of every individual bank account. This may have been a competent start to making their consumers feel in control of their expenses and savings, but has since yet to see real innovation and engagement.
And while it may seem obvious to many, most banks have yet to understand that the entirety of the digital banking shift is more than making a mobile app. It relies instead on your consumer’s experience. And failing to provide a seamless cross-channel customer experience – one that lives up to growing customer expectations – can have huge implications. Consumers today have an overabundance of options at their disposal, thanks mostly in part to the inflation in the number of fintech startups, and falling short on their expectations could have them take their business elsewhere.
With more people subscribing to more services and owning fewer physical goods in the future, there is a rapid increase in the demand for subscription-based fintech services. Businesses will look to partner with fintech companies to help them enable the use of various financial services to improve their processes. This, and provide their customers with a guaranteed quality of service – a key facet most financial institutions today lack.
So what’s the alternative? A service model based on the likes of Amazon Prime and Netflix may seem like an odd approach for any financial institution but many have already adopted this. “Challenger banks” such as N26, Monzo, Revolut, Sterling, and Klarna are some of the first to implement subscription-based models and have found many consumers willing to jump ship. By offering a ‘freemium’ model – which gives users a free current account, IBAN account that offers no fees on exchanging in 24 currencies and other perks – many consumers feel the approach to be more streamlined than traditional banking.
Fintechs are renowned for offering better user experiences, cheaper rates and greater emphasis on solving consumer and technical problems. They also have the resources to develop products faster and cheaper than big banks. This is largely due to the fact that fintechs do not have to rejuvenate legacy staff and systems as most banks do. As things stand today, around 70 percent of customers do not subscribe to any monthly fees to their banks. Bringing in this number into the new model could mean traditional banks could finally compete against challenger banks and other unconventional financial enterprises and benefit other SaaS companies too.
This change also has the potential to affect and change existing payment methods. For example, this 2019 report found 48% of respondents were likely to choose Bank Debit to pay for traditional subscriptions and 45% for online. If subscription-based businesses were to increase as a whole, it could inadvertently speed up the decline in preference for using cards for recurring payments.
This results in a fresh new era of successful businesses, regardless of their industry, that are much more tightly-knitted, integrated and focused on their business goals. This way, companies that are well-integrated into this era can then make their business ventures as agile as possible while banks and financial institutions take care of the payment automation processes.
Enterprises and companies that capitalise on this changing landscape will continue to thrive and will remain adaptable to their consumer’s demands. Whether it’s during the current pandemic or after.