In the financial services industry, customers rarely buy financial services in isolation; it’s most often a cause-and-effect situation.
Consumers buy a house or a car — and need loans and insurance. They get married — and need to combine their bank accounts. Small businesses start trading abroad — and need specific types of international trade solutions. Financial services companies have to rethink the customer journey to deepen — and grow — relationships overtime. Here’s how:
- Rethink core offerings to gear them toward customer-centricity and segmentation, while at the same time transforming revenue/pricing models in light of current challenges
- Progressively design and manage the customer journey to maximize lifetime value and ensure retention rates in a challenging environment
- Make it simpler for customers to access and use services and give them more control over how they interact with products. (Though at first it may sound counterintuitive, research from the Subscribed Institute shows that the more autonomy your customers have when interacting with your brand, the higher the growth: for example, offering customers the option to suspend subscriptions can help businesses save 1 out of every 6 churning customers.)
- Complement core offerings with adjacent services. This can be achieved by creating a digital ecosystem – and participating in others’. An especially important component of this is opening up the lens to partner with companies — even those that exist outside of the financial services sphere.
The good news is that financial services companies are perfectly poised to take on these types of growth-engine transformations.
How so?
- They own a massive captive audience — often more than a million customers — that many companies would love to market their services to.
- While it’s not exploited enough (yet!), they have huge amounts of data to help quantify this audience. – Because they’re audited, scrutinized, and accustomed to operating highly sensitive services, they’re seen as trustworthy partners.
- They are able to handle complex processes at scale.
- They can tightly couple services with other relevant financial services to provide differentiated solutions.
Data support this theory. For example, a recent large Ernst & Young study found that, “Financial institution customers prefer to get their subscriptions from their financial providers rather than from a technology firm.” And in 2019, a UK-wide study of 1,000 consumers, conducted by CitizenMe with Zuora, looked into what people want from their bank. The study found that nearly half (44%) of consumers would consider switching to banks on a subscription basis in return for personalized service bundles that add value to their lives and the majority (68%) were open to paying a recurring fee to access these additional services. This is significant in that over one-third (35%) of all UK consumers have never switched their bank.
HERE ARE FIVE EXAMPLES FROM FINTECH OF WHAT “GOOD” LOOKS LIKE.
Lemonade
Sector: Renters, Home & Pet Insurance Case Spotlight: Lemonade’s AI bot Maya crafts personalized coverage for its users within seconds, and provides homeowners, renters, and pet insurance. Lemonade is backed by companies such as Allianz SE and Softbank Group, and has grown from $1M to $100M Annual Recurring Revenue in just 2.5 years (2019). Within this time, Lemonade increased licenses 20x, released 1500 software upgrades, and performed +10K product and marketing tests.
Subscription Model: Monthly flat fee (e.g. from $5/month – for a renter’s insurance). The subscription can be cancelled at any time.
Alan
Sector: Collective Health Insurance Case Spotlight: “Simplifed” and “transparent” health insurance for companies and freelancers crafting personalized coverage through a quiz. Signing up takes less than 5 minutes, and the Alan app offers perks such as allowing customers to connect with reimbursable medical practitioners within their surroundings and offers inclusive subscriptions to mediation apps. Alan is backed by CNP Assurance, among others.
Subscription Model: Monthly subscription depends on age, employment type, industry, and ranges from euro46/month to approximately euro 130/month.
N26
Sector: B2C Digital Bank Case Spotlight: Offerings for subscribers include travel insurance packages, lifestyle insurances, “unique experiences,” and a dedicated line for customer support. N26 is backed by investors such as Allianz SE, and has partnered with Axos Bank to offers its services in the U.S.
Subscription Model: N26 Standard (free online bank account), N26 You (euro9.90/month), and N26 Metal (euro16.90/month)
Holvi
Sector: SMB Digital Bank Case Spotlight: Holvie offers all-in-one business accounts for freelancers and entrepreneurs to streamline invoices, automate everyday bookkeeping, and provide overviews on expenses and tax prep. Holvi, acquired by BBVA in 2016, experienced 60% year over year growth between 2017 and 2018 and had reached 150K micro business customers as of May 2019.
Subscription Model: “Starter” subscription is free, while the “Grower” subscription starts at euro12/per month per user.
Sberbank’s SberSolutions
Sector: B2B Services Case Spotlight: SberSolutions offers online services for financial, operational, legal, and HR outsourcing, and can be used by clients and non-clients. One of Sberbank’s key strategies for 2020 is to “build a foundation for an ecosystem in non-financial industries”. Note: the Sberbank ecosystem companies have offered some of their services for free during the pandemic. For example, subsidiary DocDoc has launched a free telemedicine hotline for all Russian citizens.
Subscription Model: An example of Sberbank’s subscription pricing is its accounting service offered for 6,000 RUB to 29,000/month depending on volume of employees, documents, and operations.
The addition of subscription services doesn’t have to replace a financial services company’s core service; they complement it.
And these additional services can help unlock a virtuous circle of interwoven revenues.
- Perceived added-value services drive competitive differentiation
- Overall retention improves, especially when the service is high added-value
- New revenue streams are less content-sensitive (e.g. interest rate) while being potentially less “constrained” (e.g. capital requirements, liquidity ratios)
- More qualified leads and better customer insights from new ecosystems or adjacent services. For example, by managing the payroll or accounting processes of a SMB customer, banks can anticipate financing needs.
In summary, the call to action for fintech companies is pretty simple.
You need to experiment, as soon as possible, to decide what the Subscription Economy can mean for your business.
While it’s impossible to make predictions about what new or transformed offerings could contribute to your bottom line in the next five years, one thing is sure: the industry is ripe for disruption and reinvention. And the earlier you start on your transformation, the sooner you’ll reap the rewards, setting you apart from the competition with renewed and sustainable revenue streams. It’s a one-of-a-kind opportunity to reinvent the financial services industry — or risk being rendered obsolete.
