By John Phillips, Managing Director EMEA, Zuora
In some ways, banks are the ultimate subscription business: from the moment you open your account with a financial institution, locked into a long-term relationship.
But in other ways, banks are the antithesis of what’s happening in our modern Subscription Economy. Today’s banks don’t curate products and services for their customers or work at establishing and nurturing customer relationships built on value. Instead, the banking industry “banks” on the fact that customers will stay not out of earned loyalty but due to a lack of more appealing options.
Where’s the Value in Banks?
Historically there’s been very little competitive value in switching banks, so banks haven’t been motivated to deliver true value to their customers. But regulations worldwide are changing in the wake of the recent financial crisis — and these new regulations are having a large impact on the business models and strategies of banks. It’s no longer business as usual: banks can’t continue to generate the same revenues with their old strategies.
New regulations and increased oversight are leading banks to consider new paradigms for generating revenue and managing customer relationships. Banks are trying to recreate themselves, and their reputations—for evidence, you need look no further than to the recent Wells Fargo ad campaigns in the U.S. with their taglines of “Earning Back Your Trust” and “Renewed Focus.”
In this repositioning, there’s an opportunity for banks to move towards a new model in which they partner with their customers to provide real value and, as a result, realize new sources of revenue.
Industries in a State of Disruption
We’ve seen this sort of disruption before in industry after industry. Take publishing, for example, Publishers who were raking in money from advertising didn’t have to think about value. But when ad revenue began to decrease, publishers were forced to rethink value and how to drive it. This created new revenue opportunities for them, but also greater value for customers. Win win.
Now this breakdown of finance regulations is driving disruptive opportunities in banks and we’re poised to see the same trajectory of the Subscription Economy story play out in the financial industry as we’ve seen across countless other industries.
Customers Are Willing to Pay — If Banks Can Provide Extra Services
According to a recent survey of 1000 UK banking customers by CitizenMe, it’s clear that banking consumers where I live in the United Kingdom are ready for a shift to the Subscription Economy.
While the overwhelming majority of respondents (71.7%) do not currently pay a monthly fee to their bank, 44.6% are likely to pay a fee if they were to receive services, and 12.0% are very likely.
Over 45% of respondents would pay an extra monthly bank fee in order to receive subscription media services (e.g. Netflix, Amazon Prime, etc.) — which is a greater number of respondents than those who said that they would pay a small recurring fee for an overdraft facility (37.2%) and/or earned enhanced cash back (39.6%). In other words, bank consumers are even more tempted by media service add-ons than financial services. This opens the door to creative new bundling options.
Also of note, while 24% of respondents have never changed bank accounts (and 28.3% last made a change more than 5 years ago), if the offer was right, many would consider making a change.
When asked “what services would entice you to switch banks,” various non-banking related service offerings were of great appeal including travel insurance (19.10%), smartphone insurance (28.10%), flying club miles (12.60%), car services (10%), and utility services (23.70%). And, once again, the winner was media services with a majority of respondents (40.40%) saying that the offer of services like Netflix, Amazon Prime, etc. would entice them to switch banks.
The Threat of Newcomers, Scale, and Market Penetration
The opportunity lies in creating meaningful, thoughtful, creative bundles to better serve existing customers (i.e. increase subscriber stickiness and satisfaction) and attract new ones (i.e. competitive customer acquisition). This is a clear opportunity, but it’s also a threat, because historically banks don’t have experience and expertise in building meaningful relationships with their customers.
But you know what company does have vast experience in building and maintaining meaningful customer relationships, along with the added advantages of built-in scale and market penetration? Amazon. Perhaps unsurprisingly then, we are already hearing reports that Amazon is considering branching into banking services by building out a checking account product for their customers.
At the same time, we’re seeing more and more examples of disruptive new services that are stretching the boundaries of banking, and posing some very interesting alternatives to mainstream banks.
Here in the UK, for example, I would take a look at challenger bank Monzo, which is making its digital account offerings available to 16-18 year olds. With their unique focus on youth culture, Monzo already has more than 860,000 registered account holders and is quickly headed towards the one million account mark. Or Revolut, another digital challenger, which offers “premium” services that include typical bank services, like free ATM withdrawals, but also non-finance related services like travel insurance. Starling is another up-and-coming banking option experimenting with adding adjacent services to their offerings, as evidenced by their “marketplace” in which they offer a wide range of financial services from other providers.
These new banking alternatives are pushing innovation in interesting ways to increase value for customers. If I were an established British bank like HSBC, Lloyds, or Barclays, I would be very afraid.
Customer-Focused Banking: Towards a New Model
The question is, can the banking industry make the kinds of big changes they need to make in order to avoid disruption?
Towards this end, banks should take note of this recent survey and start thinking about how to bundle services to create value and inspire loyalty. In the end, it’s all about how banks can maintain relevance in these shifting times.
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