Michael Mansard, Principal Director – Subscription Strategy at Zuora
For decades, large traditional banks ruled the Financial Services world. Backed by government regulations and with the resources to buy the first wave of mainframe computers when they were released, for many years these institutions were untouchable.
But, over the last decade, that competitive moat has largely eroded. Growing regulations, stricter fines and flat interest rates meant that the door opened to a new wave of digital disruptors. Then came Open API legislation – which essentially forced banks to open up their black boxes, enabling customers and other companies to access all their basic functions from payments and savings to financial advice. It was the final nail in the coffin for some.
However, it’s not all doom and gloom. Traditional banks can survive this time of transition by redefining who they are and what they do. After all, these players already own a massive captive audience – often more than a million customers – and they have the data on hand to help qualify this audience. Moreover, they are audited and scrutinised so heavily that they are often seen as the most trustworthy partners.
All traditional banks need is a little more creativity. They need to investigate new business models and find imaginative ways to differentiate themselves from the new entrants to the market.
If you can’t beat them
With new fintech and challenger banks taking the market by storm, traditional banks need to do what they can to level the playing field and elevate their offering. In a world full of Monzos and Starlings, this is becoming an increasingly difficult task. However, perhaps there are lessons to be learnt from these new, more agile digital players. In fact, according to recent research from Accenture, traditional banks could increase their annual revenues by nearly four per cent if they embrace the innovative business models used by digital-only players.
One such business model is subscription services. To gain access to a product or service through subscription models, customers are charged a recurring fee at fixed intervals, whether weekly, monthly, annually or on a pay-as-you-go basis. The key distinguishing feature between this and the recurring fees or premiums provided by most FS organisations is the emphasis on customer-centricity, whether that’s through more personalised pricing models, delivering continuous value, or allowing subscribers to be in control of their own journey.
For companies operating in the financial services industry, this could mean more opportunities to upsell and cross sell services which, in turn, will help to increase customer satisfaction, reduce churn and unlock new revenue streams. Subscriptions can also help cast a wider net to expand an organisation’s addressable market. For instance, traditional banks can make their products and services more affordable, not necessarily by reducing the overall cost, but by allowing customers to spread their payments over a longer time period. Given this ability to grow user bases, subscriptions can boost revenue growth in the long run. In fact, according to Zuora’s latest Subscription Economy Index, subscription services, alongside the unique insights provided by them, have enabled the businesses that adopt them to grow 4.6x faster than the S&P 500 over the last decade.
Some financial services organisations are already reaping the rewards of adopting new digital business models. Whether it’s flexible “Wabi” car subscriptions from Santander Consumer Finance, digital service packages for travel and entertainment from Barclays personal banking or Robo Advisor from Fidelity Go, companies across the industry are opening the door to a whole new world of possibilities. Although corporate, investment and wealth management companies have traditionally lagged behind, the time to change this is now.
Achieving partner status
Over the years, customer needs and desires have changed dramatically. If the more traditional financial services companies are going to continue to thrive, they too must adapt. A bank can no longer just be somewhere where individuals go to deposit and retrieve money. Today’s consumer wants more and if their bank isn’t offering it, they’re not afraid to look elsewhere.
In order to attract new customers and retain current ones, traditional banks need to focus on achieving that elusive partner status. This is where subscription models come into their own. Through a significant amount of usage data, they enable businesses that are using them to interact with their customer base and adapt their services to match demand. This data can be used by businesses to curate competitive pricing structures and develop strategies to entice and retain customers with customised offerings.
A fundamental success factor for subscription sellers is personalisation. A product or service which is tailored to suit a customer’s individual requirements and take personal preferences into account is a great way to earn customer loyalty and build stronger, long-term relationships. By solidifying those relationships and reducing churn, traditional banks can reimagine their business as a recurring service, rather than an accumulation of transactions.
As we enter into a new era in banking, those that fail to adapt will be left behind. It’s time to redefine the image of the ‘bank’, stand up and be counted. According to McKinsey, 80% of wealth management clients will want to access advice in a Netflix-style model – which is data-driven, hyper-personalised and continuous – by 2030. Through embracing new digital business models – such as subscription services – traditional banks can meet these expectations in a way that enables them to not only survive but thrive in one of the most competitive markets in the world.
