Can a subscription model work with mobile banking?

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A family-owned community bank in Tulsa, Okla., has struck an unusual fintech partnership and engaged in a tech overhaul in an effort to compete better against large banks, fintechs and tech giants like Amazon.

The $664 million-asset Valley National Bank announced last week that it had become fintech Meed's first U.S. partner that offers a subscription service to customers for mobile banking. Think Spotify but with a financial bent.

For $9.95 a month, Meed customers get access to a demand deposit account, debit card, savings account, line of credit, life insurance and the ability to wire money domestically and abroad. While that is similar to other mobile offerings, the subscription model — and its revenue sharing arrangement with customers — make it unique.

It offers an intriguing test of whether subscription models, widely adopted by consumers who listen to music, could work for financial services. The community bank is counting on customers who may prefer a subscription to paying individual overdraft or other punitive fees.

“Think about some of the studies the CFPB has done where they’re very concerned about overdrafts,” said Valley National CEO Brad Scrivner.

For its part, Meed says that, like Spotify and other music-sharing programs, a subscription model makes sense to consumers.

“Meed is one of the oldest terms in the English language and it essentially means ‘to share,’ ” said Les Riedl, CEO of Meed. “We thought that given that our model is based around the concept of community and sharing, taking the oldest term in the English language and putting it together with what we think is a revolutionary model for banking would be very appropriate and fitting.”

Meed's revenue sharing component is a loyalty program called Social Boost that rewards customers for helping to grow the Meed community. When a user invites others to start using Meed, the bank starts paying them on a monthly basis a share of the bank’s profits proportional to the number of people they’ve referred for as long as those people remain customers of the bank. Half of the shared cash goes into the user’s checking account, the other half in savings.

The revenue banks share with Meed users can be hundreds of dollars or more if they refer a lot of friends.

“For a typical millennial this could be an extra paycheck or two a year,” Riedl said.

Riedl expects that for most users, Social Boost rewards will cover their monthly subscription fee and provide some income on top of that.

He argues that modern technologies like these are needed for products like his to function properly.

“Most U.S. banks are essentially technology museums,” Riedl said. “This combination will help Valley National get to the market quickly and do it in a way that delivers a product that delivers more value to consumers than anything else out there.”

Updating the system

But Valley National isn't just rolling out a new fintech partnership. It's also engaging in a core conversion.

It selected SAP core banking and analytics software because Scrivener felt the bank had to take a data-driven approach to serving customers. The bank also chose middleware software from Axxiome to provide what some people call “omnichannel” but Scrivner prefers to call a “single experience” across mobile, PC and branch channels.

The bank hopes these vendors will help it provide real-time transactions.

“I understand the payment rails aren’t there yet but I anticipate we’ll be moving in that direction,” Scrivner said.

All the new technology will run on a single-tenant managed cloud hosted by DXC.

Scrivner would not share how much the bank is spending on any of the other technologies it’s investing in, but he said he knows it will be worth it.

“We believe we’re going to have a strong return," he said. "Where is that return going to come from? Part of it is we’re going to remain relevant and others that make different choices will have difficult time remaining relevant. Not only that, we believe we’re going to thrive, driving top-line revenue growth and customer growth which will add to that return.”

Scrivner said when he first got into banking, coming from a background as a design engineer at a nuclear power plant, financial services felt outdated.

“I was pretty shocked at what that the technology tool set looked like and how far behind it was, even compared to companies I’d worked at 10 years previously,” he said. “I felt that there were better tools out there that could help us serve customers better. We started on a journey to figure that out.”

Scrivner is also concerned about the threats facing the entire industry, largely driven by the fintech movement: customers’ changing preferences to mobile and their expectations that they should be in control of their experience where in the past, banks have always been in control.

“That’s a real threat when your customers start preferring Venmo, or in blind surveys say they’d prefer to bank with Amazon or Facebook or Apple if they had a banking offering,” Scrivner said. “For the first time in history, you have a decreased trust level and a willingness of this next generation to start trusting in other providers. And it’s just going to escalate. Those banks that don’t position themselves well now I fear will have even more difficulty in the future.”

At the same time, Scrivner observed that while in many surveys consumers say they don’t like the megabanks, “the fact is they’re moving their money to them. They like the technology experience they’re getting from them.”

He was also worried about consolidation in banking.

“I think we’ll see 50% fewer commercial banks over the next 10 years, which will require our efficiency ratio to move down to much lower levels than they are today,” Scrivner said. “If we’re going to be here 40-50 years from now, we needed to have partners that are very innovative.”

A new core system seemed essential to making this transition.

Doing more with data

Strong data and analytics are also a part of Valley National Bank’s makeover.

“We wanted a 360-degree view of that customer for the purpose of being able to come alongside them in their journey and be that silent partner that’s available to be face to face when they need it,” Scrivner said.

He acknowledged that banks have to walk a fine line between knowing their customers really well and stalking.

“Everything I’m saying is predicated on the customer providing permission and seeing value in this,” Scrivner said.

Nonetheless, he’d like the bank to be able to know that a customer is looking at new cars and preapprove that person for an auto loan. Or notice that a customer is spending time in a home improvement store and offer a home equity line of credit. Or see that a customer is in a store and offer a real-time credit as a thank-you.

“We have a vision of making banking surprisingly easy and surprisingly simple,” Scrivner said. “We want that experience to be so memorable that it’s spontaneously shared. We believe that if we execute this successfully, we’re going to have significant competitive advantage and will ultimately deliver shareholder value.”


The bank calls this technology implementation “hollowing out the core.”

Some core technology will be moved to the SAP system this year. SAP’s S/4 HANA general ledger will be deployed this year as well. The bank also expects to do a soft, friends-and-family launch of the Meed product in December, with a full launch in the first quarter.

By the end of 2019, customers will be able to do all deposit account-related activities from a mobile app or desktop. In 2020, the bank will put its loans on the SAP software.

“We have a current loan system that will give us some capabilities in 2019 for decisioning online and some other things, that will last into 2020,” Scrivner said. “By end of 2020, we intend to be off our current vendor, though there will be some ancillary components that we continue to use from that vendor.”

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