In the past 10 years, the financial services industry has seen more radical transformation than any other - from new regulations like open banking to digital payments to an unusually low interest rates to a more active, gamified customer base. But it’s still operating on decades-old business models, models that fail to prioritize establishing and nurturing customer relationships built on value.
Recurring payments and relationships can build new connections. By embracing customer-centric digital strategies, financial services organizations have the opportunity to reinvent their value propositions, business model, go-to-market strategy, and ultimately achieve accelerated and sustainable growth.
The Subscribed Institute’s most recent
Case in point: look no further than industry leaders like Charles Schwab (wealth management) or Lemonade (insurance). Charles Schwab doubled down on a subscription model by automating investing to build and manage its clients’ portfolios for a $30 per month fee for accounts with at least $25,000. The result? In 2019 alone, subscription pricing contributed to $1 billion in new client assets for the company. Lemonade, on the other hand, is embracing emerging technologies like artificial intelligence to deliver an unrivaled and flexible subscription experience. The company’s AI bot Maya crafts personalized coverage for its users within seconds, and offers its users the ability to cancel anytime.
But transforming to a subscription business model is easier said than done, and there is no one-size-fits-all solution. Let’s dig into the four major transformations for financial services organizations to explore.
Make your core offering a subscription service. Shifting an existing service into a subscription can enable financial services organizations to more easily differentiate their value from competitors and provide the flexibility to pivot quickly to meet changes in customer demand. For customers, this means a more user-friendly pricing model that gives them the freedom to consume a service in a way that’s convenient for them.
Grow your financial service with ecosystems: Financial services organizations can maximize revenue by growing business beyond core offerings and into adjacent areas. From doubling down on new digital capabilities like APIs and banking-as-a-service offers, to engaging in a free-to-fee approach where services that are currently free could become itemized paid services in the future.
Scale existing subscription services: Many financial services organizations have yet to discover untapped revenue opportunities. However, by investing in the right digital and GTM capabilities, they can eliminate historical roadblocks, create efficiencies, and ultimately reach more customers. Additionally, by consolidating acquired or developed services, they can open up the possibility of cross-selling and upselling various subscription offers.
Become a Subscription Economy catalyst. Today’s pandemic has accelerated the need for companies to transform to meet rapidly changing customer demands for convenience and flexibility. Financial services organizations are in the unique position to help accelerate the growing subscription economy.
The subscription economy addresses many of the industry’s challenges such as low interest rates, churn and commoditization. While making the shift will require extensive transformation, it is the best route for growth in the industry moving forward, and there are a growing number of successful use cases to help pave the way. The truth is, with COVID-19 acting as a catalyst for change, financial services companies that are bold enough to embrace change toward new, customer-centric subscription business models will be rewarded in the long run. In 2020 alone, revenues of subscription-based businesses grew 11.6%. But those who don’t will get left behind.
