Managing the Subscription Economy

How consumer expectations are evolving. Subscriptions are everywhere, and while we love them for their ease and convenience, they're becoming more difficult to manage – in fact, 35% of consumers find managing their subscriptions difficult. For issuers, this presents a unique opportunity to reinvent how subscriptions are managed to not only improve the experience, but also inspire customers to return time and time again

Transcription:

Melinda Huspen (00:11):

Good afternoon everyone. My name is Melinda Huspen. I'm with American Banker, and it's my pleasure to be introducing today's session, which is titled Managing the Subscription Economy. Our speaker today will be Melanie Fuller, who is the Senior Vice President of Product Management at Mastercard. Please join me in welcoming Melanie Fuller.

Melanie Fuller (00:33):

Hello. Okay, good. Thank you. Sorry we're starting a minute late. There was a little problem with the deck, and I promise you you want these slides so they'll give you some good stats. It's really nice to see all of you, and I'm only going to talk for about 20 minutes, but we're going to pack in a lot of information here today. So I lead what we call customer experience and disputes at MasterCard, and specifically I'm the head of product for Ithaca, a company acquired by MasterCard about five years ago. Our space is really that intersection of helping customers recognize their transactions, their payments, their orders, helping them manage those, and then ultimately, if they don't recognize them, where they have a problem, helping them manage that dispute.

And I've been at this for over 20 years, so I know I look 25, and I'm really excited to talk to you about what we're seeing in the subscription economy at MasterCard across our payment network, as well as Ithaca specifically. I'll be talking to you about how this is actually a really, really powerful inflection point for you with your customers to do something that can help you win customers, get top of wallet, and ultimately reduce operational expense, which is obviously a win-win-win.

(01:48):

So let's dig into it. Before I do, I am going to make you interact with me. So raise your hand. We're going to do a poll on the number of subscriptions you think you have in your house. So how many of you think that you have zero to five subscriptions in your house? Okay, zero to five. Okay. How many of you think that you have five to 10 subscriptions in your house? Okay, probably a third. How many of you think you have more than 10? Most of you. How many of you think you have more than 20? A few of you.

So I have more than 20. I have two daughters in their twenties, and I figured out a few weeks ago that we had three Hulu subscriptions active. And that's what happens when you have multiple email addresses and multiple people sharing passwords.

(02:41):

That's just the reality of the world that we live in, and kind of, oh, there was me digging in. The average US consumer has over eight; the average US household has 14 to 20. And for those of you who were in the zero to five category, which wasn't many of you, that number might surprise you a little bit. But if you think about it, literally from the time you wake up, you might have a coffee subscription, you are storing information on the Google Cloud or your Apple Cloud. You're using lots of streaming and music services. You're having food delivered by HelloFresh because you're busy and you need to get dinner on the table. You're having cute outfits delivered so you can stay fashionable—that's my daughter. And so literally every area of your life is now based on subscriptions, and the subscription economy is growing and continuing to grow.

(03:36):

I was just in Dubai, and they, 97% of merchants either have a subscription or are launching a subscription this year. And if you think about it from the merchant perspective, it makes perfect sense, right? Of course, especially in hard economic times, it gives you a consistent revenue stream. But what we're going to talk about today is the good and bad of the subscription economy and the problems that it's creating for your customers and how you can help them. So let's dive in a little bit. The one thing actually that I forgot to mention on this slide that is one of the key inflection points is 35% of consumers are struggling because of all of those subscriptions.

So let's dig into it first at a macro level: what are customers telling us about what they want with their subscriptions? I'm not getting down into what to put in your banking app yet, but just at a macro level.

(04:27):

So the first thing is they want flexibility. We actually did a study with 2,000 consumers across the US, and flexibility is key. A lot of times when customers are thinking about canceling, they actually don't want to cancel. They just, maybe they're having a financial month where they need to reduce their expenses, but they really like the service. So they want options. They want to be able to upgrade and downgrade, get rid of ads, all of those things that you see as you're managing your subscriptions. They want to be able to pause. So how many of you maybe aren't watching baseball on TV this summer and you want to pause between basketball and football season? I'm going to be doing that with my YouTube TV. So there's real applicability where customers want to be able to manage their subscriptions and have a lot of flexibility in what that means.

(05:16):

It's not just about cancel, but let's talk about cancel. Cancel is actually really important. And for those of you who aren't sitting on the merchant side, which is most of you, you might be surprised that a lot of merchants in this space—I've talked to Netflix, for example—they don't look at cancels as a bad thing. Cancels is part of their business model. So they know that customers are going to churn between this bridge season and the next bridge season. That's what they expect. And we know and have very good data to prove that if you make it easy to cancel, customers will come back. The game in the subscription business, particularly for these folks that are really good at it, is to make it easy. If the customer's intent is to cancel or change their plan, make it easy for them to do that. They will come back, a fifth of them will come back within six months.

(06:09):

So it's a different way of thinking about loyalty that's very different from your typical business model. And so that's a little bit of what you have to wrap your head around as you think about this. And then lastly, and this is where we're going to get into the inflection point about what this really means for you in this room, is customers are struggling. Almost 75% of them want a single place to manage their subscriptions, which is really a stunning number if you think about it. Five years ago, nobody would've even been talking about this 10 years ago. But 75% want a single place to manage their subscriptions and think about Rocket Money. Those businesses have been framed around and have come up around that problem statement, and banks are really just starting to realize that this is their problem, too.

So I'm going to kind of focus you on really the lower half of this slide.

(07:07):

I think I've been doing digital experiences. I worked for Chase for about nine years and owned several of the digital workflows there in credit and retail. And it is stunning when you ask 2,000 customers, that 85% of them when you said, "Well, where would you want to manage all of your subscriptions?" They said, "in my digital banking app." That is where they're seeing the payments, that's where they're already seeing them. And what's even more interesting is that half of them said they would switch banks in order to do that. Now, I've been doing this a long time. That doesn't happen when you do a survey, that half of people say they would switch banks for something. I don't know if you remember yesterday in one of the early sessions, the gentleman on the stage actually asked the audience who had switched banks recently, and I don't think a single room went up or a single hand went up in the room.

(08:03):

How many of you have switched banks recently or added a new checking or savings? Two or three, maybe 10% of the room at most. So it's not something customers want to do or like to do, but what we're finding is people are really struggling with their subscriptions. And so because of that struggle, they are looking for a solution. And subscriptions are almost a car payment for most homes. So when you're dealing with a car payment, little changes to your subscriptions can make a big difference. That's the good news for you.

Let's talk about a little bit of the bad news for you. The bad news for you, I know in this room there's a lot of folks that are in the digital space at the bank, but having worked in operations at a bank, this is all causing a lot of expense for your bank that you may or may not see in the digital space depending on where you sit in your firm.

(09:00):

So on the operational side, subscriptions are now responsible for over 25% of all disputes and chargebacks and growing. I was just at a bank that now 51% of their chargebacks are related to recurring payments. That is a wild, wild statement. And with the subscription economy growing, if you don't have a solution for your customers, your chargebacks and disputes will grow. And those of you who know anything about operational expense, those are expensive. They cost a lot of money, and I know I manage those for MasterCard as well, so I know that it's a lot of work. There's a lot of regulation around those. You do not want your disputes and chargebacks going up, and you certainly want them coming down. And a larger and larger share are related to recurring payments.

So the problem statement that you have today, though, is what can you do about this? The truth is, until now, you really haven't had a lot of options. There are not a lot of solutions out there. If you talk to most banks, well, you can help... oh, there's a bird.

(10:11):

You can help... my co-presenter. You can help the customer file a dispute if they have had trouble canceling. You can block the payment, and block is a good tool, but it is a bit of a sledgehammer when, in this case, the customer needs a scalpel. So I don't want to go too much into blocks because that gets really, really deep into how payments work and payment rails work. But a block is what some of you might call a stop payment. And today, that's your only tool. So today, if a customer calls and says, "I cannot get this to stop. I cannot get this subscription to cancel. I don't know where to go," you will place a block.

That block oftentimes stops the entire card or PAN from working. And so obviously Netflix, they're a one-trick pony. They're mainly just subscriptions. But most subscription providers actually also have one-time payments, right?

(11:07):

Amazon, Microsoft, Google, they all have one-time products as well. So you're now stopping everything on that card. You're also stopping other subscriptions. So take Microsoft. Maybe you want to stop your Minecraft subscription, but you don't want to stop your Microsoft Office 365 subscription. If you place a block, neither of those are going to go through. You're going to be getting more phone calls, and you're going to lose your wallet because what they're going to do the next time they want to go and use that card for Microsoft, your card's not going to go through because of the block, and they're going to switch to somebody else's card in their wallet. So blocks aren't really the solution. And so that's where subscription management companies are popping up, and that's where our solutions and other solutions out in the marketplace come in.

So let's talk about what these solutions do.

(11:56):

They help give your customers control. I won't spend a lot of time on this slide. They help you stay top of wallet, and most importantly, they help you reduce operational expense. As you're thinking about subscription management solutions, this is the why you want to be thinking about solutions like this because you can really use a good subscription management solution to increase digital engagement, help your customer's financial health—which is especially as the economy waxes and wanes, it's always something on the mind of banking professionals: "How do we help customers save? How do we help them feel financially secure?" This is central to that.

(12:40):

So let's talk about Subscription Controls and what it is. Subscription Controls happens to be the name of our subscription product—I'll be shameless plug—but what I want to talk to you about is just subscription management broadly and what you should be looking for and thinking about when you're thinking about solving this problem for your customer. So let's dive into it.

The first thing in this space, which probably many of you do today, is some identification. Most banks that I talk to are doing something to identify recurring payments and subscriptions for their customers, maybe at some basic level. And this is really, really key, it's something I'm really proud of actually, that we do really well: it's not as easy as just using the recurring payment indicator to identify a subscription. Your mortgage is a recurring payment. Your utilities are a recurring payment.

(13:36):

We do not want to help your customer cancel their mortgage. So a subscription and recurring payment, they're a Venn diagram, but they're not the same thing. So the first thing you need when you're looking at a subscription management solution is you want a solution that will help you identify real subscriptions, cancelable, I'm making up that word, manageable subscriptions. And that's really key. And you want a solution that will enrich that information with things like: "What's the next payment? When's that payment due? What are my options to manage this?" So you don't just want to know it's a subscription. You want to know what you can do with that subscription and what there is to know about that subscription. So when you're looking for a solution, that's key.

(14:26):

The next thing you want is real management. I'm not going to say any names. A lot of solutions out there are saying that they will help your customer manage their subscription, but what they're really doing is either blocking and unblocking, kind of like taking that block functionality we talked about and making it kind of managing it for the customer with blocks and unblocks, or they're taking a username and password and logging in on behalf of the customer. And I equate that to almost like an open banking solution but on the merchant side, if that makes sense.

(15:01):

Ideally, you want a solution that's going direct to the merchant where you're connected to the merchant through an API through a portal, and you're sending those cancels directly to the merchant. If you use a block and unblock as an example, that subscription hasn't actually been managed. You've stopped the payment, but you haven't changed the status of the subscription. So what does that mean for your customer? That merchant is going to keep emailing them and saying, "Hey, your payment hasn't gone through," maybe even calling them depending on the type of subscription. And so it's not a good customer experience. You want that to actually be managed and canceled. And the ideal subscription management solutions actually have other options. For example, when we connect to a merchant through our API, that merchant, based on their business model, can choose to allow the banks connected to our solution to upgrade and downgrade, pause and resume.

(16:04):

It's dynamic because, by the way, not every merchant out there has all of those options. If you think back just a few years, Netflix basically had one plan. They didn't have an upgrade and a downgrade or a pause, and that's okay. So you want a solution that will allow you to be flexible with your customers and allow them to do things beyond cancel.

Now, why is that important for you? First of all, 50% of customers, even when their initial intent is to cancel, when they're presented with these other options, they actually choose these other options. So you're not really fulfilling what the customer needs if you don't have all of the options available from the merchant. The other thing is there is an opportunity for real growth in revenue for you. What we found is when customers have these options, we saw three to four recurring payments moved from other banks or cards or payment methods, whether that be PayPal or Venmo or whatever it is, to the card where the customer had done one of these actions.

(17:07):

Customers, when they say they're willing to switch, it's not just that they're willing to switch banks or open up a new account, they're actually willing to move subscriptions to your bank because now you're giving them that control and that flexibility that they really want. It just goes to show actually how much of a pain this is for your customers. The fact that it's 25% of chargebacks is no mistake. They're struggling. One of the things I get asked a lot is, "Well, why do merchants feel about this?" And the truth is, some merchants don't love it, right? We're providing another channel to cancel. But most merchants, particularly the big merchants who are very customer focused, say they just want the customer intent to be solved, and they know the customers will come back. And so anything they can do to have another channel for that, that's good with them.

(18:01):

So that's management. Visualization and insights. Now, I'm going to share a little bit of an interesting stat with you. We in our solution, as an example, you can actually implement it two ways, and I think this is true about a lot of solutions in the marketplace. You can put it in the transaction or statement view where you're scrolling through your transactions. You can put it right there where they can just go into that specific payment and manage that specific payment. But you can also put it in a hub. And that's what this is showing. You want to be able to really do it in both ways. What we see is customers take 80% of their actions off of that transaction and subscription view. So that's interesting. You're going to actually reduce your disputes, reduce your chargebacks, reduce the blocks by putting it in the statement or transaction view.

(18:53):

But the 20% of customers who go here to a hub are really interested in their financial health. They're budgeting. We're seeing this is all API driven, as most solutions are. So we're seeing a lot of our banks putting this in different places throughout. You could wrap this into a budgeting tool or something else, but this is where you can really make an impact on their financial health. And really one of the things we've seen some interesting banks do is at the end of them canceling, they'll give them a message that says, "Well, you just saved $120 a year. Do you want to open up a savings account?" Right? And so this is having insights, having visualization, helping them understand the holistic picture of their subscriptions is a key to any solution that you guys will look for in the marketplace.

(19:42):

Lastly, notifications are key. I used to own disputes and card replacement and some other things at Chase. And when you do, we always talked about pizza trackers. Customers want to know what's happening. So in order to know what's happening, you need to be able to notify them. You need to have the stats. So good solutions will provide lots of status to you. So you can choose how and when to notify your customer. That cancel went through; that pause that you set for 90 days is coming off; you should expect a payment soon. So notifications and being able to continually kind of pizza track for your customer is an important part of these solutions. And when you're looking for a solution, you should be thinking about that and making sure that it's a robust solution.

(20:26):

So I'm just going to leave it here. This is a relatively brief talk, but I wanted to open it up for questions from the audience. Our solution is currently with Cap One, which is why there's a Capital One reference up there, but I'm really not here to just pitch you our deal. What I really want you to take away is understanding that the subscription economy is creating a problem for your customers. The good news is, when your customers are having a problem, you have an opportunity to step in and provide a solution. When I think about the big trends in the digital space right now, this is the next big trend. This is the thing that's coming fast. Your disputes and chargeback friends are definitely thinking about recurring payments a lot because of the impact it's having to their bottom line and their operational expense. So if you can help them as digital folk, provide them with solutions, you have an opportunity for a really big win.

So with that, I know we're not exactly set up for questions, but does anyone have any questions or comments? And he has a microphone back there that he can hand to you. Any questions?

(21:40):

We got one all the way up here. He's coming.

Audience Member 1 (21:47):

Your solutions are all tied to the bank.

Melanie Fuller (21:51):

Say that again.

Audience Member 1 (21:52):

Also, your solutions are tied to the bank, but customers think about cards, not banks. So how do you do that?

Melanie Fuller (22:02):

The difference between thinking about it from a bank and a card perspective?

Audience Member 1 (22:07):

For the consumer. The consumer has cards that they use, so not necessarily, and they have several cards. So is there any solution at the card level rather than...

Melanie Fuller (22:20):

Yeah, so open banking is definitely a part of the solution set here. We call it a smart subscription hub, and it's actually connected to our open banking solution at MasterCard so that the customer can not just see what they have, let's say with Chase—that's who I bank with since I worked there—so not just with say, Chase or Citi or whoever their primary bank is, but so they can also open up and see their holistic picture. And so open banking solutions—that would've actually been a great slide—is a big part of this, and helping the customer see their whole financial health. What we do find is subscriptions are typically, most customers probably have them on two to three payment places. They maybe have a primary checking account. I actually, and everybody in chargebacks always tells me I'm crazy, but I actually have a lot being paid through PayPal. So they typically have a couple of places where they're paying their subscriptions, maybe like a primary credit card, a primary checking account. But yes, having the option to open up in your experience, all of their cards or all of their payment methods is a key to a good experience.

(23:32):

Other questions? Oh, come on now. I do know it's about lunchtime. Well, if you have any other questions, feel free to grab me after. I just encourage you all, this is a really interesting, frankly, fun space. If you're a digital experience nerd like me, this is a super fun space to wrap your brain around. So enjoy the rest of your time and don't hesitate to ask me any questions. Thank you.