Are subscription models the future for finance brands?

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Finance and chill
By Jasmine Crittenden, contributor. 28 May, 2019
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Between Netflix, Spotify and Stan, it feels like subscription models are taking over the media. But it’s not the only sector experiencing a subscription boom. More and more businesses are making the shift. So what does this mean for financial service companies?

We find out from Elizabeth Glover, Marketing Director at Zuora, a company that provides software to subscription-based businesses.

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Why is the world moving towards subscription models?

As consumers, we’ve shifted away from the burden of owning products, towards buying experiences. We want flexibility, not stifling contracts; customisation, not generalisation; constant improvement, not planned obsolescence.

Whether it’s about getting from A to B, listening to music or even securing our homes, the Internet has driven a disruption in our personal and professional lives, as we opt for subscription services like Box, Uber, salesforce.com and Adobe. 40 million adults in Britain now subscribe to at least one product or service.

We want flexibility, not stifling contracts; customisation, not generalisation; constant improvement, not planned obsolescence.

How does the subscription model benefit businesses?

A subscription model is designed to put customers first and to build loyal, long-term relationships. It provides businesses with data and insights into what customers want and how they want to buy it, which allows the mapping of growth to value. Successful businesses, like Apple and Amazon, are seizing the opportunity to get closer to their customers, by offering valuable services that generate new, predictable revenue streams.

Last year, subscription business revenues grew about five times faster than S&P 500 company revenues – and achieved ten times the sales growth of both the Australian Securities Exchange Index (ASX) and the German Stock Index (DAX).

What does the growth in subscription models mean for financial service companies?

Arguably, banks and other financial institutions are the world’s longest running subscription businesses: most customers become members of a bank when they leave home and never switch. Often, this is because their choices are limited, not because they are delighted with the service.

But, in a recent UK-wide study of 1,000 consumers, conducted by CitizenMe and commissioned by Zuora, we found that customers are willing to pay – or even switch banks – in return for more tailored, flexible and valuable financial services. Companies known for being industry disruptors, like Apple and Amazon, are slowly creeping into the finance space with innovative payment methods … early signs that the finance space is ripe for shifting to today’s Subscription Economy®.

One finance company that understands the opportunity the Subscription Economy® presents is eMoney. This leading provider of wealth management solutions for advisors, firms and enterprises has grown rapidly over the past few years, to serve 57,000 users. In 2016, it came to a crossroads, with the realisation that the offline environment that had led to its success was not capable of scaling with its growth trajectory. So, eMoney extended its self-service platform and monetised it as a subscription model, thereby upping the customer experience, improving processes, boosting sales and fuelling growth.

What advice would you give to financial service companies thinking of moving to a subscription model?

  • Success requires a whole new way of thinking: the focus must shift from the transaction to the customer. Companies should orient everything around the subscriber, with all departments enabled to support a new customer experience that takes a long-term view of creating lifetime customer value, mapped to customer preferences. From partnering with businesses making this shift, we’ve learned that the following pieces of advice can be crucial for success:
  • Overcome organisational inertia: the biggest obstacle is mindset. From business school to corporate management training, we’re taught to think about hit products and unit margins. But, ironically, all companies are service companies – even if some of them don’t realise it yet! Companies must prioritise usage and consumption over strict unit sales. They need to think in terms of miles driven, not cars sold.
  • Know your customer: if you’re not wrapping your entire business model around your customers’ wants and needs, chances are, you may not have a business left in ten years. By allowing subscribers the freedom to pause, skip and change their subscriptions, you’re putting the power in their hands. They’ll feel much more comfortable signing up for the long-term if they know they have control.
  • Iterate with your customer: succeeding means having the flexibility to try new things and to iterate quickly, as subscriber needs or market conditions change. Businesses that don’t constantly improve in step with customer demands risk losing subscribers. Operationally, this includes things like launching new services, creating new pricing models and offering new payment methods.
  • Price appropriately: this is a delicate balance. While a tiered pricing model (think “Gold”, “Silver” or “Bronze”) can help with financial forecasting, usage-based pricing is essential for growth. If customers are left wanting more or needing less, you risk turnover. Flexibility – as in the ability to upgrade, downgrade, pause, renew or cancel – is what makes subscriptions so convenient. Our research found that, on average, companies grow faster with a combination of usage and tiered pricing.

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Jasmine Crittenden is a freelance writer and journalist based in Sydney, Australia. She specialises in travel, music, film and sustainable design, as well as writing extensively for major finance brands, including Westpac, BT Financial Group, Suncorp and Aberdeen Standard Investments. Jasmine also writes songs and performs under the name Jasmine Beth.