How Banking Providers Can Tap Subscription Economy Revenue

The average U.S. customer has multiple subscriptions to obtain goods and services via ecommerce — ranging from streaming services to dog food. Here's how financial institutions can get a slice of this massive source of revenue.

Quick question: Can you estimate how many recurring subscriptions the average U.S. household has right now?

We’re not talking about the daily newspaper or your gym membership, although those are definitely the grandparents of the current subscription model that suddenly seems to be everywhere.

Subscriptions to Netflix, HBO, Amazon Prime or other streaming services are just the most visible manifestations of a rapidly growing phenomenon. Today, there’s a subscription for everything. Recurring deliveries of meal kits like HelloFresh or Daily Harvest have taken off. Cosmetics and household purchases can be renewed monthly. So can purchases of everything from wine to fruit to vitamin supplements to streaming music to socks to car washes.

Even pets are getting in on the act, enjoying food, treats and toys delivered each month via services like BarkBox and MeowBox.

If you’re thinking subscriptions came out of nowhere and are now a juggernaut, you’re right. A recent survey by PYMNTS and found that the average U.S. consumer now has subscriptions with five retailers. That number increased in four consecutive quarters and is now twice what it was in the first quarter of 2021. It works out to roughly $200 per household.

And consumers are sticking with them. Only 14% say they plan to reduce the number of subscriptions they have while 51% are planning to add more.

How Did We Get Here, and Where Are We Going?

In a subscription economy, the traditional business model of one-time payments is overtaken by subscriptions that automatically recur monthly, quarterly or yearly.

This surge in subscriptions makes sense in light of the pandemic. With the country under lockdown, people weren’t going to movies or socializing — so why not add that Amazon Prime subscription? It was easy and sometimes necessary to get essentials delivered to your door for families and their pets. Fido needs that 60-pound bag of food every month. Why not set it and forget it with an auto-renewing subscription?

Shocking Statistic:

Gartner's prediction of how many direct-to-consumer companies will offer subscription services by 2023:

Is the boom in subscription-based purchases likely to be a permanent change? Probably. The subscription economy is predicted by UBS to grow to $1.5 trillion by 2025. The model is a win-win for businesses and customers. For customers, it’s easy and convenient and the fixed expenses help them budget each month.

For businesses, recurrent subscription payments create effortless revenue and customers’ loyalty.

But for financial institutions, those wins aren’t always so clear.

What It Means for Banks and Credit Unions

Everyone’s getting subscriptions for everything. What does it mean for financial institutions? In two words: revenue potential.

Account holders need to pay for those subscriptions and they have a choice of payment vehicle when signing on the virtual dotted line. If they choose the debit or credit card issued by their financial institution, those transactions will provide increased interchange revenue for banks and credit unions. But, if they choose bill pay or ACH transactions, revenue opportunities will bypass the financial institution.

Incentivizing account holders to make those recurring subscription payments on their debit or credit card can flip that customer expense into financial institution revenue.

There are three factors banks and credit unions should consider regarding subscription-related services.

1. Primary financial institution status is key
Not too long ago, an account holder’s brick and mortar bank or credit union was automatically their primary financial institution. But in a world where account holders are meeting their financial needs in varied ways, primary status isn’t as clear. Today, consumers are just as likely to borrow money from nondepository institutions as they are from traditional banks and credit unions.

Today’s banking consumer identifies their primary financial institution as the place where they get their direct deposits and pay most of their bills. The more the consumer relies on that account for transactions, the more “sticky” they become. Regular, recurring payments make account holders sticky.

2. Subscription management
Do you know how many subscriptions you personally have at any given moment, when they’re likely to auto-renew and how much that renewal will cost? Most people don’t. This represents an opportunity for financial institutions: subscription management.

Financial institutions can deepen relationships with their account holders by providing transparency about all of those little subscriptions they signed up for. One large financial institution provides account holders with a monthly run-down of their subscriptions that are coming due the following month. Another gives its account holders an alert when a subscription charges a fee.

Change The Narrative:

Customers want subscriptions, but they worry about affording them. Financial institutions can help customers track and manage subscriptions.

Any consumer with multiple auto-renewing subscriptions can see the value in that transparency. But their financial institution can aggregate this useful information only if the account holder pays for subscriptions through them. That’s a big benefit your account holders might not know about, so tell them.

3. Identify positive financial wellness
Assessing the positive financial health of your account holders through recurring payments on standard budget items like utilities, mobile service payment, insurance payments, ecommerce, daycare and subscription services can be simple using the right data.

Account holders that consistently make subscription service payments on time show they have strength in at least one path of their journey, and provide insights for a financial institution to expand upon from a relationship perspective. This audience may include good candidates for other products and services that can drive additional revenue to the financial institution.

Driving Revenue from Recurring Payment Transactions

Two key elements will help banks and credit unions to successfully stand up a program to tap the subscription payment revenue stream.

One is merchant payment cleansing, which provides a clear line of sight into your account holder’s recurring spending, identifying the merchants and their type of business. This data can be used to model customer spending behavior, analyze opportunities for revenue growth and enhance customer experiences, including lowering risk of fraud by identifying when fraudulent transactions may have occurred. Having merchant payment cleansing also cuts down on calls to support centers, leading to lower expenses from calls related to transaction confusion.

A second element is customer insights combined with marketing automation. This combination identifies specific account holders who are making recurring subscription payments. They can then be marketed to in a relevant way with the help of the right data partner.

Financial institutions can turn recurring spending insights into action with meaningful marketing campaigns that deliver the right message through the right channels at exactly the right time.

To learn more about how to leverage the growing subscription economy for your financial institution, please get in touch.

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