In our series on Partnerships, we have so far seen how fintech collaborations are helping consumers, banks and the high-street – but a new type of financial model, the subscription, is where the concept of fintech partnerships could play its biggest role yet.
We love to subscribe to things. Netflix, vegan cooking boxes, now even clothes. If it can arrive on our doorstep or inbox with very little effort on our part, we’ll do it. They’re affordable for people who can’t shell out on an upfront sum and they’re a great way to ensure ongoing customer care. And this has only – for obvious reasons – increased during lockdown months. In fact, Gartner predicts that by 2023, 75% of organisations selling direct to consumers will offer subscription services.
In an increasingly digital world there is a clear logic for software products to use a subscription model, with the added benefit of giving users access to a product that gets better over time. Rory Stirling, partner at Connect Ventures, says: “We’re seeing more and more physical products now being transformed into subscription services by incumbents, either to solve real customer problems, or as a way of creating customer loyalty in a hyper-competitive market, such as with Pret a Manger’s new monthly coffee subscription.”
We’re also seeing more software providers that help other companies launch and manage their subscription services – such as Zuora, Recurly, Chargify and Chargebee: Says Stirling, “In the consumer space subscription management features are now built into apps like Revolut and Emma, and in the B2B space products like Soldo give firms and employees the ability to track subscriptions and even create virtual cards for each subscription.”
Stirling predicts that as open banking will soon make recurring payments possible this will allow companies to charge subscription payments via bank-to-bank transactions, using open banking platforms like Truelayer. He adds: “When it comes to financial services I also believe that customers will increasingly turn to software tools for impartial advice on which financial products to use. In order for these software tools to remain impartial, I predict that subscriptions will emerge as one of the primary business models.”
Businesses are also getting better at targeting their services to their subscriber base. Nick Raper, head of UK at payment platform Nuapay, says, “As artificial intelligence and machine learning are incorporated to analyse ongoing data collected from these customers, services can become even more personalised or even encourage businesses to create an entirely new product if appropriate.”
“Subscription models can also offer deeper customer insights,” Raper adds, “this makes providing personalised and data-led offers far easier and far more informed. This ongoing stream of data can also be used to inform product development processes or even highlight to businesses where there is an opportunity to develop an entirely new product.”
The model, of course, also allows merchants to appear more competitive on pricing. “A consumer is more likely to find £25 a month more attractive than a £300 lump sum upfront,” says Raper, “Equally important is the fact that a consumer is likely to spend more with a business over a subscription rather than a one-off purchase.” Additionally, subscription-based business models also make it easier to draw up predicted business revenues, as strategic planning will be based on recurring payments.
Before the fintech revolution, implementing a subscription-based business model was difficult and time-consuming due to the challenge of collecting recurring payments if you weren’t a large blue-chip organisation. Now with new providers in the account-2-account payments space and improved digital payment infrastructure, it’s far easier for merchants to provide a seamless subscription service for customers.
Payment providers can now be seamlessly integrated into a range of business software solutions. To support businesses with recurring payments,
CyberSource, Visa’s global payment management platform, recently teamed up with Nuapay to take advantage of Nuapay’s Account-2-Account capabilities to expand its subscription offering for merchants in Europe. At the other end of the scale, specialist membership management platforms, such as gym management software Deciplus, can provide completely integrated account-2-account solutions for their customers across Europe.
New innovations, driven by open banking, are also starting to transform the historic account-2-account recurring solutions, which have traditionally been direct debit based. “Open banking-based innovations can help make the sign-up process for customers seamless,” says Raper, “while also helping merchants to reduce their failed payments and indemnity claims, reducing the risk of lost payments.”
Just this week digital bank Monzo launched Monzo Premium, a £15-per-month service which includes phone insurance, exclusive discounts, five free cash deposits per month, 1.5% AER interest on balances up to £2,000 and the ability to withdraw £600 fee-free cash abroad.
“As customers continue to seek the best digital experience, and amid a rapid introduction of new and improved services that have materialised during the coronavirus pandemic, the banking sector is being quickly revolutionised,” says Ian Bradbury, CTO for financial services at Fujitsu. However, he warns, “Ultimately, consumers are becoming increasingly digitally adventurous and want to adopt services that offer the greatest convenience – irrespective of the organisation. The challenge for Monzo, and all paid-for subscription services, will be turning a profit in the long run as businesses look to overcome and outlast the financial impact brought on by Covid-19.”