Retail Payment Business is one of the most important and not only for the financial industry. Its importance can be understood as it provides a substantial amount of revenue for payment players and valuable data to understand customer behaviour and provide important customer insights and product and service suggestions.

Big financial institutions, Neo Banks—FinTech and big brands such as Apple and Amazon—are fighting to get their share in this industry.

At the same time, we observe pressures from EU regulations such as PSD2 and the instant payment framework, which seek to protect consumers and put pressure on the banking industry to reduce the cost of payments.

The appeal for financial services to Millennials and Gen Z goes beyond the fact that together those age groups dominate the population. Millennials and Gen Z seek something different than traditional banking. More than half of this audience is willing to switch financial services providers.

The solution to these challenges is to embrace the subscription model.

Every financial marketer dreams of creating a customer experience equivalent to Netflix, Amazon Prime, and Disney+ with their wildly successful subscription model and embedding it in their culture and strategy. Currently, subscription models are as widespread as ever, transforming the landscape of various consumer industries such as video streaming, music, software, cloud technology, and others.

" Pros and cons aside, subscription economies provide consumers with control over their purchases in numerous ways "

Digital competitors have repackaged fees as subscriptions, a pill customers are more than willing to swallow in the digital age. These subscriptions are often designed as ‘market premium memberships’ that provide a cost-effective option instead of a surprise fee.

How to build a subscription model best practice:

● Dive deep into the available data and create the appropriate packages for targeted segments.

● Be simple and relevant. Do not create too many packages as the consumer will be confused to choose the most appropriate.

● Price correctly in order to not cannibalize existing fee income but increase it, adding more consumers that do not transact with you.

● Be innovative by incorporating not only Banking/ Payment features but Non-Banking Features for the daily life of the consumer such as Energy/Telecom/Retail shopping.

● Position and Market from Daily Banking to Daily life

● Provide the best C/X and U/I in order to ensure the consumer can easily onboard to the service and switch between packages.

● If possible, make available tailor-made packages (build your own)

● Offer tools and support to assist customers in selecting the most appropriate package.

Benefits

● It is a recurring, stable source of engagement that makes businesses better.

● It protects the customer base and reuses attrition.

● It allows a financial institution to personalize the customer experience and increase customer engagement.

● It removes the friction for fees and charges as it provides value for money selected by the consumer.

● It is essential that packages are transparent, as users need to know exactly what they are paying for at any given moment and do not have to worry about unexpected fees.

● Flexibility is another benefit, as clients can change services without much overhead moving from package to package.

Cons of subscription models

Of course, subscription models in financial services are no guarantee of success. While its benefits may help attract young consumers, it has its drawbacks.

● If it does not attract new clients or increase the engagement of existing clients, it is unprofitable.

● Freemium services can lure in prospects, but firms must successfully funnel users into paid accounts by making their value propositions clear.

● The flexibility to change services without overhead is beneficial to consumers, however it can be a drawback for financial service firms that want to keep attrition rates low. Making a service too flexible could force firms to focus on maximizing short-term fees rather than growing their relationships with consumers over time as their financial needs change.

● Bundled services can add a sense of personalization, but of course, the effectiveness of bundling hinges on the quality of the experience. Subscription models are successful in part because they offer best-in-class experiences, particularly on the digital side.

● Oversubscription models can create confusion for the consumer and the sales force.

● No clear benefit for the consumer will result in low adoption by clients.

● Emergence of +super Apps that can dominate the world of subscription by aggregating options.

Pros and cons aside, subscription economies provide consumers with control over their purchases in numerous ways. As consumers, particularly younger ones, become accustomed to this payment structure, the proliferation and sustaining power of the model will only increase. The financial services industry must decide whether to employ the work to succeed in the craze or risk being left unattended.