The landscape has changed remarkably for financial institutions (FIs) over the last decade. Since the Great Recession, interest rates have been close to zero or at zero — a situation that has changed the revenue and profitability equation for banks over the past decade. Fees have been a common strategy for bigger banks, brokerages and insurance companies, but competition from FinTechs and credit unions (CUs) has made it tougher to implement fees from a strategic perspective — not to mention the fact that younger consumers would like to see fees waived for everything from ATMs to checking to deposits to loans.
Which begs the question as to how banks can generate ancillary revenue. In an economy that is increasingly driven by subscriptions for everything from apps to electric bikes, it’s possible that financial services could be the next hot area for subscription services.
There are certainly segment examples that at least point to that possibility. For example, insurance is low-hanging fruit for the subscription economy, since monthly premiums are so structurally similar to subscription fees. InsurTech firm Lemonade, for example, is using subscriptions to tap into digital speed and scale to close the data gap with established insurers.
“When a company was built many years ago — or, in the case of most of our large competitors, decades or a century ago — you have a process that’s built and optimized for when it was started,” Lemonade CFO Tim Bixby told PYMNTS. “As a result, you’ve got an industry that’s one of the biggest sectors on the planet in terms of dollar flow, but you’ve got players who face the pretty classic innovator’s dilemma: They’re led by smart people who want to embrace new technologies, but they’re really hamstrung by legacy systems.”
Free from those legacy systems, he noted that Lemonade’s subscription-based InsurTech design works without the baggage of having to fix the pain points that exist in the industry around payouts, claims issuing and even onboarding consumers. The larger Lemonade’s data reserves grow, the more powerful its algorithms become, and the better able it is to lower its fees, which are already setting industry standards for affordability – thus attracting more customers and collecting even more data.
Other InsurTechs are stealing pages from more traditional subscription-based companies, going to usage-based pricing, customized subscription plans and the ability to pause plans. Voom insurance, for example, offers “on-demand insurance for anything you can ride, fly or sail” using the IoT to offer per-trip coverage.
“This kind of per-usage coverage is poised to revolutionize insurance practices,” says FinTech Fusebill’s blog. “Customers increasingly seek to only pay for what they need, when they need it. Imagine a car owner pausing their insurance on the car in the garage while on vacation — this could be the norm in the near future.”
For banks, the subscription examples are just getting started. Russia’s Sberbank launched a subscription service in September that bundles everything from banking to streaming services for RUB199 a month. “The Sber ecosystem unites a raft of useful services for everyday life,” said Lev Khasis, first deputy chairman of the executive board for Sber, in a statement. “A single subscription to several offerings at once lets our customers learn about the new services and save a lot. In terms of the quality/price ratio of the services available inside the basic subscription, SberPrime is the best product on the market. SberPrime is scheduled to add new services. Furthermore, other SberPrime options will follow suit to complement the basic subscription.”
BNP Paribas has created its version of an investing “super app,” charging a subscription fee but offering clear directions on how to pause it if desired. Other financial services companies have dipped their toes into the world of subscription services as they attempt to capture new revenue streams.
Apps, and super apps, merit attention in the financial services category. Apple has its entire slew of Apple Pay products, including the mobile wallet, the Apple Card and the Apple Cash offering. And Google, as Karen Webster noted in late 2020, is cleverly building Google Pay and iis nascent banking ambitions into something that looks very much like a play on a super app.
It is also on PayPal’s agenda. The appeal of building a true super app, a la WeChat Or Alipay, is that it provides the ability to monetize access to the consumers who are leveraging that ecosystem. The challenges, however, are myriad, as the field of players looking to build that “one app to rule them all” is widening — and includes some very big names. CEO Dan Schulman stated at the company’s recent investor day that there are too many financial apps and too much friction for a seamless consumer experience. Hence, his hope is to build a super app to manage payments, shopping, savings, investing, budgeting, crypto and identity — all in one place.
“What a super app wants to do is turn all of those separate apps into a connected ecosystem where you can streamline and control data and information between those apps, between the act of shopping, [and] the act of paying for that,” Schulman said. “And then you have this common platform and common data that allows machine learning and artificial intelligence to kick in and give personalized recommendations to those consumers.”
Schulman went on to explain that PayPal’s core pillars for that super app will be payments, shopping and financial services. To be a true super app, he said, PayPal must offer consumers a range of online and offline digital payment options that are easily connected across merchants. And that is about more than connecting to the standard rails to make card and ACH payments happen — it also spans robust built-in rewards, points redemption and the option to pay with crypto.
Indeed, PYMNTS’ super app data should make any traditional FI a bit nervous, as it anticipates a future where many of its traditional revenue streams are under pressure — and the competition to take their place is getting particularly fierce among some very advanced players. And the data indicates that consumers are more than a little open to the idea. As of July 2019, a third of all consumers expressed a strong interest in using a super app, and more than half (54.2 percent) more or less said “sounds interesting, tell me more.” Only 13 percent of all consumers said “no how, no way.”
As for what they found potentially appealing, ease leads the charge, as most survey respondents regarded hopscotching between apps and icons to access, track and organize all the pieces of their everyday lives as a waste of precious time.
And PYMNTS data found that when consumers think of using super apps to run their lives — social, commercial, financial and more — they don’t think of financial services institutions. The group with the keenest interest in a super app — the one-third of consumers who said “sign me up” — said they’d trust Google (45 percent), followed by Amazon (29 percent), Apple (27 percent) and PayPal (22 percent) to deliver that experience.
The experts argue that FIs now find themselves facing a challenge: consumers with both accelerating and complicated needs and the bargaining power to demand that their FIs meet those needs, lest they move on to the FinTech player that manages to properly crack the code and offer it up in their place.
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