The Rise of the Subscription Society: Three Important Takeaways for Banks


revenue-8-11-17.pngSubscription services are spreading like wildfire with huge leaps in subscription rates. Amazon Prime saw a 22 million household jump in 12 months, with 85 million Americans currently subscribed. Spotify started in 2011 with just 1 million subscribers and now, just 6 years later, has grown to 50 million paid subscribers. Then there’s Netflix, which just announced it has over 100 million total subscribers, about half of them in the U.S.

Success like this illustrates the subscription model isn’t merely a transactional structure, but has become the way for modern consumers to purchase (i.e. access to and use of product in reasonable installment payments as opposed to buying a product outright and owning it). Banks looking to make their products more attractive to consumers can use these companies’ successes as a model for their own service offerings.

So what makes the subscription-based model so compelling?

High Value, Low Cost
Subscription models provide a high amount of value at a lower cost than purchasing a product outright.

Take Amazon Prime, for example. Members are able to gain access to a large, discounted marketplace of products, free or discounted shipping that will deliver most purchases directly to their doors in under 48 hours, access to video streaming, music streaming, book libraries and personalized recommendations for just $10.99 per month (or discounted to $100 a year if they prepay in advance). These savings not only help the consumer save but also indirectly result in the development of healthier financial habits through Amazon’s network of discounts.

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Spotify’s high value, low cost model offers the ability to pay a low monthly fee for access to unlimited music streaming as opposed to paying for each song individually or buying the DVD.

And a bank is taking notice of and acting on this subscription success. To make the Spotify subscription even more valuable, it has teamed with Capital One to reduce the monthly fee by 50 percent for 50 million potential customers, if the monthly payment source is a Capital One credit card.

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Personalized Experience
Subscription services are also usually molded around the subscriber’s habits and preferences to deliver a personalized experience. Personalization ensures value is relevant to individual subscribers, as these services usually offer a wide library of products to ensure they’re universally appealing and accommodate various consumer needs.

This is another example where Spotify delivers. The service includes a so-called Discover portal dedicated to helping users find new music they would enjoy based on their streaming history and even delivers custom playlists on a weekly basis. Netflix and Amazon Prime also create a personalized list of recommendations and display them prominently on their websites so that users are immediately greeted by a relevant experience.

Banks have tremendous access to customers to provide relevant and timely offers and personalized deliverables to encourage engagement that goes beyond just traditional transactional experiences.

Convenience and Instant Access
In today’s technology-rich culture, consumers have come to expect instant access to the services, information and products they need. The subscription model was purposely built around providing convenience and immediacy.
In the not-so-distant past before Netflix, consumers would have to visit a video store or a movie theater if they wanted to watch a title on demand. More recently, they could order movies on demand from their cable or satellite providers, but this required purchasing titles individually and was often costly.

However, with video streaming services like Netflix, consumers now have a whole library of movies and TV shows to stream on demand whenever they want and they don’t have to purchase each title separately. Instead, they have access to Netflix’s full library for only $7.99 per month, which is about equivalent to purchasing one title.

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Banks, of course, do have online and mobile banking products. What banks haven’t been able to do is fully monetize, with recurring revenue, this convenience and instant access. The next logical step is to find what new, non-traditional services can be instantly delivered through online and mobile platforms that customers will pay for.

The subscription model that delivers value, personalization and instant access can be successful for banks looking to build a more marketable brand and a larger and steadier stream of revenue. Amazon Prime, Spotify and Netflix are clearly examples of top performers of this model, but banks need to search out ways they can make their products more attractive and provide a value-rich, relevant and convenient experience for their customers.

Driving Revenue with Better Treasury Management


accounting-7-22-16.pngTreasury services are a large source of fee revenue for banks – selling payment rails, wire services and other bread and butter offerings. However, when it comes to small and mid-size companies, banks can and should be a source for more than just payments and transfers. There is a huge opportunity to be generating more revenue for the bank, and perhaps more importantly, to make themselves an indispensable part of the client’s business operations.

In previous years, treasury services professionals had no need to understand their customers’ finance and accounting situation. They were selling traditional bank services, in which they were well versed. However, today’s increasingly complex fintech environment means that these professionals have a huge opportunity. There are far more technological products and solutions for banks to offer that improve their customers’ lives; and the advantage of offering them is that your customer is less likely to go somewhere else to get them. By better understanding the pain points their customers feel from a business and operations standpoint, they can offer technology that can ease customers’ headaches and drive incremental revenue for the bank.

Accounting Systems–The Heart of the Company
For growing companies, having the right accounting system is vital. Everything from payroll to accounts payable runs through it, meaning mistakes or inefficiencies can lead to everything from cash flow problems to security breaches. For these reasons, every treasury services professional should have basic knowledge of the major accounting systems and should start the sales process by asking what system a company uses. From there, they can begin to understand the company’s workflow and how it might be improved.

Increase Incremental Revenue
By understanding the customer’s pain points, a treasury services manager who is well-versed in the language of accounting will be able to identify and offer solutions to streamline processes, save time and increase security. Perhaps the customer is spending hours each week manually inputting invoices. Offering that customer an automated invoice capture solution will save the accounting team time and resources. Perhaps the customer still is filing receipts in a filing cabinet and could use a document storage system to enable faster search functionality.

Deliver End-to-End Solutions
By fully understanding accounting systems and processes and upselling additional services where appropriate, the bank can deliver an end-to-end solution for the customer and generate more revenue for the bank. For example, if the bank is an issuer of corporate credit cards, there is the opportunity to drive more payables onto those cards and drive more interchange revenue to the bank.

Everything from invoice capture, to accounts payable, to payments and payroll can all flow seamlessly through the central hub. Offering multiple products together will ensure proper integration and mean that systems aren’t cobbled together or require work-arounds. And, these solutions offer additional benefits such as fraud protection, increased visibility and cash flow management and security controls.

However, the treasury services professional’s job doesn’t have to stop after they make a sale. By keeping in touch regularly and nurturing the relationship, he or she will be able to identify when it’s time to upgrade systems. For example, a small business may start with QuickBooks but eventually outgrow the system and graduate to a more robust accounting platform like Intacct or NetSuite. Keeping an eye on data that indicates account health, such the volume of payments or other activity, could be a good indicator of when to check in with them.

Make Your Bank Sticky
It’s all too easy for a business to switch banks–especially if it is using the bank only for payments and transfers. Customers can be fickle and easily lured away by a slightly better rate or lower fee structure. But a treasury services professional can be at the front lines of customer retention by showing value that makes it difficult for customers to leave.

Studies have shown that online bill payers are twice as likely to remain active banking customers and as high as 70 percent less likely to leave the bank. So it stands to reason that the more products and services a bank can offer, the harder it will be for the customer to leave. As a treasury services professional, this is crucial to keep in mind–closing sales is about more than just fee revenue, it’s also important to client retention, and it all begins with understanding the customer’s accounting systems and processes.

What Bankers Should Know About Consumer Checking Financial Performance


Every financial institution (FI) is trying to optimize the financial potential of a checking account customer. Mega banks are paying up to acquire a checking customer from another institution. And all FIs are pursuing the elusive cross-sell to round out a checking account customer that is inherently unprofitable on a single product basis.

StrategyCorps actively tracks, quantifies, ranks and analyzes nearly 4 million checking account relationships of primarily community FIs (below $10 billion in assets) related to our CheckingScore analytical solution in a database that we affectionately call “The Brain.” Each checking relationship is scored by the total annual revenue it generates on a household basis (the total of demand deposit account fees plus estimated net interest income on DDA balances and related deposits and loans) and then ranked into four relationship segments:

  1. Super: annual revenue over $5,000
  2. Mass Market: annual revenue of $350 to $5,000
  3. Small: annual revenue of $250 to $350
  4. Low: annual revenue less than $250

Based on our experience as well as the research of industry groups like the American Bankers Association, the Federal Deposit Insurance Corp. and banking consultants, we have determined that those relationships scoring below $350 don’t generate enough revenue to cover the FI’s cost to service the relationship. (Click here for some advice on how to make checking relationships profitable again.)

The distribution of these relationship segments by customer count, dollars of relationships and revenue is a much skewed one:

  • 35 percent of Low and Small relationship customers represent only 1.6 percent of all relationship dollars and 2.9 percent of revenue
  • 10 percent of the Super relationship customers represent 63 percent of relationship dollars and 57 percent of revenue.

Below are some more key performance benchmarks that show the average financial performance of all four relationship segments combined for a typical financial institution, according to The Brain database.

Key Performance Benchmarks—All Segments Combined  
 Percentage of Accounts That Are Profitable  65.1%
 Percentage of Accounts That Are Unprofitable(e.g., Sale, IPO)  34.9%
 Average DDA Balance  $6,367
 Avg Deposit Relationship Balance per DDA  $10,081
 Avg Loan Relationship Balance per DDA  $9,563
 Total Relationship Balance per DDA  $26,011
 Annual DDA Service Charges  $8.92
 Annual NSF/OD Fees  $81
 Annual Miscellaneous Fees  $7.26
 Average Estimated Annual Debit Interchange Income  $50
 Average Monthly Debit Card Swipes  12.0
 Percentage of DDAs That Are Non-Interest Bearing  75%
 Single Product Households  32%
 % of DDAs with a Relationship Loan  21%
 % of DDAs with Both Deposits and Loans  14%
 Average Age of Primary Account Holder  51
 % of DDAs with Primary Account Holder Over Age 50  51%
 Average CheckingScore  $1155

It’s no surprise that not all checking products and their associated relationships are alike in terms of financial performance, but which products perform better than others?

In summary, based on the CheckingScore per product type and the percentages of a product type in the Super and Mass Market relationship segments, below in rank order are the most financially productive checking account products:

  1. Interest Accounts
  2. Value Added Flat Fee per Month Accounts
  3. High Interest Checking Accounts (reward checking)
  4. Basic Checking (non-interest, non-totally free)
  5. Senior Checking (mostly free to 50+ to 65+ year old customers)
  6. Free Checking (totally free)
  7. Student Checking
  8. Second Chance Checking (for unbanked or underbanked)

The consumer checking account remains the hub account for a customer identifying which FI is “my FI,” especially with the popularity of mobile and online banking, which are now essential components of checking.

So FIs must have a well considered consumer checking strategy in terms of which and how many products to offer, knowing the reality of checking economics. FIs can’t just “wing it” when it comes to checking and expect to win, given competitive and financial performance challenges.

More specifically, the challenge goes beyond just generally acquiring and retaining customers in a super-competitive marketplace. Protecting the Super and Mass Market relationship segments of customers from being stolen by competitors cannot be best accomplished  if those customers aren’t in the best checking products that provide optimal customer engagement. FIs must also fix and grow the Small and Low relationship segments of customers by successfully offering them better financially performing checking products like Interest and Value Added checking and not the lower performing and less engaging ones like totally Free and Senior checking (which place sixth and fifth out of eight account types), and more effectively cross-selling other non-checking products.

These performance-based statistics are what bankers must know about the financial reality of consumer checking. Not understanding or avoiding this reality is a how-to guide for designing and building a chronically underperforming lineup.

A more detailed executive report on consumer checking financial performance is available if you’d like more information.

Different Routes to Reach Strategic Success


For Banker, By Banker Video Series
As many banks continue to look for new ways to make up for lost revenue opportunities, a smart and focused strategy that makes the most of available growth opportunities is vital for success. As part of our For Banker, By Banker video series, three leading bank chairmen share their board’s role in developing a foundation for sustainable growth.