A Path to Transparency for Alternative Investments

investments-3-7-18.pngCapital has been flowing into the alternative investment industry over the past few years, with some experts predicting that money invested in private funds will reach as much as $20 trillion by 2020. Preqin, which collects data on the alternative investment industry, recently published a study stating that there are as many as 17,000 private funds open for investment.

Strong returns and opportunities for diversification have attracted high net worth and institutional investors, who can invest in exponentially larger quantities than the average investor. Though these investors come with a greater ability to deploy capital, their size and influence translate into greater expectations and hurdles to meet in order to invest.

The word that best sums-up these growing expectations and hurdles is “transparency,” and this word has become a lightning rod when it comes to alternative investments like hedge, private equity and venture funds, along with special purpose vehicles and real estate.

As alternative assets have become a more common avenue for investment, transparency has grown in importance for investors. A 2017 study titled “Alts Transparency: Finding the Right Balance” by the Economist Intelligence Unit highlights this growth. Sixty-three percent of respondents listed “degree of transparency” as “very important” for alternative investments, which was ahead of all other considerations. Another statistic showed that the importance of transparency as a key issue for private fund managers has increased almost six-fold since the 2008 financial crisis.

Breaking this down further, the issue of transparency can be separated into two different types: (1) information about the fund, and (2) information about investors’ holdings within that fund. The first type deals with greater transparency of the overall performance of the fund, which includes the underlying assets in which that fund is invested and how risk is assessed and managed. The second type deals with greater transparency relating to investor-level performance. This includes metrics like investors’ allocation and return, and how fees are calculated.

There are a few reasons why the industry has struggled to deliver this type of information:

Complexity of Private Funds
There are key differences in reporting metrics between the various types of private funds. Performance metrics shown to an investor in a more liquid fund, such as a hedge fund, should be different than those reported for less liquid vehicles, such as private equity funds. Adding to the complexity, investments in alternatives can come in the form of limited partnerships, co-investments and direct holdings.

Outdated Technologies That Trap Data
Many of the widely used technologies for portfolio and investor-level accounting were created several years ago and because they lack Application Programming Interfaces, or APIs, they cannot integrate with each other or with other systems. This effectively traps the data contained within these systems, thereby restricting its usefulness and portability. This in turn has curtailed the ability to provide transparency to investors, as it restricts or prevents the necessary type of analysis, aggregation and modern presentation of data.

Lack of Leadership and Reporting Standardization
There is a lack of uniform reporting standards within the alternative investment industry. Although an increase in regulation along with the presence of organizations like the Institutional Limited Partners Assn. have helped advance standards in private equity, there is no current reporting standard across all types of private funds. Additionally, the party that should be responsible for delivering on transparency is unclear.

Despite these hurdles, the alternative investment industry must evolve and adapt. I would argue there are two key steps the industry must take to be able to deliver on investor demands for transparency and keep new capital flowing into private funds:

Move Towards True Digital Reporting
As it stands today, much of the industry reports performance information via static documents like PDFs, but this method traps data and inhibits interaction. By embracing new technology, the industry can move toward the type of dynamic, digital presentation of data that is experienced in brokerage and personal banking accounts. For example, cloud-based technology offerings can be integrated with accounting systems to liberate the data contained within for purposes of data mining, analysis and presentation.

Fund Administrators Must Take a Stronger Leadership Role
Fund administrators are best positioned to deliver on transparency needs given their role as independent third parties. They typically subscribe to the accounting systems that house this data and therefore have access to or create much of the analysis and reporting that is needed to deliver on transparency demands.

Helping their fund manager clients with transparency is good business for fund administrators, as it improves their overall quality of service to clients. All indications point to another banner year for alternative investments in 2018. However, investor demand for transparency will only continue to grow as alternative assets become more commonplace. The industry must modernize and adapt in order to stay ahead of the curve in the race for assets.

Should Banks Focus on Potential Acquirers, or Future Partners?

partnership-2-22-18.pngEvidence of how intertwined banking and technology have become could be seen at Bank Director’s 24th annual Acquire or Be Acquired Conference in Arizona, where nearly 20 percent of all sessions at the M&A event were devoted to technology. And while the results of audience response surveys showed that this shift is well-founded, they also uncovered lingering resistance to explore new capabilities and partnerships from the many bank C-Suite executives in attendance. Given the rapid decline in the number of U.S. banks and the fact that the build-to-sell model is still alive and well, perhaps a community bank’s time is better spent courting potential acquirers than potential fintech partners.

The audience at the Acquire or Be Acquired Conference is a powerful industry sampling, with over 650 bank CEOs, senior executives and directors from both private and publicly held financial institutions across the nation. Much can be gleaned from the inclinations of this crowd with regard to the broader banking industry in the U.S., so Bank Director takes several audience polls throughout the conference to harness that collective insight. Some interesting statistics emerged from this year’s conversations. The bankers polled indicated that:

  • The primary driver of bank M&A activity in 2018 will be limited growth opportunities (45.9 percent). Only 7.2 percent of the audience cited the rise in technology-driven competition as the primary force behind M&A.
  • Yet, when asked about what 2018 holds for online-only lenders, 29.9 percent said that banks will lose business to them and they may become even greater competitive threats.
  • In addition, bankers at the conference believe their officers and directors will spend the most time talking about new technologies in 2018 (33.3 percent). Talent issues are potentially the second biggest topic for discussion (31.8 percent), which makes sense given that banks are working hard to compete against technology companies for talent. (See Bank Director’s 2017 Compensation Survey to learn more.)
  • While fintech is acknowledged as a competitive threat, 57.6 percent of the audience disagreed with the premise that using fintechs to improve profits and attract customers is critical for their bank’s near-term success.
  • What’s more, 65 percent of those polled rate their key vendors (payments, digital, core, lending, risk/fraud, etc.) as merely adequate—but still plan to re-sign with them when the time comes.

Is this the portrait of an industry that’s resistant to change, more risk averse than driven to grow, or does a closer look reveal pragmatic reasons for avoiding the headlong rush to adopt new technology solutions?

On day one of Acquire or Be Acquired, Curtis Carpenter, principal and head of investment banking at Sheshunoff & Co. Investment Banking, shared some stark statistics about the shrinking banking industry. We currently see both a lack of de novo bank openings (just eight new banks since 2010) and rapid consolidation, which Carpenter said is creating larger community banks and a focus on exit planning. Another audience poll confirmed that over half (52.8 percent) of the audience still believe the build-to-sell business model is viable. In addition, a majority of the crowd (42.4 percent) believes that the banks with the best chance to thrive operate an acquisition-driven growth model. If bankers think their best bet is to build their bank into an attractive acquisition target and wait to be bought, it’s no wonder they’re in no rush to bear the time and expense of adopting new technologies focused on organic growth.

From the stage, Carpenter posed a startling if central question: “Is this the end of community banking?” With consolidation on the rise and de novos all but extinct, the answer seems to trend to yes. If that’s true, are fintechs better served by targeting the banks with active acquisition programs as potential partners instead of potential sellers?

As consolidation continues, banks and fintechs need to keep a weather eye on one another. Each side of the equation has valuable information and strategies to offer the other, and the fates of these two industries are inextricably linked. Whatever course the banking industry takes, Bank Director and FinXTech will be there to help explore the strategies and relationships that unfold.

Cybersecurity and Fintech: A Regulator’s Point of View

cybersecurity-2-15-18.pngAs if banks couldn’t be more nervous about the cybersecurity threats facing the industry, 2018 opens up with a new method of attack: jackpotting, in which criminals install malware to take control of ATMs to gain vast amounts of cash. It’s no wonder that Robin Wiessmann, the secretary of the Pennsylvania Department of Banking and Securities, says that cybersecurity is the top issue for her department, and that she was one of the first state regulators to create a task force to focus on the issue. In this interview, which has been edited for length and clarity, she shares her thoughts on this top risk, as well as her views on safe and sound partnerships between banks and fintech firms.

BD: As your state’s banking regulator, what are the top issues you’re looking at relative to the banking industry right now?
RW: I think the overarching goal of the department is to ensure that the industry is healthy, and viable, and competitive. Specifically, as relates to the top issues, I think the overall challenge for community banks and banks of all types is adaptation to the new banking models, and that’s driven by a number of things. One [are the changes] in technology and the way the delivery of services [is] provided, as well as banks choosing what services they want to provide to their particular marketplaces. That is a fundamental question or challenge for banks right now. Technology is changing the business models, but they also have to make a decision about how they’re actually going to utilize fintech. I don’t think it’s a question of whether or not they should or not. It’s hard to not do it.

And then the other overarching challenge is that of cybersecurity—making sure that there is confidence in our banking and our financial services sector.

So those are the three major elements: adaptation to the new banking models, changing the choice of services and the delivery of services—how they’re going to apply fintech—and how they’re going to deal with the necessity for cybersecurity.

BD: You wrote recently that cybersecurity is the word of the year for your agency. Why is this the issue for 2018 for the entities that the agency regulates?
RW: I think our role is to provide a focus on the most pressing matters of the day, as well as the long-term viability and the vitality of [the] commercial banking marketplace. And I don’t think there’s any other challenge greater at this point in time than cybersecurity. This is not obscure; it’s not theoretical any longer—it’s got real practical implications and if we can’t manage that—we know we can’t prevent it all but if we don’t manage it properly, we will not only lose the confidence of the marketplace, we can potentially lose the ability to function in our marketplace through hacking. The risk of security breaches grows exponentially every day, and it’s not only disruptive in terms of our personal information but also the very framework of our business and our economy. That’s why it’s at the top of the list.

BD: What are your expectations for bank boards around cybersecurity?
RW: I’ve been on boards previously…and I’ve seen the evolution to more focus on the audit committee which has historically been [the] bottom line of defense in terms of the reporting out of operations and actual operations. But [the audit committee has] now evolved into a broader risk management, and that’s for the business model—how economically viable it is—as well as the operations. So, I would expect that the boards today are dealing with the classification of risk management—either inside the audit committee or as a stand-alone committee, because risk management encompasses a lot.

The companies that do pay attention to this existential risk will do well, and those who don’t provide that particular focus leave themselves to be very vulnerable. We know the responsibilities [of] corporate board directors have increased and bank directors, of course, perhaps even more so. Any organization that does not recognize the threat really does risk the loss of their customer base, their partners, their vendors. So, it requires a particular focus, a separate monitoring if you will, by the board of directors.

BD: We’re seeing more partnerships between banks and fintech firms. As a regulator, what do you want to see occur to ensure that those are safe and sound relationships?
RW: What we have observed in terms of fintech companies is, they’re financial services [firms] that are driven by technology—that’s the way I think about it—but many of these fintech firms think of themselves as technology companies, so they may not be aware of how they actually are regulated in terms of whether or not they’re money transmitters, if that’s what they’re doing, or if they’re lenders, or they’re investing or any combination thereof. So fundamentally, we want to make sure that there’s knowledge and awareness of their responsibilities under the law. For the fintech firms.

Now obviously the partnerships between banks and fintech firms, they have to figure out where that balance lies. Are there requirements for separate registrations? If they’re partnering with a company—a lot of them are going to [ask], do we buy, do we build or do we partner? And each one of [those options] has a different implication, obviously. Building the technology internally is clearer from a regulatory standpoint, but it may take longer, and there may be things in the marketplace that suit their interests. I think we’re going to see a lot of buying of these technologies, because I think that’s part of the goal of some of these technologies, is to be acquired at a premium price.

But I do think there may be many, maybe most, situations where there’s real partnering, and the responsibility will ultimately rest with the bank to make sure their partners are complying with whatever laws they need to, because the partners may be doing business in 50 different states, and there are different laws and regulations applying to them.

So, it’s about due diligence, it’s about thinking through very carefully and figuring out literally where the buck stops. Because if you put the overlay of cybersecurity on top of these partnerships, then you really appreciate that if you’re partnering with someone, you want to be sure that your clients’ information is safe, so how do you create a firewall? How do you manage that information sharing while protecting the privacy of the data? And where are vulnerabilities, and under what circumstances, if there was something that happened to your partner—and we’ve seen this recently in a number of corporate situations as it relates to identifying information—if there’s something that happens to your partner, what do they have in place to handle it? Do they have policies and procedures in place, and what are their responsibilities to you as an entity, in terms of not just informing but managing the situation?

There’s great upside for business models, but there’s also great [exposure] for security and operational risk, and you just have to deal with that.

Capitalizing on Good Times

With a strong economy, a corporate tax cut and more sympathetic regulators in Washington, banks have a lot to look forward to in 2018. But don’t confuse brains with a bull market—or a tax cut, says Tom Brown of Second Curve Capital. Happy days may be here again, but banks can’t afford to be complacent. In this interview with Steve Williams, a principal at Cornerstone Advisors, Brown offers four tips for CEOs looking to invest their bank’s expected tax windfall back into the business.

  • The Need To Transform
  • How CEOs Should Focus Their Attention

Gonzo Views on Banking

In this series of videos, Steve Williams and Scott Sommer of Cornerstone Advisors interview industry leaders for their views on the capital investments that banks should make in today’s bull market, how to position the bank to excel after the deal is done and how acquirers should approach technology contracts early in the M&A process.

Improving Governance By Using Board Portals

board-portal-12-11-17.pngIf you counted the minutes in a day that you save because of technology, it would add up to quite a bit. With so many issues confronting financial boards, adequate time for strategic planning is a valuable commodity, so time is exactly what busy board members of financial institutions need.

Changes in the economy and the financial markets have complicated matters for boards of all sizes. Larger banks and conglomerates are finding it difficult to adapt to increasing regulations. Community banks are finding it harder to compete with larger banks. At the same time, financial institutions are finding it difficult to provide the level of technology that their customers want and need, in addition to other significant strategic issues.

Board portals help directors focus more of their time on strategic decisions. These portals have all of the features that directors need, and ensure that the information they need is available to them wherever they are, while also remaining secure.

Preparing board handbooks manually with paper copies and binders places a huge burden on the board secretary. Every time a board meeting approaches, the secretary spends countless hours copying and collating documents, and filing them into the proper sections of the handbook. Updating a board portal requires some work on the part of board secretaries, but they only have to upload a document one time. And secretaries can limit access to certain documents only to the people who need to view them.

In addition to the time savings, board portals provide material and environmental savings. Financial institutions save the cost of reams of copy paper, other office supplies and the labor to assemble board books. The savings can net banks upwards of $1,100 per board meeting. Board portals are environmentally friendly as well. Banks and credit unions contribute less paper to the landfills, and they expend less electricity to produce it. According to a recent analysis by Diligent, boards of banks and credit unions can save up to $10,000 a year by using a board portal.

Board Portals Provide Mobility and Improve Security
There’s nothing worse than the panic that a director of a bank feels in learning that an important piece of paper is missing from the board book. This could happen easily enough with busy board members who travel often for business and pleasure as they juggle suitcases and briefcases in cars and on airplanes. Board portals let busy directors access their board documents with ease on any electronic device, including laptops, tablets and phones. Directors no longer need to lug heavy board books through busy airports and risk valuable information getting into the wrong hands. Most board portals have a double authentication process with a user ID, password and scrambled PIN code, so even if an electronic device gets lost or stolen, sensitive board information remains safe and secure.

Choosing a Board Portal
While board portals are generally intuitive and user-friendly, some directors who are not adept at technology may find that they have a learning curve. But most board directors adapt quickly with a little training and experimentation.
Board portals for banks are a single tool that stores meeting materials, communications, bylaws, archived documents and more in neatly arranged files. Many of the features that board portals provide are of great use to directors, particularly board rosters, board biographies, electronic surveys, voting history and shared notations. Many portals also have a built-in time tracker, so directors know how much time they are spending on board business. This feature can help boards evaluate whether directors are dedicating enough time to board service to comply with proper governance principles. Once they get used to the tool, board members appreciate the ease of posting news items, linking documents, sharing agenda items and calendars, and using the chat and email features. Premium products may also include offline capability, which is an important feature for many bank board directors.

Look for a board portal product that is easy to use and that has knowledgeable customer service support that is available around the clock. As with most products that consumers buy, less expensive board portals aren’t necessarily the best value. Board directors will spend a significant amount of time on the portal, so it’s best to conduct a thorough review of the features, usability, speed and functionality before investing in a portal. The right board portal will do all that you need it to do and more.

Responding to Change

Changes are occurring both within and outside of the financial community, and boards and management teams of today’s banks should be proactively working to determine how and where innovative technologies will help their bank attract customers, gain efficiencies and enhance their cybersecurity protections. Al Dominick, CEO of Bank Director and FinXTech, explains how directors should approach technological change and strategic issues that should be on the board’s agenda.

Topics include:

  • Board Practices to Get Smart on Technology
  • How to Approach Strategic Discussions
  • Five Fast-Growing Areas Boards Should Address
  • Focusing on the Future

A glossary of banking terms is included with each video unit.

About the Presenter:
Al Dominick is the Chief Executive Officer of DirectorCorps, Inc., which includes Bank Director and FinXTech. In this role, he is responsible for overseeing the strategy, operations and financial performance of the company. Al joined the company in 2010 and regularly speaks at conferences and writes for BankDirector.com. In addition, he frequently meets with CEOs, chairmen, C-level executives and members of a board, the men and women that run companies that provide services and support to these officers and directors, bank analysts, private equity executives and institutional investors.

Al is a graduate of Washington & Lee University, where he was a four-year letterman on the varsity baseball team, and earned an MBA from the University of Maryland’s Robert H. Smith School of Business. His financial and technology background includes positions with Board Member, Inc., Bank Director’s previous company which is now part of the New York Stock Exchange, and Computech, a Bethesda, Maryland-based information technology firm now part of NCI (NASDAQ: NCIT).

Are You Losing Business to Alternative Lenders?

lending-10-2-17.pngEvery relationship manager assumes that their clients would never go to another lender for a loan. The reality couldn’t be further from the truth, and the data proves it. Banks are starting to notice a trend in their existing client base. Their customers are receiving more and more outside financing from alternative lenders with each passing year. In some cases, this has grown by 55 percent a year since 2014. Small business owners are doing this for two main reasons: Applying for a loan online is fast and convenient, and it’s the path of least resistance to acquiring the money they need to help their business succeed.

Here are a few questions to determine whether your clients are moving to alt lenders:

  1. Does your bank avoid small business loans because they can’t do them profitably?
  2. Has your institution pin-pointed the number of online defectors in its own client base? Has your team dug deep into transaction records to see what percent of small-business customers are making regular payments to online lenders?

Be prepared to see some shocking numbers, which leads to the next question: How will you stop the exodus? Better customer service and product awareness? Sure, letting your existing customers know you provide small business lending services is a great start but one thing alternative lenders have that most financial institutions don’t is a well-designed, quick and easy, self-service online application.

When financial institutions dig deeper into their own customer data, they begin to see that even the most credit worthy clients with highly successful businesses and great credit scores are using alternative lenders. They might need money quickly and know traditional banks take several weeks to process a paper loan application. Or they simply might not have the time to go to a bank during regular business hours and instead prefer (and are willing to pay more for) the convenience and flexibility provided by alternative lenders that offer a 24/7 omni-channel-accessible application.

Providing a better experience for your clients is becoming a must. This includes having an application available to clients at any time on any device. And the technology has to accommodate every client’s and prospect’s preference, providing the option to complete the application on their own, or sit down with their banker to complete the application together. The improvement in the customer experience “lift” from technology also needs to go beyond the application, to include streamlining and speeding up all aspects of the end-to-end lending process, from decisioning to closing.

Building technology into the lending process will stop your customers from looking elsewhere. However, the benefits of such a partnership don’t just stop with the customer experience enhancements. Banks using a technology-based, end-to-end lending platform will see a significant reduction in the cost-per-loan-booked, enabling the institution to make even the smallest loans more profitable. Banker productivity and engagement also are positively impacted by technology. With the right partner, front office bankers are freed up from the responsibilities of shepherding loans through the process and instead can focus on acquiring new relationships, or expanding current ones. Back office bankers spend minutes analyzing each deal instead of hours, enabling them to focus on deeper inspection into larger deals, or diving into a “second look” process to try to turn “declines” into “approvals”.

Technology, when leveraged appropriately, enhances the relationship between banker and client, enabling the banker to provide more value and deliver a much better customer experience. When that happens, clients will no longer need to explore alternative/online lenders because their financial institution will be delivering the convenience, speed and path of least resistance to the cash they need to grow their business. The institution benefits from reduced costs, increased customer and employee retention, as well as portfolio and overall growth in revenue-per-customer.

Digital Innovation: From the Boardroom to Execution

innovation-8-28-17.pngThe pace of innovation is increasing exponentially. For traditional financial services firms, partnerships with new technology companies are now essential for driving digital change and staying competitive in today’s environment. The move toward a distributed economy and digital transformation is manifesting differently in jurisdictions around the world. The United States and Europe are driving early idea creation, while companies located in the Asia-Pacific region and the United Arab Emirates are gaining strong momentum boosted by a pro-innovation regulatory environment.

Now more than ever, the right investments made in technology and innovation have serious and material implications to the long-term success and viability of a business. Missing opportunities to capitalize on new technology to enhance capabilities, products and services could result in lost market share, reduced ability to participate in upside gains of new business models, inability to capture the customers of the future, and in the worst case, extinction altogether. Institutions that are able to re-imagine their business, maximize investments in technology and evolve their business effectively to harness the current innovation cycle will determine the next generation’s winners and losers.

Typically, firms have approached digital innovation or large-scale technology change projects facing their organization with a “build versus buy” philosophy. Today, with the emergence of innovative fintech companies, which are more nimble and faster to market than legacy financial institutions, the transformation decision has now expanded to encompass: build, buy, invest or invent. Each option must be evaluated in the larger context of the ultimate business strategy and desired outcome. Navigating through the options, complexity and uncertainty to ensure optimal choices are made is no easy feat. Further complicating matters are budgetary constraints, board members who don’t understand how technology can enable the business objectives and turnover of executive leadership driving the multi-year transformation.

Similarly, business change projects have primarily focused on three elements within the organization: people, processes and tools. For digitalization in today’s environment, this approach needs to ensure an agile, actively managed and risk-aware approach around six key elements:

  1. Strategic alignment
  2. People
  3. Processes
  4. Technology
  5. Customer experience
  6. Partnerships

All of these aspects need to align to drive business value and outcomes, which should be orchestrated meticulously for a digital transformation project to succeed. Few companies are integrating and delivering all six aspects well across the dimensions for their digital transformation and innovation projects. Consequently such projects often fail or the desired outcomes aren’t realized due to the high interdependence of the elements working in unison. This results in delays and large investments where the business is realizing value far below expectations, which leads to a loss of board advocacy and support from the business. This in turn leads to reduced future investment that only puts the organization at even more risk. In contrast, successful companies are able to work across those six dimensions seamlessly in a manner that is more efficient, risk sensitive, compliant with regulations, well controlled and enabled by leading technology and data to emerge as the digital leaders of the future.

Technology is the future and the ability to enhance and unlock new capabilities through digital channels can drive tremendous value for industries. Being able to discern value-add investments in innovation that complement the business and preserve the value through the transformation process versus just chasing new shiny objects will be increasingly important to do well. Furthermore, the ability to effectively measure against value drivers such as revenue growth, simplification, speed-to-market and competitive positioning will help to validate return on investment. In reviewing the upside potential, it is also important to be aware of risks and consequences if digital transformation programs are not implemented effectively.

With proper planning and execution, organizations can drive business outcomes, realize benefits and better mitigate risk through digital investments by understanding and implementing digital transformation programs effectively around these six elements.

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.


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.


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.


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.