The subscription economy and a customer service revolution
Subscription payments skyrocketed during the pandemic as the relationships between consumers and products and services evolved. Subscriptions depend on the frictionless setting up and stopping of payments. However, cancelling them can cause headaches for both banks and their customers. This pain point has led to creative bank-fintech partnerships that help customers manage their finances online.
Eight years ago, Joakim Sjöblom had an unpleasant experience when he opened his banking app: "I accessed my account the day after I got paid to find a lot less money than I expected. Six subscription payments had left my account in the previous 24 hours – and that experience seeded a new business idea in my mind."
After appearing on Draknästet, the Swedish version of the start-up investment TV show "Dragon’s Den", in 2015 and securing investment from the "dragons", Sjöblom launched subscriptions management fintech Minna Technologies. Minna allows customers to manage all their subscriptions via a single control panel inside a bank’s internet or mobile banking portal. Customers can review their subscription payments in one place, onboard new subscriptions and edit or cancel these payments as needed.
The attraction of subscribing
Sjöblom is one of the growing number of consumers who are opting for the convenience of subscriptions for everything from razor blades to your morning latte – a trend that has been fuelled by the pandemic1.
According to research from Paysafe2, half the world’s consumers now pay by subscription at least twice a month, with almost one in three planning to add further subscriptions in the next year.
As consumers can now do almost all of their shopping digitally, they want to reduce the time spent in selection and checkout – and that’s where subscriptions come in. While it’s common to think of subscriptions as a single monthly payment for things such as streamed media, today’s subscription services offer consumers more range and flexibility. For instance, consumers can edit their grocery delivery each week to suit their plans, paying a variable amount rather than being tied down to the same choices. When it comes to more everyday expenditure, subscriptions enable consumers to pay utility bills month-to-month without a second thought.
Subscriptions proved especially attractive during the pandemic as they help consumers to secure access to everything from food delivery to TV streaming services at a time when demand grew exponentially.
Furthermore, subscriptions make it easier for environmentally-conscious consumers to switch utility, travel and other providers to "greener" options – a service most people say3 they want help with. It may be that the recent popularity of subscription payments forms part of a fundamental shift in the way consumers use goods and services, moving from the concept of owning something, to securing access as needed through a subscription. However, with subscriptions comes a potential downside for both banks and their customers.
"The last 18 months have seen a boom in subscriptions", says Sjöblom. "This is great news for everyone but it creates challenges, not least a huge increase in call volumes to cancel subscriptions or dispute payments. As subscriptions grow, we’re seeing the number of disputed transactions banks have to deal with rise by 40%."
Subscriptions: meeting the payments challenge
Europe’s major banks are well aware of the challenges posed by the recent increase in subscription services. Nick Edwards, Director of Digital Servicing and Transformation at Lloyds Banking Group in the UK, found the rise in subscription payments led to increasing customer demand on their call centres: "Our customers had increased subscription payments by 70%, and we’d started to receive 100,000 calls a month relating to the dispute or cancellation of subscriptions."
Instead of building its own application with all the time and expense involved in that, Lloyds Banking Group decided to partner with Minna.
The results so far have been positive, as Edwards notes: "Right away, we noticed a reduction in call centre volumes from the initial test group. We also observed a channel shift, with subscriptions management activity taking place via our app, and increased overall usage of our banking app. In the initial phases of roll-out, we estimate that we will reduce call volumes by around 27,000 in three months."
Sjöblom believes Lloyds Banking Group are one of many established adding cutting-edge services to their online offering. "As well as reducing what can be an eight-digit cost in terms of call centres and dispute resolution, banks like Lloyds Banking Group are paving the way to embedded finance – combining the trust consumers have in their brand with digital-first services that take the time and hassle out of banking."
Lloyds Banking Group completed the roll-out of Minna’s subscription service to all customers in July 2021. For their part, Minna are looking to expand their range of services, having already partnered with Visa4, through the Fintech Partner Connect Program, to enable the use of Visa’s Stop Payment Service for European retail banks. This service enables card issuers to prevent payments from being authorised or cleared through VisaNet following cardholder requests, meeting Minna’s goal of helping consumers to better manage their financial lives online.
Just as the pandemic accelerated the widespread adoption of contactless transactions5 and rapid growth in mobile commerce, it changed a gradual societal trend towards subscription payments into a significant and lasting shift in consumer behaviour6.
For banks, the rise of subscriptions has created the opportunity to provide greater support to their customers by helping them manage them online. The growth in subscription payments is yet another example of how retail banking is being reshaped by technology as the digital revolution continues, and how customer-led innovation continues to transform the world of payments.
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1 World Economic Forum, 6 October 2020: Why the downturn is good news for subscription companies https://www.weforum.org/agenda/2020/10/downturn-good-news-subscription-companies/
2 Paysafe, 28 July 2020: Subscription-based payments set for significant growth https://www.paysafe.com/us-en/paysafegroup/news/detail/subscription-based-payments-set-for-significant-growth-according-to-paysafe-research/
3 Deloitte, 22 December 2020: Environmental and Social Factors are a priority for customers when choosing a bank: https://www2.deloitte.com/uk/en/pages/press-releases/articles/making-an-impact-esg-factors-are-a-priority-for-customers-when-choosing-a-bank.html
4 Visa: Giving consumers control over their subscriptions: https://www.visa.co.uk/fintech-connect/case-studies/minna-technologies.html
5 Financial Times - The digital future of payments – what does this mean for the consumer experience? https://www.ft.com/partnercontent/visa/the-digital-future-of-payments-what-does-this-mean-for-the-consumer-experience.html
6 World Economic Forum (weforum.org) – Why the downturn is good news for subscription companies: https://www.weforum.org/agenda/2020/10/downturn-good-news-subscription-companies/