1099. Insights: Subscription banking - Can banks turn customers into subscribers?

23:40So that's a dimension. There's that kind of loyalty brand. You like what the company stands for. A lot of people like that we have a different design, we have a different user experience, and we have some things that we stand for, like sustainability and freedom in the world, lots of things like that. So that's kind of one dimension. The second dimension, I would say, is just the hardcore usability angle. Like, does it work? Does it do fast? Does it make it? And you tend to stay with things that work. And then I think the third dimension on this is probably safety, security, and technology, which is really a break from the old, like, this isn't your dad's bank that you went to because dad trusted it and seemed to work.

24:21This is, you know, there's a giant world of AI, by bad people out there trying to attack everybody's money everywhere in the world, and your bank has to be able to not only defend itself, but make sure nothing ever happens. And you have to bet on their technology to make that happen. So you want the technology to be a leading part of the conversation going forward, not just something hidden in the background. So I think those dimensions are part of how we would look at things, whether that's consciously or unconsciously, as users. I know I certainly look at that when I consider, I mean, almost anything that has to do with money, I'd say.

24:57Yeah. I mean, it's a great perspective.

25:01Ross Gallagher:It's great. It's a really interesting insight to understand the different dimensions that you think are at play here. So we've looked at what makes customers willing to pay for banking and why creating a successful subscription requires obviously much more than just putting a few additional benefits behind a monthly fee. but there's obviously then another side to this, you know, for providers, subscriptions potentially create a very different way of making money from the banking relationship. So after the break, we're asking whether subscription banking is becoming more than a product strategy and what happens when every bank wants customers to upgrade.

25:38Ross Gallagher:It's all coming up after this quick break, so please don't go anywhere.

25:47Ross Gallagher:all right uh welcome back to fintech insider now we've talked about why customers might pay so now let's look at why banks increasingly want them to um joe maybe actually just picking this one up from where we sort of left off in the second segment and you were talking about the dimensions that are sort of playing into the decision-making here. I mean, I guess it kind of goes without saying that banks want those rich customer relationships. They want, you know, loyalty at the core of that. And this obviously feels like a major driver here from the bank's perspectives. I mean, I think maybe. And it sounds like an obvious thing, as you say it with such eloquence, Ross, but I mean, I think there's a lot of banks that still look at this like there's a lot, they believe there's far more money to be made out of the backside of the money than there is necessarily in the customer, you know, just the customer side, because they look at subscriptions also as limiting.

26:49It sort of sets a flat fee. For us, we think of that as the way to be in absolute unison with the user. We think that serving the user with what the user wants when they need it, when they need it, is a far better long-term strategy than tacking on lots of extras. So why does a bank want it? we want it because of the relationship. And we think the relationship, and I'd say like an Apple or somebody else always saw, thinks that that is a greater long-term value and a greater growth strategy than the too many services to choose from approach. So I think, I don't know if I'm coherently saying this, but through the lens of why a bank would want it, there are banks who don't want it.

27:32And there are banks like us who do want it because it's the core of their strategy. The user is the center of all things in the universe per bunk. It is the absolute, we can't move a chair in the lunchroom without proving why that's good for the user. And I am not kidding when I say that.

27:48Ross Gallagher:Yeah, I believe you. But Lucas, it raises an interesting point, right? Because, you know, it draws again a distinction between that sort of longer term focus and that, you know, patience when it comes to realizing value versus that more traditional sort of in-year P &L return and all of those sorts of dynamics that we're used to from some of the more traditional banks that could act as a constraint in this context, right? Of course you can. The, let's say, differentiation I still see is, again, between the incumbents and the challengers. Yeah. incumbents seems to use the subscription in order to provide let's say the top 10 % of their end customers to have something on top because they're interested they want to have something extra but the challengers they are really driven by the expectations the value that the end users feels and that's also why they're providing slightly different portfolio but to some extent even for For the challengers, it is a revenue generating stream that is strong enough to really not forget about.

29:01Just for Revolut, Revolut increased their revenue out of subscriptions in three years, let's say by tenfold. So it became like 16 % of their revenue. That's a strong, strong thing to consider and it's part of their business.

29:20Ross Gallagher:and and joke is that's you know look there is obviously there is obviously a uh a strong commercial angle on all of this as well from the bank's perspective but i think it's becoming clear from um everything that you've said is that obviously i don't think bunk would just take that you know success just as the commercial side of it alone it's also the customer feedback and the customer satisfaction and sort of bringing all of those things together is that fair to assume But it's the same thing, I guess. It's like saying, you know, we build swimming pools and people say, what's the strategy for the water?

29:58And you're like, I don't understand, right? It's the same thing. This is a way of looking at an industry that works, certainly for us. We're a profitable organization, three years profitability, and through this approach that we're just describing. So it is not something that I can separate as a strategy, right? So that's the way it is. I mean, the thing is to just be transparent, honest, to put those things out front, serve those users, and listen and build the things that they want. And that then becomes your strategy rather than some complicated consultative analyst type of approach.

30:37Ross Gallagher:Yeah. I mean, it sounds so straightforward, right? Like, it's almost like we shouldn't be sitting here and talking about it as though it's novel. It is. I mean, that's the problem. But this isn't super complex. It's not complex. It is straightforward. But look, these are the rules of consumer for a long time, right? This isn't like, we're not making, we didn't make all this up by ourselves. Like, there have been plenty of consumer organizations who focused on the consumer and the consumer needs. And they learned from this how to build a business. That just wasn't banking. I guess an obvious question, Lucas, is do you think that as banking continues to become ever more competitive, do you think that subscriptions are going to continue to play an ever more prominent role as both incumbents, obviously, and the more modern fintechs look for different ways to add value, to differentiate, etc.?

31:35Well, in incumbent, I don't really think this will change a lot in time. So long term, obviously, this will still be part of their portfolio. The only thing that we are seeing is that some of the incumbents are trying to tailor the offering per different market they operate. So it's not universal. but on the contrary challengers like Revolut but even Boonk they are typically offering subscription packages that are kind of for everyone across the globe to some extent the same so the future definitely lies in optimizing the portfolio across or according to the needs and requirements of the end users we already spoke about and the better the offering is the more the end users will actually join to that.

32:31So to some extent, again, I don't really see the same limits for the adoption rate in challenger space than what I see in the incumbent space. Yeah, so I really believe the challengers can succeed there even more than they are at the moment.

32:49Ross Gallagher:I mean, it's not, I mean, I agree with you for the record, but Joe, it's not, I mean, on the face of that, you know what you guys are doing so well at bunk on the face of it that's people might think that that's easy to replicate but i think in reality because they're just looking at it as you know a current account with some added value around the sides but i think if you're being really honest that's that's not the case right just because you can wear a pilot's uniform doesn't mean you can fly a plane and i think it's a lot to do with the that culture and everything that you've talked about that sort of relentless obsession with the customer and the customer outcome that's informing these propositions and that's the really difficult thing to to replicate from from outside yeah i think um once again i think lucas points out between incumbents and challengers i think one of the biggest problems the incumbents will have going forward will be this thing you just described so well right this is a organization we're a company in a culture built on this Like it's the center of all things.

33:54So we don't have to go build a muscle. We don't have to start an innovation team to do it. It lives within us. And I think that's sort of one strand of this. The second sort of strand of this is that technology leadership, right? Most of our incumbent friends are innovating. Their innovation teams are considering how they're going to use AI. whereas you know the banks like us bunk and others probably similar to us are out on the front end of all of this already fully deployed and defending everybody with it against it and everything else so we have these advantages i think it's up to us to take you know to use those advantages and to make the most of them um but also be true to that that cause or that purpose that we stated which is to like listen, pay attention, build for that.

34:47I think things like ability to recommend an account, like magic happens when you recommend someone down, right? Down a tier level because they just weren't using the features and you say, hey, you're not, you should probably be here instead of here. And then they're surprised that you do that. And this is the consumer of the future. Like it's the consumer of today. None of us wants to use things that we don't, No one is supposed to pay for things we're not using or, at the very least, not know about things that we should. And I think the crime is when you're just not able to communicate with the user and have these types of conversations.

35:24Ross Gallagher:But it's also such a good point because, again, it kind of illustrates and brings to life the point that we were talking at the beginning of the show in terms of the difference between that P &L or that portfolio mindset, where actually maybe you might be comfortable with people sort of passively paying for things that they're not necessarily using because it boosts the bottom line versus what you were saying about that longer-term view around value and actually wanting to build a more sincere and more trusted and more loyal relationship with the customer. So those types of interventions sort of feed into that.

36:01And frankly, this is probably where AI plays a role here when you can solve 97 % of your customer service engagements through, you can scale at this massive, and you have time and energy and margin, if you will, in the commercial side for these other things. And I think that's a difficulty that incumbents, I guess, in this case would also face. And I also add to that the advantage for challengers is they don't really drag the burden of all the physical branches with all the connected costs. So scaling up is a lot easier thing to the guys like Revolut and Boonk. Yeah.

36:37Ross Gallagher:And look, of course, I mean, it kind of feels a little bit at the minute like we can't get through a single conversation without talking about AI, but that's because it has real practical relevance here in terms of how you tailor a very bespoke, personalized experience for customers. And Joe, one thing that we mentioned earlier on as well, actually I did want to double click on was I think the point that you made around like this isn't necessarily the subscription side of it. It isn't necessarily for everyone and that, you know, it's not necessarily for every bank, but it's also, I suppose, not necessarily for every single consumer.

37:18Ross Gallagher:There will be consumers who the right option for them will be on a non-paid tier. But I suppose what this does is it allows you to deliver lots more tangible value, solve for very specific problems for a specific subsegment or cohort of customers. Yeah, I mean, I think we are not for every user who needs a bank account. Like we have very specific focuses and we build the technical solutions into our subscription structures that focus on those people. And there'll be plenty of people in the world where that's not a need. So Bunk would not be their bank. and we're perfectly okay with that, right?

38:00And I think that's part of what focus is, is the ability to zero in on who you can best serve and serve them best.

38:08Ross Gallagher:Yeah, I couldn't agree more. I mean, Lucas, I guess the points that Joe was just making around how you best cater, well, how you best understand how you then best cater for and solve for customer needs. I mean, I guess that resonates with you as well. Well, of course, and I already mentioned that, looking into the customer behavior actually helps understand what to propose to them. From our point of view, it can be derived from the data. Of course, being a bank, you have a better chance to actually talk to the people directly, which is a direct feedback. When you don't have that, the data can back that typically even more than the discussion on itself.

38:53So most of the cases, speaking of the subscription packages and how they potentially develop in the future again, I believe the drive behind what Joe described earlier to serve the customers is what will help grow it even more.

39:15Ross Gallagher:Joe, do you think, you know, when you think about, because it does feel like there's a receptiveness and an appetite for these types of packages, specifically within financial services now, where maybe that hasn't been the case in the past. Do you think that, because I think when you look at other industries, like we mentioned, entertainment, music, et cetera, et cetera, it feels like, you know, half our lives now, day to day are sort of running off various subscriptions. Do you think that's helped to lay maybe the groundwork and change or rewire some of the thinking around this specifically as it relates to financial services?

39:51Well, I think yes and. In the yes answer, when you say financial services, you've entered into a broad category of things, right? Yeah. So not just banking. And I think even when you get beyond banking, this is probably even more common than it is in banking. So just that exists. but has the world of consumerization, and I would even add to that, you know, as it sounds a bit old, but like the mobile app, has then now, since it's so common for everyone all the time and we never think of it any other way, it just exists with us all the time, we now have expectations. It should be easy. It shouldn't be complicated.

40:28It should work the way I work. I should be easy to find the buttons. Like those minimal expectations have risen. And I also would dare to say that the technical capabilities of the world has risen. I always, you know, there's a, I forget the quote. I think it's something like, all technology aspires to be a utility. I think it was Edison or somebody who said that. And the point was, you want it to be so, however technical it is, you want it to be so easy that you forget. You know, I turn on electricity, a flip of light, and it's like, great. But there was a time when people were like, ooh, like voodoo or something was going on.

41:04And I think we now have that in our space and in mobile apps. Like, we all expect something that just works easy. And I think all of that plays into your question. I know I've kind of overloaded it a bit, but it all plays into the question of expectation. And what do we expect? And I think this consumer approach, look, feel, user experience, subscription, they all go in the same direction.

41:29Ross Gallagher:And Lucas, I guess, but that also raises an interesting point right around, you know sort of keeping pace with consumer expectations as they sort of inevitably evolve and grow sometimes seemingly exponentially and so I suppose that always puts the provider in a position where they're constantly trying to keep up. Yes and that's what I kind of already tried to put into the discussion there because when you know behavior of the customers or of your end users, you can potentially act on that more precisely because you need to be aware of it, not as a I don't know, just a number in the spreadsheet, but to some extent we might even use the not very used and helpful word hyper-personalization, but once you really understand the specific behavior of an individual, you can really create an offering regardless whether we're speaking of subscription packages or anything else but you can create an offering that helps the end users you can even understand their let's say their fault process when they're kind of considering a mortgage at some place that maybe they can't afford yet.

42:54So again, speaking of AI and other usages, all of it is about the payment behavior, their desires, and what we are able to deliver to them.

43:05Ross Gallagher:Joe, I mean, I'll give you maybe the sort of final word on this. Do you foresee the sort of growth in subscription and packaged accounts from here to a point where, you know, customers are coming to their bank and that's where they're managing lots of other parts of their lives. I'm not thinking, you know, purely in the direction of a super app, but I suppose if you've got more of these services that are being provided through the relationship with the bank, does that become more of a control center? Well, you know, we're looking at the world through the lens of, you know, Europe and the UK and maybe a little bit of the US.

43:43But if we go to Asia, these things already exist, what you're describing. You know what I mean? So I'm not going to go into China's structures and things like that, but I'd say yes. In a sense, I think the answer is that absolutely, we will continue to head in this direction. And I think consumers will continue to choose what's the highest value. The magic point is the value feels greater than the price, right? That's the magic point, where the value feels greater than the price. And then And the price to you is sort of like something that just occurs and the value is good. You're like a phone bill.

44:19You can't cancel it because it's so valuable. And I think that's going to continue. And part of that is that we all have to keep up with that. Consumerization is an industrial revolution in and of itself. Not to be too philosophical, but that's happening. And it's just a matter of how well we are all on the front end or the back end of it. So I think yes is the answer to your question. And it's already been proven in other parts of the world. and it's our opportunity to play a role in that here. And also the usage of the link between traditional banking or a super app, I believe is a really good connection.

44:56Because in the super app you actually see what's added as a new microservice. That can be very similar to linkage between the desire of the end user and what's the offering of, let's say, European bank portfolio. because you need to understand what they want. You need to deliver. Otherwise, you simply fail. One of the things we didn't talk about in this is trust. And that is going to be one of the absolute high value, highest value components to hold in these relationships. We know that if someone wants to open, wants to try crypto for the first time, we've done surveys on this, like the majority of them would actually rather do it through their bank than like the super well-known crypto companies.

45:42And you sort of stop and think about that and you're like, well, there's something in that relationship other than, you know, who's the expert? There's a trust element. And I think on top of what Lucas said, if we add trust, then I think you have this wonderful opportunity in the relationship that equals good for both sides. And I don't think you can get too far on the one side or the other and then it becomes difficult. Absolutely. And that's why incumbent banks and challengers will stay next to each other, I believe, because everyone of those two areas kind of address slightly different needs, slightly different, maybe even generations or at least groups of people.

46:25and thus their needs are different, the offering should be as well. And that's why I believe Boon Revolut are that successful if the new young ones, young guys and the traditional banks, I like to say they are hyper-conservative, but to some extent that's what we expect from them. I'm not sure what your definition of young is. and I thought that was a very nice political answer everybody's going to be okay but I think it's like you take the tech and you take the security and you take the usability just move forward five, six, seven years and it keeps going, right?

47:09Ross Gallagher:We'll take a fairly broad definition of young Yeah All right, well look I mean I think we hit on a number of really important points there to close I think that does wrap up what certainly I found a very fascinating discussion as ever a really big thank you to our panelists for breaking down this important topic with me today. Guys, thank you so much for joining me. Where can people maybe connect and maybe find out a little bit more about you guys, a little bit more about your companies, Joe? Maybe we can start with you. I just keep it simple. You can find Bunk online. You can find it in, you know, any app store that's on your phone.

47:43That's the place to go. If you wanted to find me for some reason, LinkedIn is probably the best spot.

47:48Ross Gallagher:Excellent. Thanks, Joe. How about you, Lucas? Well, obviously, you can stop on our online website. You can drop a message via LinkedIn or simply if you want to see the fruits of topics, simply use the banking apps that you are using and hopefully it's us that are supporting those mobile apps. Yeah, if you don't know how to spell bunk, it's B-U-N-Q. That's just the one thing to make sure we clarify. Super. All right, that's excellent. Thank you guys. As for me, as ever, you can find me on LinkedIn. Thanks for listening. If you like what you've heard, please do follow our podcast and don't forget to leave us a review as it really does help to make the show better and it also helps other people to find it.

48:32Ross Gallagher:As always, if you want to join the conversation, find us on social media. Just search for 11FS or Fintech Insider or email podcasts at 11FS.com. Thank you very much again and goodbye.