What Can the Financial-Services Sector Learn from the Retail Subscription- Services Boom?

By Doug Gross, Chief Executive Officer, NGDATA 

What can banks learn from the world of fast-moving consumer goods (FMCG), such as razors or make-up? On the face of it, not much. But dig a little deeper, and you quickly realise that the financial-services industry has a lot to learn from the way that FMCG brands are empowering their customers with new ways to order and choose their products.

The way we consume has been altered beyond recognition within the last two decades. It’s not only that our supermarket shelves are groaning with foods from around the world, or that we can order any conceivable item online—we now have the benefit of subscription services that give consumers even more control and convenience when it comes to receiving the products they want. These services provide an important lesson for banks seeking to protect and grow their customer bases—especially in the face of the mushrooming threat from challenger banks that have made personalized, highly tailored services their specialty.

Lessons for the banking industry

Subscription services enable customers to select a range of items from a retailer that are perfectly tailored to their needs or tastes. Whether it’s sampling exotic foodstuffs or receiving a curated range of beauty, fashion and wellness products, these services thrive on forging an intimate understanding of their customers to provide monthly boxes of delight to their subscribers.

It’s the same principle that has long been common in B2B (business-to-business) technology through the “anything-as-a-service” (XaaS) model—pay for what you need with none of the extraneous extras.

In banking, the notion of paying a monthly or annual fee for services is nothing new. But customers expect something for their subscriptions, and merely paying for the banking services they’ve come to expect for free won’t be enough for banks to capture new customers or even retain their existing ones. Research by Deloitte found that consumers’ favourite brands (including Apple, Amazon, Samsung) outperform their banks in providing quality, convenience and value by at least 12 percent because they’re able to build an emotional connection with consumers.

In the digital age, subscription services have succeeded because they are focused on delivering not just boxes but exceptional experiences at customers’ convenience. Customers feel a connection with the brands because their deliveries are individually tailored to their needs. The most successful subscription services are those that have such detailed knowledge of their customers that they can craft customized “surprise” packages that give the recipients products that they didn’t even know they wanted.

Subscription services are big business, not a niche market. More than a quarter of consumers in the United Kingdom are currently signed up to a subscription box service, according to research by Royal Mail. In fact, the market is due to be worth £1 billion in the UK by 2022 because it appeals to a monumental shift in consumer demand for autonomy, flexibility and convenience.

But if subscription services can disrupt shaving accessories, cosmetics and many other consumer goods, can it ever be applicable to the world of banking? The rise of challenger, digital-first banks strongly suggests that it can be.

The banking industry has experienced a seismic shift in recent years, with a slew of new entrants to the market offering far more choice, improved money-management features and tailored financial products to their customers on their favourite platforms. These financial products don’t arrive in the post, of course, but are delivered online, on mobile and through apps. Crucially, they demonstrate an understanding of each individual customer—they don’t rely on mass mailouts, but tailor each product or marketing message based on the principle of “know your customer” (KYC).

Challenger banks don’t do this with magic. In fact, it’s surprisingly simple to gather intelligence about your customers so that you can connect with them on a personal level. We believe that it’s time for the industry to harness their data and technology and adopt the same personalised as-a-service approach that has already transformed so many other businesses and sectors.

Here’s how they can do it:

Increased convenience: Be timely 

Meeting customers on their own terms is paramount to engaging with digital-first shoppers. People are tired of spam and irrelevant mass marketing: we no longer want salesmen on our doorsteps but relevant, consistent and timely content at our fingertips to help us create a compelling customer-first experience.

We understand why banks are increasingly moving towards charging for current accounts, but if they don’t offer anything in return, they risk a backlash from their customers. It’s not just the fact that people have long expected their day-to-day banking to be free; it’s that they experience such a huge range of choice, convenience and personalization from their other service providers, whether it’s their online grocery or subscription service.

The new generation of financial-services providers understand this all too well. US online banking provider Ally Bank uses data to enable human associates to provide an enhanced customer experience. For example, in 2018, some of Ally’s customers had liquidity issues due to government shutdowns and coastal hurricanes. The online bank’s machine learning (ML) identified potentially impacted customers, allowing human associates to go in and offer tailored customer service. Harnessing new opportunities such as these enables banks to remove the friction of the banking process and make their customers feel valued by proactively providing services some customers may not yet know they need or qualify for, such as loans, insurance or even opportunities to play the stock market through a smartphone app.

More personalisation: Be relevant

Years ago, we had an individual relationship with our bank manager, who knew us by name and could provide personalized advice. Those days might be long gone, but technology now affords banks the opportunity to rekindle this intimate connection with each customer. Mobile apps can deliver a truly personalised experience, but this is something conventional banks struggle to achieve. By clever use of data gathering and allowing customers to lead the process, banks can create truly unique and personalised communications each time.

For example, London-based banking giant HSBC has been using artificial intelligence (AI) to give US credit-card customers personalised shopping experiences. They’re in the process of creating a rewards program that processes customer data to predict how clients may redeem their credit-card points so they can market offerings—including travel, merchandise, gift cards and cash—more actively. The technology recommends a redemption category to promote to each credit-cardholder. HSBC sent out emails based on these recommendations earlier this year and also emailed a random category to a control group. About 70 percent chose rewards in the AI-recommended category, while the number of opened emails rose by 40 percent.

Even the new breed of challenger bank would be envious of these results. It only goes to show that the prize of better, more personal customer relationships is well within the reach of any bank. It’s really only a matter of attitude: of focusing on providing the types of experience that customers want and harnessing the technologies that make this possible.

Better experience: Be a frictionless adviser

In today’s age of customer empowerment, every business needs to be a customer-first company to compete, and banking is no exception. One of the best ways to improve customer experience (CX) is to educate customers about new products and services that are relevant to them in a convenient way.

To do this, banks need to see beyond typical marketing segments and understand the connections between similar customers and predict what they might like—subject, of course, to local laws and regulations. Banks need to go beyond delivering offers to groups of customers and make the shift to personalized, one-to-one customer experiences. Having true “customer DNA”, “customer 360-degree insight” gets banks past the trial phase and on the path to becoming a trusted adviser across products and services related to their financial needs. Banks are already trusted data custodians since they must adhere to a range of stringent regulations governing information security. This makes them uniquely positioned to begin extracting more value and deeper, more trusted customer relationships from the data they hold.

If banks can get a handle on their data, distill insights and act upon them by generating real-time and customer-centric recommendations, they will find an almost limitless choice of new ways to engage customers with more relevant products, services and experiences. Done intelligently, such services will place banks at the cutting edge of their industry.