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Subscription Payments and Banking: Four Strategies to Help Your FI and Help Your Consumers

August 13, 2020 by Mark Leher

Financial Institutions and the Subscription Economy

James and Lucy have a young family of four with a son, 9, and a daughter, 4.  Their family loves to watch movies and have a Netflix subscription for $15.99/month. James’ gym membership is $29.99/month. Lucy likes to work out at home and has a Peloton membership which is $39.99/month. James likes to read and purchases an average of two books on his Kindle each month which cost about $25. His oldest son loves to play video games and they have an $9.99/month Xbox Live subscription.  The family cell phone bill is $79/month and cable and internet bundle are $115/month. Finally, his youngest daughter is 4 years old and her day care, which luckily accepts card payments, is $950/month.  

In total, James and Lucy have $1264.96 in subscriptions or recurring charges each month - all of which are made on the credit card that he got from his bank.  The interchange fee value to his bank is $22.76 each month.  Last week, James lost his credit card and had to cancel and order a replacement.  

That $22.76 in fee based revenue is now at risk. 

The Value of Subscription Payments to a Financial Institution

Subscription transactions linked to a card represent an ongoing revenue stream for financial institutions (FIs) in the form of interchange fees.  The typical consumer has an average of $237.33 of subscription charges each month.1 Beyond this, cards used for subscriptions are more likely to be used for non-subscription purchases. Subscriptions are sticky.  Among people that have any credit cards, the average person has 3.7 credit cards in their wallet.2  Subscriptions can be a way to make sure your bank issued card is the consumer’s preferred card.  Subscriptions have a clear value to an FIs bottom line, but subscriptions can also be part of a strategy to build trust and loyalty with consumers like James and Lucy.

Four Strategies for FIs to use Subscriptions to Help Consumers, Increase Wallet Share, and Build Card Loyalty

  • Identify subscriptions and other recurring charges on a card account and place a dollar value on those payments.

  • Once you understand the dollar value of subscriptions to your bank,  develop and offer rewards to consumers to encourage card use for subscriptions and recurring charges.     This will lock-in more recurring interchange fee revenue and it will also make your card stickier.  By understanding the value of a subscription, you can intelligently create rewards and incentives that help your FI and help the consumer.

  • If a consumer needs to get a new card, you should proactively remind that consumer to re-link existing subscriptions to the new card. This helps the consumer ensure that there is continuity in the services that the customer expects to receive.  It also helps you to re-lock in the monthly interchange fees associated with that consumer.

  • Most importantly, use your knowledge of subscriptions to help consumers improve financial wellness. Subscription payments are easy to forget and can be inconvenient to cancel - that’s exactly why businesses like them.  Consumers may be wasting money by paying for things they no longer use, need, or want.  You can encourage financial wellness by making consumers aware of recurring payments they are making each month.

The Key to Identifying Subscription Payments is a Focus on Cleansed Data.

The key to executing these four strategies is to cleanse, normalize, and categorize the transaction data associated with each consumer and identify those that are subscriptions.  Data tells a story about each consumer, including, but not limited to, which subscription services they use.  Not every financial institution has developed a data-centric approach, and without it, consumer insights, such as subscription payments, can be difficult to ascertain.   It’s not an easy task, there are hundreds of millions of variants of different merchants where consumers could make purchases. 

Segmint is the leader in merchant data cleansing and our process delivers cleansed and normalized merchant data to banks. Segmint helps FIs make sense of the transaction data flowing through each account.   Segmint can identify the subscription merchants that your customer or members are transacting with so you can quantify and protect the value of those subscriptions.

Understanding Subscriptions is a Winning Tactic

Developing insights on consumer subscription payments and creating a strategy based on those insights is a way to drive credit card utilization, win wallet-share, and benefit your customer or member.  You should make awareness of subscriptions a part of your overall marketing strategy. 

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