Hosted by top 5 banking and fintech influencer, Jim Marous, Banking Transformed highlights the challenges facing the banking industry. Featuring some of the top minds in business, this podcast explores how financial institutions can prepare for the future of banking.
How Banking Can Win Big in the Subscription Economy
Old revenue models are dead. Financial institutions must rethink their business models and create new growth levers to be future-ready.
Subscriptions make our customers’ lives easier with the touch of a button, a recurring purchase or even a reminder about content of interest. Helping customers pay directly from their debit or credit card can generate revenue. Beyond that, there are even subscription opportunities with personalized financial content.
It is great to have Joan Clark, VP of Product for Segmint on the Banking Transformed podcast. Joan discusses the way banking can benefit immediately from the subscription economy.
This episode of Banking Transformed is sponsored by Segmint
Segmint empowers financial institutions and financial technology providers to easily understand and leverage data, interact with customers, and measure results. Derived from billions of transactions, Segmint provides the fastest and most accurate customer insights through advanced data tagging, categorization, and contextualization. Our insights enable all functions of an organization to inform strategies including competitive analysis, risk, marketing, customer experience, and product innovation.
Jim Marous: Hello, and welcome to Banking Transformed. I'm your host, Jim Marous, founder and CEO of the Digital Banking Report, and co-publisher of The Financial Brand. Old revenue models are dead. As a result, financial institutions must rethink their business model and growth levers to be future ready. Subscription models make our customer's lives easier: sometimes a touch of a button to hear a podcast, or maybe to get an automatic refill, or to get groceries delivered within an hour of ordering. Helping consumers to pay directly through their debit or credit card can generate revenue. Beyond that, there are even subscription opportunities with personalized communications.
Jim Marous: It is great to have Joan Clark, vice president of product from Segmint, on the Banking Transformed Podcast. Joan discusses the way banking can benefit immediately from the subscription economy. So welcome to the show today, Joan. We officially live in a subscription consumed society. What was really once reserved for magazines and door to door encyclopedia sales people has really become the default way we consume media, order food, hail a ride, and even buy retail products. In the digital world, subscriptions make our lives easier. What's interesting when you look at it, it's really recurring, stable sources of engagement that make businesses better, be it financial institutions or other institutions. In addition, the consumers who subscribe are obviously quite loyal. So, Joan, before we get into talking about how banks can leverage the subscription economy, can you tell us a little bit about yourself as well as a little bit about Segmint?
Joan Clark: Sure. Thanks, Jim. And thanks for having us. I appreciate that. I am the VP of product for Segmint, and I've been with the team for just over nine years. Segmint is a provider of a data analytics platform. We help financial institutions make their transaction data usable and meaningful. It's powered by AI and a very creative team. Our products both enrich the transaction data that provide insights to the financial institutions, to identify the merchants where the transaction was processed. But we also identify customer insights that describe the customers who are processing those transactions. And it's all for the purpose of helping the FI deepen the relationship with the customer and help grow their business.
Jim Marous: I'm going to give a little plug for your company. On almost every podcast and every writing I do for The Financial Brand, I bring up the importance of partnering with organizations that can move your organization forward quickly and at scale. And Segmint's a great example of a way that an organization can help a financial institution leverage their data quickly, even if it's not in the greatest state within the financial institution, and bring really good revenue opportunities to the table. So we're talking today about the subscription economy. And really, there's so many different ways to look at this, but what do you consider to be the current state of the subscription economy, and where do you think it's headed?
Joan Clark: Well, I think the subscription economy has really been on the rise, even before the pandemic. It started, like you said, with a lot of those subscription box services, like HelloFresh, and chewy.com is one that I was thinking of. But since the pandemic it's really gotten wider and deeper in almost every industry. It makes our lives easier, as you said. And based on the research that we found, it's expected to grow to 1.5 trillion in 2025, which is really astounding, which is more than double what it was, I think, just last summer. And the other research that we found is that consumers have five subscriptions, which I thought was a lot. But then when I started adding what my husband and I have, like Hulu and Netflix and HelloFresh and Disney+, I have probably five. So I guess I'm an average consumer, Jim.
Jim Marous: Well, it's interesting because it even goes deeper than that, things that we don't pay for. I'm a subscriber for a lot of podcasts. I'm a subscriber to things through amazon.com, for personal care products that I have on a recurring basis.
Joan Clark: That's true.
Jim Marous: And they're always pushing, saying, "Hey, do you want to subscribe for this for less money?" because they realize it's going to create a new behavior, which is really what we're talking about here. But more importantly, from a financial institution or non-financial institution perspective, it really is building new behaviors and deeper engagement. So how do you think this trend is impacting financial institutions basically of all sizes?
Joan Clark: So I think that's a really great question, because, as you said, there's so many new opportunities for us to engage with those subscription services. And if you think about it, the more subscription services we're making payments to, the more transactions we're processing on that financial institution's account, the stickier we're becoming with that financial institution. And once you sign up with a subscription service, switching to another card is just not easy. And we like things to be easy.
Joan Clark: But the other thing, Jim, is that it's not just those subscription box services. So it's encouraging more of that behavior, of that recurring payment behavior, beyond those subscription box services is also important. So we all have payments that include insurance payments and cell phone payments and utility payments. So those recurring payments can also be lumped into this type of behavior that we want to encourage more of for the institution, because the more that the FI can capture that, the more likely that they're going to be the PFI for that consumer.
Jim Marous: Well, it's important also, because, as you said, it's hard to unwind those, but if a consumer doesn't do it on a credit card or a debit card, we lose the interchange income, which is obviously an important revenue source. But, as you said, we also lose the stickiness. Because every time a consumer is relying on our financial institution to build this interchange between us and another party, it builds that relationship stronger and obviously makes it more difficult to unwind it. So how can financial institutions capitalize on this trend? Do you have any use cases of how an organization has really taken this somewhat something we take for granted, we know we do this, but we don't really think about it very much, and have taken it to another level where they've generated more revenue and actually made it an important source of ongoing revenue for the financial institution?
Joan Clark: Well, I think that interchange revenue is the perfect example of that really, Jim. I think that becoming sticky on the account by having as many transactions as possible, having the account be the hub of that consumer's payments is very critical. But how are they making those payments? Is it through ACH or BillPay? Or is it on the credit card where, like you said, they could be earning that interchange revenue?
Joan Clark: And it seems obvious to me to put those subscription services like Netflix and Hulu on your card, but payments like utilities, or insurance, or cell phone payments, it's not so obvious. It's not really the traditional way that we've paid for utilities. But sometime during the pandemic, I made that transition because I wanted to make it easier for myself, right? I wanted to make sure that I was making that payment on a regular basis and I didn't forget about it. Plus, if I put it on my card, then I'm getting all those rewards and that cashback on that dollar spent. So I think that that is a way that the FI can capitalize on that trend.
Jim Marous: Well, this is something to really build with the Gen X and Gen Z, because these people are, right now, the ones who are opening all these new credit cards. There was a site that came out yesterday that the growth in new credit cards is just enormous right now, and it's a lot with the younger consumer. Well, the younger consumer also are the ones that are most engaged in the subscription economy.
Joan Clark: That's true.
Jim Marous: So if we can bring these two elements together and we can make it so that these people decide that this Gen X and Gen Y and Gen Z all start using the credit card as a way for making these payments, not only is it making them more entrenched, but it makes them think about the financial institution. Now, on the opposite side of that, more than just the revenue side, what Segmint can do is then you can use this purchase data, this information, to build a better portfolio or view of the consumer for other services.
Jim Marous: So again, one of the things we lost as an industry over the last 20 years is as more and more payments were being done outside, as more transactions and more organizations were getting this data, we were losing the opportunity that was really expanding tremendously in the digital economy to understand their customers better, understand what they bought, what they subscribed to. I mean, if you understood what I subscribe to from a podcast basis, what I buy from Amazon on a recurring basis, what subscriptions I may have outside of this, maybe it's with MyTaxi, your Uber, or with any of the other organizations, this helps you build a better profile of the consumer, correct?
Joan Clark: Yes, for sure. Yeah. So we're seeing all those behaviors. And through our customer insights product, we can identify who is their customer base that are making those payments to subscription box services, or who are those that are making their payments, their cell phone payments, with that account, or their utility payments with that account. And again, that's identifying those consumers that are thinking of your account as their PFI.
Jim Marous: So how can a financial institution identify recurring spend transactions?
Joan Clark: Well, it's all in the transaction data, really. There's so much information. There's a lot of valuable insights that you can get out of that transaction data. And really, Segmint is the world leader in analyzing and cleansing transactions. We take in all those transactions or consume those transactions from the FIs, and they come in and they're very raw and cryptic. And if you had to look at them, they'd be indecipherable by the human eye. But we have transaction analytics and AI that identifies both a user-friendly merchant name for which the transaction was processed, like HelloFresh, or Netflix, or Hulu, or whoever it may be that you're actually making the payment to.
Joan Clark: And then we provide multiple levels of categorization so that you can start to see trends of where the payments are being made. So we can identify it as meal delivery service, or cellular telephone services, or utilities. And then we provide even a higher level of categorization, like food and dining. And so with all of that categorization, they can start to use that information in their BI tools and their data modeling tools to start to understand where their customers are spending and how they can encourage more of that spend, the type of spend that they want to make more profitable customers and to help provide products and services to deepen that relationship with our customers.
Jim Marous: It's interesting, Joan, because when you talk about this and the insights we develop, this is where we can build some really good engagement, because we can really help the financial institution then going back to the consumer, their customers, and tell them about themselves to help them make better financial decisions. So when you look at the flip side of generating revenue from subscriptions, do you believe that subscription management services, or simply the ability to tell a consumer, "By the way, here's a list of the subscriptions you're currently engaged in," can be a valuable asset and maybe something that we can actually charge as a subscription to consumers to provide on a regular basis? I remember a situation where I have a financial account and I had some fraud on my debit card. And the first thing that came to my mind is, "Oh my gosh, I'm going to have to change my debit card number and change all my recurring payments." And I don't know what they are. I'll be honest with you.
Joan Clark: Correct.
Jim Marous: And I asked the financial institution, "Can you provide me this?" And they go, "Well, no, we really can't." And immediately, my trigger says, "Oh yeah, you can. You just don't." Well, this is a very good level of customer experience and a great benefit for the consumer to know if their financial institution can help them identify, "By the way, here's what you're currently doing. You can adjust it." Also, there's services out there. But do you think this level of insight for the consumer is going to be table stakes going forward?
Joan Clark: I definitely do. And we can provide that data to financial institutions and to fintechs to help provide those tools to their customers and provide customer facing applications for that with our enrichment merchant payment cleansing service that enriches transactions data. We actually identify the set, the pool of merchants that are identified as recurring providers, merchants that accept recurring payments. So that would be an easy solution for us to provide that set of merchants that those customers are making payments to. And it would help them, again, reset that up when they have to open up a new card. It's actually one of our use cases that we have in our merchant payment cleansing product. Hit the nail on the head.
Jim Marous: Yeah. And there's so much available here, because we've taken this for granted. We're excited about the fact that people have recurring payments. There's interchange income, as you mentioned, also the ability to collect insights. So can this recurring spend data be used for AI modeling?
Joan Clark: It definitely can. If you have that high volume of recurring spend, it's the characteristic of customers that you want to see more of, right? And so we've had clients that have used that enriched transaction data to identify card spend behaviors that represent those most profitable customers. And when they've looked at that transaction data of their most profitable customers, what they've seen is that those most profitable customers are the ones that have those recurring payments, the recurring payments not only to the subscription box services but to utilities and cell phone payments and so forth. And then they drill down into that data and they find out what types of payments or what types of merchants they're making that payment to. And then they offer additional rewards to encourage those that are not the most profitable customers to have that type of behavior. So in the AI modeling, they're looking for this correlation between profitability and type of spend behavior.
Jim Marous: So this is interesting. I'm just finishing up on a car lease right now and about to take ownership of the car and probably do it through a lending opportunity because of the lower interest rate. But if a financial institution, or I'm sorry, if a consumer would like to get more rewards, you could actually encourage somebody to make their auto payments via credit card simply with the transfers happening, but they get rewards for that. Correct? Yeah. So what's interesting is when you look at the auto payment idea through a credit card, it could be any kind of major payment. A financial institution encouraging the consumer to do it is one way for the financial institution to say, "We're looking out for you. We're using insights that we know, and we're making your financial life easier or at least more beneficial to you, even though we're paying out the reward." So it's saying, "Instead of having to come directly from your checking account, which you're used to doing, we have this data that says you're doing this regularly. You may think of this alternative."
Jim Marous: So let's do a bit of a pivot here, because when we're looking at the overall subscription economy, not only are there revenue opportunities, but, as we've talked about prior to this call, is there are certainly other subscription opportunities around engagement. So is there a subscription model where banking solutions could offer enough that there may actually be the ability to create a monthly fee? In other words, the different things we've talked about here where overall subscribing to a financial institution may have enough value that you could actually charge for it? Such as, let's look at Amazon, they're charging, it's 130, $140 a year now for the right to shop digitally. Are there examples out there where a financial institution can bring enough value that a consumer could actually subscribe to the financial institution?
Joan Clark: That this consumer could subscribe to the financial institution [inaudible 00:18:35]-
Jim Marous: More of a monthly fee. We call them monthly fees, but it would be a subscription model where actually, let's say, all the things you're talking about, about using data and AI-
Joan Clark: Right. Yeah. So if we could convince them to switch their payments from that BillPay to an ACH, to card services, then there is an opportunity to do that, right? And then the FI can earn the subscription, or excuse me, earn those interchange revenue dollars.
Jim Marous: Right. And even the ability to show the value of what you're doing for the consumer or the consumers can actually pay a monthly fee for it. We call it a monthly fee, but this is really subscription revenue. This is what any other organization is doing on a regular basis. This is another example of where subscription, of subscription economy, could play in. And while it's not revenue-based, it's certainly engagement-based.
Jim Marous: We have a number of fintechs that create ongoing content, very specific content for different sets of their consumers. Some of them already focus on a specific base. But if you were to develop, let's say, an ongoing blog, an ongoing podcast, something else, and while you may not charge for it, is this another way to leverage the data we have internally to know what a customer's interests are and then build content or connect them to content that's out there that can serve them and actually enhance the value of that relationship? Because the more we show the customer that we know them, the less likely it is that they want to go through the process of trying to find another institution who would have to know them again.
Joan Clark: Yeah. And that's really the focus of our customer insights is to deepen that customer relationship. It is for the purpose of marketing content, but it is really to engage with the customer on a more personal level to show that we truly understand them. And so we see transactions that the customers are processing that really explain their priorities, their financial priorities, what's important to them from their children, to their homes, to their investment. And so we see, for example, if they're trying to figure out how to pay for college for their children, and maybe there's content on that, how to pay for college for your children entering in the next two or three years. Or maybe they see that their consumers are making small investments via Acorns, and that could be another way to target customers for specific investment advice.
Jim Marous: Yeah. It's interesting because we take all this for granted, but what you're really doing, and we've discussed since the beginning of the podcast, is instead of simply using data for us to know the customers better, you're actually talking about using data to help the customers pretty much know themselves better but also continually illustrate that we can help them down their financial journey. And this is the missing link that most financial institutions haven't done in the past.
Jim Marous: My saying is, "Instead of making great reports, we need to make exceptional experiences." Well, I'm going to even move that further and say, "Build exceptional engagement opportunities." Because you keep on bringing up that the more data that you have, the more data that's created, the more opportunities that are out there. So as a wrap up question, financial institutions obviously have an abundance of data that they're sitting on. Why is it more important than ever for a financial institution to use this data not only to extract value and insights but to make major strategic decisions that may involve revenue models or entire business cases?
Joan Clark: Yeah, it's so important. And it is really important. I love the context of the journey of the customer. FIs do sit on a lot of data, but making use of all that data is not easy. Like I said, that especially transaction data, that transaction data is messy and it's difficult to understand, but there are so many valuable insights that can be gleaned from that, from the transactions that customers make. Because, like I said, it defines our priorities. Where we spend our money reveals what's important to us: children's, homes, investments.
Joan Clark: But if FIs are going to look to their customers and the life events that their customers are experiencing to drive their business strategies and really understand not, "How am I going to sell a HELOC?" but, "How am I going to help my customers put their kids through college?" or, "How am I going to help my customers safer retirement appropriately, have enough, a sufficient amount of money to save for retirement?" or, "How am I going to help this young couple buy the next home that they're looking for?" They can't ignore their customer's swipes and the payments that they're making on their digital banking platform. They need all that data to better understand their customers and what their financial goals are. And so they can use this data to really hit the ground running and really use that information to drive the institution's strategies.
Jim Marous: I said at the beginning, consumers engage in the subscription economy because it makes their life easier. We, as financial institutions, should be really interested in the subscription economy from a standpoint of revenue, engagement, and building a lasting relationship that's going to be more and more important to the consumer at a time that they're, right now, in many cases, taking their financial institution relationship for granted.
Jim Marous: It's great to have you on the show, Joan. One thing I keep on telling everybody, I say at the beginning, I'm going to say it again, financial institutions have every excuse in the world for not engaging with third party providers. They'll say, "Geez, my data's not in great shape," or, "Geez, I have a core provider that's supposed to provide this." We have all these excuses, but the reality is the consumer's not going to wait for us to build a better engagement model to understand them better.
Jim Marous: Organizations like Segmint are tremendously positioned today to help organizations out of the box, quickly, and at scale take advantage of the data and insights you have buried in your financial institution and immediately convert it. It doesn't matter whether your core provider is, it doesn't matter what kind of platform you have. It doesn't matter how many silos you have. And, yeah, that sounds like a plug, but what I'm getting to is we need, as financial institutions, to make this decision today. We can't wait another year to make this decision. The lag we have between the analysis and actually making the decision is lost money. Joan, how do organizations find out more about Segmint and also find out more about what you can do to get some early wins right out of the gate?
Joan Clark: So, thanks so much for that fabulous wrap up, Jim. The best way to get ahold of us is first to go to our website and check out all of the information that we have there. We have case studies, we have use cases, we have blogs. We have so much information out there about how our data can help your financial institution take advantage of the information that you have right there readily available to you. And then you can reach out to any one of our team members, either through the website, or just pick up the phone and our team can schedule some time to talk with you and walk you through step-by-step how to take advantage of the data that you have.
Jim Marous: Yeah. And, Joan, your firm has so many case studies, so many examples of how an organization can very quickly take advantage of revenue opportunities that can more than pay for the engagement with Segmint. And I'm going to make sure people understand it because a lot of people may spell it wrong. It's S-E-G-M-I-N-T .com.
Joan Clark: Good choice.
Jim Marous: And, Joan, great to have you on the show again and great to have Segmint as a sponsor of this podcast. Thank you. Thanks for listening to Banking Transformed, just rated a top retail banking podcast, also the winner of three international awards for podcast excellence. If you enjoyed today's interview, please give our show a five star rating on your favorite podcast app. In addition, be sure to catch my articles I'm writing for The Financial Brand and the research we're doing for the Digital Banking Report. This has been a production of Evergreen Podcasts. A special thank you to our producer, Leah Longbrake, audio engineer Sean Rule-Hoffman, and video producer Will Pritts. I'm your host, Jim Marous. Until next time, remember, sometimes the greatest opportunities are hidden. We just need to seek them out.