FINTECH SNARK TANK COMMENTS
According to a recent Tech Crunch article:
“Investors have decided that consumer fintech companies are not SaaS companies, which means that fintech revenue should not be valued as if it were annual recurring revenue (ARR). This point matters because a host of mainstream fintech startups have raised capital, spent, and valued in recent years as if they were SaaS businesses. Maybe it was a mistake. »
The article cites recent Robinhood and Coinbase devaluations as evidence. However, don’t throw the baby out with the bathwater. Annual Recurring Revenue (ARR) on fintech subscriptions is alive and well.
The Fintech Subscription Model
Across a range of financial management activities, more consumers are using fintech providers than traditional banks and credit unions. And just over 10% of consumers pay fintechs to receive or access the service.
Fintech fees are often positioned as subscription fees. Acorns, for example, says “rather than surprise fees, we bundle our products into simple, transparent subscription tiers that support your financial well-being.”
Dave (a fintech, not a random guy’s name) charges a monthly “membership” fee to access the company’s account monitoring and notification services, budgeting feature, and to maintain a connection active to members’ external bank accounts via third-party services. .
At Acorns, the percentage of customers who are daily users is higher among premium pricing tiers and in the first six months after subscription; investors who choose the higher pricing option grow their account balance much faster than customers in lower pricing tiers.
Increasingly, Acorns subscribers are joining premium pricing tiers. Since July 2020, 61% of new subscribers have signed up at the $3 level and 14% at the $5 level. Only one in four new subscribers enjoys the lowest pricing tier.
Americans Spend $13 Billion on Fintech Subscriptions
In the fintech industry, subscription fees and membership fees add up. Among consumers aged 21-55, 40% pay to receive or subscribe to fintech services each month, with half spending $10 or more.
By generation, 47% of Gen Zers and 44% of Millennials pay to access fintech services monthly. On average, Gen Zers and Millennials spend around $6.25 per month to access fintech services, with Gen Xers spending around $4.75.
On an annual basis, Gen Zers spend $4.45 billion each year on fintech subscriptions, Millennials spend $4.73 billion, and Gen Xers spend $3.29 billion. Add baby boomers and fintechs generate $13.3 billion in annual revenue from fees and subscription fees in the United States.
Can banks compete on subscriptions?
A Protocol article stated:
“There is a solution that neobanks have come up with, which is part marketing and part product design: recast fees as subscriptions and market premium memberships as features that save time and worry with a predictable cost instead of surprise charges that disrupt customers’ financial plans. This raises the question of why banks haven’t simply renamed fees to subscriptions instead of hitting customers with unknown and unexpected maintenance or overdraft fees.
First, a response to the claim of “unknown and unexpected charges”.
A recent study I conducted at Cornerstone Advisors (coming soon) found that eight out of 10 Americans say their primary checking account provider properly discloses its fees to them.
However, there are differences by age group. suggesting that over time, as consumers become more experienced in the world of financial services, they learn more about existing fees and understand that they are not really “hidden”.
So much for that “unknown and unexpected” false claim.
The other part of the hypothetical question is good, though: why do not have banks have renamed fees into subscriptions?
The answer: It’s not that easy.
Many consumers have between 10 and 20 different types of subscriptions, and most consumers, especially those over 30, have had a checking account for decades. They’re used to paying (or seeing) fees – not subscription fees – and just renaming a fee a subscription fee won’t fool anyone.
According to a new report from Cornerstone Advisors, banks must create new value in their checking account offerings in order to create subscription fees:
“To maintain the profitability of deposit accounts, community institutions must compensate for a declining revenue stream without resorting to punitive fees. The solution: bundle the value-added services consumers already have or say they want into checking account offerings and mobile banking apps. »
This process of bundling value-added third-party services into checking account packages is an example of what Cornerstone calls integrated fintech.
A financial institution with 100,000 checking accounts could generate almost $750,000 in additional revenue in the first year of an integrated fintech strategy. With adoption of embedded fintech subscriptions reaching 50% of checking accounts over five years, total subscription revenue could increase by more than 700%.
For a free copy of the report Building a Fintech Subscription Engine: How Embedded Fintech Can Help Banks and Credit Unions Fight the Revenue Slumpclick here or on the cover image.