Subscription e-commerce is expanding at a remarkable rate. Projected figures indicate a surge from $199.41 billion in 2023 to an impressive $330.58 billion by 2024. This underscores the significance of subscription payments for both consumers and financial institutions (FIs). Understanding and tapping into the subscription economy can be a game changer in marketing for financial institutions.

Financial Institutions and the Subscription Economy

Consider the story of James and Lucy, a couple juggling subscriptions ranging from Netflix to Peloton, amounting to $1,264.96 monthly. Through their FI, James and Lucy contribute to the interchange fee revenue, a crucial income stream for their FI. However, when James misplaces his credit card, this revenue is jeopardized, highlighting the importance of strategic management in subscription payments.

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 prefers to work out at home and has a Peloton membership at $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 so they have an $9.99/month Xbox Live subscription. The family cell phone bill is $79/month and the cable and internet bundle are $115/month. Finally, his youngest daughter’s day care, which luckily accepts card payments, is $950/month.

In total, James and Lucy have $1,264.96 in subscriptions or recurring charges each month – all of which are made on the credit card that he opened with his FI. The interchange fee value to his FI is $22.76 each month. Last week, James lost his credit card, having to cancel and order a replacement.

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

The Value of Subscription Payments

Subscription transactions linked to a debit or credit card represent an ongoing revenue stream for FIs in the form of interchange fees. Americans’ total credit card balance is $1.13 trillion in the fourth quarter of 2023, according to the latest household debt and credit report from the Federal Reserve Bank of New York. 

According to C&R Research, an average American spends $219 a month on subscription services, providing FIs with steady interchange fee income. 2024 Telemetry Data from Alkami revealed that U.S. based account holders are making payments to 1.53 individual video streaming services at an average of $31.78 each month, and 4 percent of the research panel had 4 or more streaming services. Furthermore, cards linked to subscriptions are more likely to be used for non-subscription purchases, enhancing the value of these accounts for FIs. Subscriptions can be a way to make sure your financial institution-issued card is the consumer’s preferred card. Subscriptions have a clear value to an FI’s bottom line, but subscriptions can also be part of a strategy to build trust and loyalty with account holders like James and Lucy.

Understanding and leveraging subscription payments is vital to marketing for financial institutions, helping to secure top-of-wallet status and foster loyalty.

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

To capitalize on this, FIs can employ several strategies to benefit both the institution and its account holders:

1. Valuation and Rewards: Start by identifying account holders’ subscriptions and recurring charges through transaction data and place a dollar value on those payments. Once you understand the dollar value of subscriptions, develop and offer rewards to consumers to encourage card use for subscriptions and recurring charges. This not only secures continuous interchange fee revenue but also enhances card loyalty and usage.
2. Seamless Subscription Management: Proactively assist consumers in updating their subscription payments onto new cards, ensuring uninterrupted service and safeguarding your revenue stream. This approach not only provides convenience to the customer or member but also reinforces their trust in your services because you are helping them avoid potential late payments or service disruptions.
3. Promoting Financial Wellness: Use your insights into consumer subscriptions as a tool for advocating financial health. By highlighting unnecessary or forgotten subscriptions, you can guide account holders towards smarter financial decisions, potentially saving them money and enhancing their trust in your financial guidance. Forty-two percent of Americans have forgotten about a recurring subscription and, as a result, kept paying for one they weren’t using.
4. The Importance of Clean Data: The foundation of these strategies lies in the effective management of data. The key is to cleanse, normalize, and categorize the transaction data associated with each consumer and identify those that are subscriptions. Data tells a story about everyone, including, but not limited to, which subscription services they use. Not every financial institution has developed a data-centric approach, and without it, customer insights, such as subscription payments, can be difficult to ascertain. Transaction data cleansing is a critical tool that allows financial institutions to better understand behaviors and model spend patterns through account holder transaction analysis.

Alkami Data & Marketing Solutions help FIs make sense of the transaction data flowing through each account and create the personalized, revenue-driving campaigns that are critical to successful marketing for financial institutions. Alkami can identify the subscription merchants that your account holders are transacting with so you can quantify and protect the value of those subscriptions. Beyond that, artificial intelligence in banking provides predictions to grow and stay ahead of the competition. 

Understanding Subscriptions is More Than a Winning Tactic

Incorporating a strategic focus on subscription payments is more than a tactic; it’s a transformational approach. 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 account holders. Awareness of subscriptions should be a part of your overall marketing for financial institutions strategy.

Harness the vast amounts of data generated by digital banking interactions and send the right message at the right time to achieve success in marketing for financial institutions.