$13 billion ARR and growing

OBSERVATIONS FROM THE FINTECH SNARK TANK

According to a recent article in Tech Crunch:

“Investors have determined that consumer fintech companies are not SaaS companies, meaning that fintech revenues should not be valued as if they were annual recurring revenue (ARR). The point is important because a number of consumer fintech startups have raised capital , used and valued in recent years as if they were SaaS companies. This may have been a mistake.”

The article points to the recent devaluations of Robinhood and Coinbase as proof points. Don’t throw the baby out with the bath water. The 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 slightly more than 10% of consumers pay fintechs to receive or access the service.

Fintech’s fees are often positioned as a subscription fee. Acorns, for example, says “instead of surprise fees, we bundle our products into simple, transparent subscription tiers that support your financial well-being.”

Dave (a fintech, not the name of some random guy) charges a monthly “membership fee” to access the company’s account monitoring and alerting services, budgeting functionality, and to maintain an active connection to members’ external bank accounts through third-party services.

At Acorns, the percentage of customers who are daily users is higher among the premium price tiers and in the first six months after the subscription; investors who choose the premium pricing option increase their account balances significantly faster than customers in the lower pricing tiers.

Increasingly, Acorns subscribers are joining premium price tiers. Since July 2020, 61% of new subscribers have joined at the $3 level and 14% at the $5 level. Only one in four new subscribers enters the lowest price level.

Americans spend $13 billion on Fintech subscriptions

Across the fintech industry, subscription fees and membership fees are increasing. Among consumers between the ages of 21 and 55, 40% pay to receive or subscribe to fintech services each month, while half spend $10 or more.

By generation, 47% of Gen Zers and 44% of Millennials pay to access fintech services every month. On average, Gen Zers and Millennials spend about $6.25 per month to access fintech services, and Gen Xers spend about $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 in the Baby Boomers, and fintechs generate $13.3 billion in annual revenue from fees and subscription fees in the US.

Can banks compete for subscriptions?

An article in Protocol claimed:

“There’s a solution that neobanks have found, which is part marketing and part product design: Rework fees as subscriptions, and market premium memberships as time- and worry-saving features with a predictable cost rather than surprise fees that disrupt customers’ financial plans. It begs the question about why the banks have not simply rebranded fees as subscriptions instead of hitting customers with unknown and unexpected maintenance or overdraft fees.”

First, a response to the “unknown and unexpected fees” claim.

A recent survey I conducted at Cornerstone Advisors (soon to be published) found that eight out of 10 Americans say their primary checking account provider adequately discloses their fees to them.

However, there are differences by age group. suggests 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 the bogus “unknown and unexpected” claim.

However, the second part of the hypothetical question is a good one: why has not rebranded the banks fees as subscription?

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 simply rebranding a fee as a subscription fee isn’t going to fool anyone.

According to a new report from Cornerstone Advisors, banks need to create new value in their checking account offerings to create subscription fees:

“To maintain savings account profitability, community-based institutions must compensate for a declining revenue stream without resorting to penalty fees. The solution: bundling value-added services that 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 current account packages is an example of what Cornerstone calls embedded fintech.

A financial institution with 100,000 checking accounts can generate nearly $750,000 in incremental revenue in the first year of an embedded fintech strategy. With embedded fintech subscriptions growing to 50% of checking accounts over five years, total subscription revenue can grow by more than 700%.

For a free copy of the report Creating a Fintech Subscription Engine: How Embedded Fintech Can Help Banks and Credit Unions Fight the Revenue Declineclick here or on the cover image.