Fintech & ‘subscription economy’: Have people had enough?

Subscriptions have played an ever-increasing part of our financial lives. Fintechs hopes that this will not change as the pursuit of sustainable income.

Image source: Pexels / Anna Shvets

This week it was a story that may have escaped your attention as the next candidates to become Britain’s prime minister went on to run for office, Italy’s leader Mario Draghi offered to resign and London was about to whiz in a potential 40 degree heat wave.

However, this applies to heat and the ever-growing ‘subscription economy’, and the seats of BMWs. In short, the German car giant will offer its car customers the opportunity to turn on seats and steering wheel heating for a monthly fee of 10-15 pounds.

It’s a grip, and a smart one at it, that will annoy many who may deservedly feel that all aspects of their lives are being turned into a subscription of some kind.

Offering goods and services via a subscription is by no means new. It may even be hundreds of years old, but the ever-growing use of it, especially during the digitalisation of the economy in recent years, is new.

Digital services have a low marginal cost, which means that the subscription economy is a scale game and one that can be enormously profitable.

You can see why companies like it. Regular, recurring income is investors’ dreams. They can be modeled accurately, provide valuable data, pushed up in line with inflation and further optimized to maximize profits. Often consumers are also “sticky”, which means they do not get around to canceling things.

Anecdotally, I can admit that I forgot to end one or two streaming services in my time to my own dismay six months later when I realize that I have wasted a decent amount of money watching just a few TV shows.

During my first and only match with covid in December, I remember adding a subscription to a well-known platform to watch an episode of Jonathan Creek only to find last week that the platform continued to charge £ 5.99 every month in more than half a year after my post covid brain fog.

Fintech has actually come up with a smart solution to this problem with the subscription economy that I like.

Revolut and a number of other companies’ “disposable” virtual cards work just like any other Visa or Mastercard card, but have the added benefit of being temporary and therefore not only help protect you online, but can also counteract the problem of run subscriptions. By adding some friction, by having to subscribe again when the virtual card has expired, you can ask yourself if this is what you actually want or if it’s time to cancel.

With the cost of living crisis in full swing, the solution is neat. The only problem, of course, is that you have to ironically subscribe to Revolut’s only premium package, which costs £ 5.99 per month, to use the virtual cards.

The Netflix effect

With the UK’s neo – banks such as Revolut, Starling and Monzo all ready to report their latest figures in the coming weeks via their annual reports, we will have an important update on the use of a subscription model on these companies’ strategy of offering a premium the level.

For example, Monzo added 100,000 paying subscribers during the first six months after its launch in 2020. Today, it now has 430,000 paying subscribers across the Plus, Premium and Business plans, according to the latest report that has just been published. This has played an important role in increasing turnover by 90 percent.

The success of the subscription economy will be hugely important for neo-banks and other fintechs in the coming years who have seen impressive growth in their revenues, helping them move towards a sustainable financial foundation.

However, it can also go in reverse as Netflix has shown earlier this year. The trend may not be a one-way street.

The subscription economy makes sense, and fintech for fintech is about to become big business, but with pressure on millions of British households and growing, it is set to face its toughest test.