Disadvantages of Subscription-Based Banking

In the previous articles, we have learned about what subscription-based banking is. We also know the various advantages that this revenue model brings for banks as well as for corporate customers. However, there are several commercial banking experts who believe that the subscription banking model also has its own fair share of problems. Hence, in order to have a well-rounded opinion on the topic, it is important to also be aware of the various shortcomings of subscription-based banking.

In this article, we will have a closer look at some of the disadvantages which are commonly associated with subscription-based banking.

1. Difficult to Onboard Customers: In a traditional banking relationship, the corporate customer typically starts by using free or lower-priced services offered by the commercial bank. Once the corporate customer is more comfortable partnering with the bank, then they start using higher order services. However, when it comes to subscription banking, commercial banks charge a significant sum from day one in the form of subscription fees. Hence, customers do not get the chance to ease into the banking model. Commercial banks have experienced great difficulty in trying to onboard customers over the years. This is one of the biggest drawbacks of the subscription-based model.

2. Freemium Model: In order to overcome the problem mentioned above, many commercial banks have started offering the freemium model. This means that there is a very basic set of banking services that are offered for free. Any value-added services are offered in return for a subscription.

   Here too, corporate customers are forced to subscribe to several of the bank’s services at one go when they decide to upgrade. As a result, many corporate customers are hesitant to upgrade from the freemium model. The conversion rates from the free to the premium subscription remain quite low.

3. Inability to Personalize Offers: Subscription-based banking is all about bundling services. Commercial banks observe the kind of services that are commonly utilized by similar corporations and then bundle them up to provide at a fixed price. Now, commercial banking is all about providing personalized service. Corporate customers expect more personalized service because of the large volumes of their transactions.

   Therefore, it often becomes difficult to convince customers to settle for an off-the-shelf product bundle instead of a customized bouquet of services. Many commercial banks have introduced varying degrees of personalization in the subscription-based model. However, it goes against the basic principle of having a few pre-determined subscriptions which the user gets to choose from.

4. Reduced Revenue: When a bank adopts a subscription-based revenue model, they are not only removing the complications in their fee structure, but they are completely modifying it. It is common for banks to offer services such as unlimited check payments as a part of a subscription model. In such cases, the banks often lose out on revenue since the number of payments being made or received starts increasing drastically after the subscription. The end result is that a better technological infrastructure has to be put in place in order to support the high volumes. This may lead to an increase in costs while simultaneously leading to a decrease in revenues at the same time.

5. High Customer Churn: Any subscription-based business model is vulnerable to a high degree of customer churn. Corporate banking does not seem to be any exception to the rule. Commercial banks have realized that if the business model is subscription based, it becomes very easy for the corporate customers to compare prices across various banks. The end result of this is a price war and if the commercial bank does not drop their rates, they are likely to witness a mass exodus of customers. Hence, it can be said that commercial banks which adopt a subscriber-based revenue model make themselves vulnerable to customer churn.

6. Constant Need to Upgrade: In the case of subscriber-based revenue models, corporate customers have a decision to make every month. They need to decide whether or not they must renew their services. Hence, for a commercial bank, it is very important to stay on top of their game. Unless they have the most technologically advanced systems and provide cutting-edge customer service, they always risk losing out their customers to other competitors.

   Commercial banks have to be on a constant course of self-improvement if they adopt this revenue model. However, having the need to continuously innovate may not necessarily be a bad thing.

7. Hidden Charges: Subscriber-based revenue models are infamous for having a lot of hidden charges. There are some unscrupulous banks that have created complex contracts with various charges that customers find difficult to keep track of. If the contract includes multiple charges, then the customers generally find it confusing and tend to avoid signing such a contract.

The bottom line is that there are definitely many advantages to implementing a subscription-based revenue model. However, commercial banks also face several disadvantages in doing the same. Hence, the transition from traditional banking to subscription-based commercial banking needs to be well thought out after weighing all the pros and cons.