Everything is being offered as a subscription. From cars to music libraries, we're moving away from a culture of ownership. While payments underpin the general move to subscriptions, there hasn't been a lot of activity around financial services moving to a subscription model. That's changing.
In a new report from EY that surveyed 1,500 US consumers split across wealth, age and other demographic factors, researchers set out to describe what the financial services industry would look like five years from now in light of evolving consumer needs and expectations.
People say they're financially healthy but they're not
American consumers are notoriously overly optimistic when it comes to describing their financial health. 83 percent of people surveyed by EY rated themselves as financially healthy. The data shows otherwise. People want to improve their financial health, but their behavior is complacent.
These beliefs, coupled with the fact that people routinely come up short when it comes to saving for retirement or having sufficient rainy day funds, demonstrate how the general public isn't getting the best out of today's version of financial services.
The personal finance OS
The researchers floated the idea of a personal financial health operating system by the people they surveyed. The idea was to take the collective temperature of an AI-driven platform that helps to proactively manage the daily and long term financial decisions of our lives. Gamification of the experience would lead to changes of behavior.
Like Credit Karma's credit score, the personal finance OS would use a numeric value for financial health that would fluctuate in real time based on cashflow and financial preparedness. At the core of the platform would be AI-driven advice that contextualizes suggestions, nudges and recommendations.
EY ran some scenario analysis around this idea, tapping in to see how people would respond if different types of financial institutions offered this financial OS. Banks fared well, seeing a lift in demand of 14.4 percent in the 18-34 segment.
Consumer finance will become the next subscription model
The researchers reasoned that financial services could be delivered via a subscription, just like so many other products.
"The model would involve an annual fee and include a bundle of products and services associated with specific life events, as well as a financial health monitor," the authors wrote.
"As part of the subscription, consumers would be provided with pre-curated access and potential concierge services related to other professional services, like accountants and attorneys, and nonfinancial needs, like nursing facilities and day care. All bundles would be based on the context of specific life events and consumer interest in associated services."
The 25–34 (52 percent) and 35–49 (51 percent) age groups expressed the highest interest in subscription models, followed closely by the 18–24 age group (44%). The appeal of subscriptions appears to be more age-based than wealth-based.
Life events call for life subscription financial services bundles
Instead of flat or AUM fees, in the future, consumer financial services may be delivered as bundled packages around life events.
Several life events prompt high interest in subscription-based models. Getting married (96 percent), having a child (90 percent), starting a first job (83 percent) and preparing to send a child to college (76 percent) were the top events to elicit interest in financial services subscription bundles.
What's more, researchers wanted to know people's receptivity to subscribing to these bundles through their primary financial institution versus receiving them from a technology firm. In every demographic and across all types of financial institutions, people would prefer to subscribe to an FI's subscription bundle.