Consumers are becoming more willing to pay to use their banks' mobile apps
Source: John Heggestuen
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Bank app users in the U.S. may become more willing to pay a small monthly subscription fee to use their mobile banking app, according to a recent study by S&P Global Market Intelligence.
Though the majority of survey respondents, which included 3,897 US bank app users, said they're unwilling to pay, 21% of respondents said they'd pay $3 a month, and 40% said they'd be willing to pay $1 a month. The survey results suggest a concerted shift in consumer behavior in regards to subscriptions for apps.
Interest in using subscription fees for mobile apps is gaining traction for a number of reasons:
Consistent revenue stream: A minute number of app users actually make one-off in-app purchases, according to Sensor Tower. Moreover, app usage is reliant on users remaining engaged. Because of this, developers and app stores alike will benefit from recurring payments from established consumers in lieu of unpredictable one-off purchases.
Reduces reliance on in-app ads: This will benefit users that find in-app advertisements annoying. It could also help reduce the strain ads have on mobile data usage, as well as help mitigate battery draining. In-app ads have reached 50% penetration in the top 100 grossing apps, according to Soomla.
Developers receive a larger share of in-app revenue: Earlier this year, both Google and Apple announced new payment schemes for app publishers using a subscription model rather than in-app purchases or pay-and-play. Under the new revenue cut, publishers will receive 85% of the revenue from their app, up from 70%.
However, businesses must be careful when considering shifting from a free service to a paid service, lest they risk alienating users. Customers unwilling to pay for an app could easily move to a competitor offering the service for free. One workaround to this problem could be the implementation of a tiered or freemium service, in which users get the basic app for free, and can pay a small subscription to receive a premium service.
Nevertheless, S&P’s survey shows how implementing a subscription model to an app has the potential to add a sizeable revenue stream to a previously free service. Other apps, such as gaming platforms or virtual assistants, could find similar interest should they investigate a subscription model.
The shift toward mobile bank apps is particularly pronounced among millennials, as more of them are moving toward digital banking. And as a result, they're walking into their banks' traditional brick-and-mortar branches less often than ever before.
This generation accounts for the greatest share of the U.S. population at 26% and the employed population at 34%, so it's easy to see why their behaviors and preferences will have a profound effect on the future of the banking industry, particularly with regard to the way banks interact with their customers.
Third parties are expanding their role in providing services that consumers use to manage their money. And the more that role grows, the more it will disrupt the relationship between banks and their customers.
To paint a clearer picture of the future of the banking industry, John Heggestuen, managing research analyst at BI Intelligence, Business Insider's premium research service, surveyed 1,500 banked millennials (ages 18-34) on their banking behaviors and preferences — from their preferred banking devices, to what banking actions they perform on those devices, to how often they perform them.
All of that rigorous research led to an essential report entitled The Digital Disruption of Retail Banking that dives deep into the industry and details what its future will look like.
Here are some of the key takeaways from the report:
The bank branch will become obsolete. It will be some time before the final death rattle, but improving online channels, declining branch visits, and the rising cost per transaction at branches are collectively leading to branch closures.
Banks that don't act fast are going to lose relationships with customers. Consumers are increasingly opting for digital banking services provided by third-party tech firms. This is disrupting the relationships between banks and their customers, and banks are losing out on branding and cross-selling opportunities. For many banks, this will require further commoditization of their products and services.
The ATM will go the way of the phone booth. Relatively low operational costs compared to bank branches, paired with customers' preference for in-network ATMs, makes the ATM an attractive substitute for bank tellers. But as cash and check transactions decline, the ATM will become nonessential, ultimately facing the same fate as the physical branch.
The smartphone will become the foundational banking channel. As the primary computing device, the smartphone has the potential to know much more about banks' customers than human advisors do. The smartphone goes everywhere its user goes, has the ability to collect user data, and is already used for making purchases. Therefore, the banks that will endure will be those that offer banking services optimized for the smartphone.
In full, the report:
Analyzes how millennials use bank branches and why - even though there are a large share of millennials who still use branches, making significant investments in these channels isn’t a good move for banks.
Explains how mobile payments and mobile point-of-sale adoption by small retailers will make the ATM obsolete.
Describes how digital channels, particularly the smartphone, will become the foundation of the bank-customer relationship.
The Digital Disruption of Retail Banking is how you get the full story on the future of banking.
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