Subscription banking arrives: Neobanks sign up for Netflix model to avoid fees | Financial markets

The Netflix model extends to banking. Digital organizations have taken the financial sector by storm with a model that aims to eliminate typical bank fees for account servicing or card issuance, but charges customers different subscription plans. This is a model that offers a free plan with basic banking (account and card without fees), and if…

The Netflix model extends to banking. Digital organizations have taken the financial sector by storm with a model that aims to eliminate typical bank fees for account servicing or card issuance, but charges customers different subscription plans. This is a model that offers a free plan with basic banking (account and card with no fees), and if the customer needs or prefers to have a number of additional services, he can sign up for one of the various monthly plans.

Banks have two main ways to generate income from a typical banking business. On the one hand, the interest they receive from lending to clients. On the other hand, the fees they charge for providing services, such as for an immediate transfer, issuing a new card, or for maintaining an account. During the six-year period (2016 to 2022) when interest rates remained zero or negative, large traditional banks had difficulty generating revenue from lending. And for this reason, they began charging fees to customers if they did not meet certain linkage requirements, which typically involve direct payroll debits, miscellaneous receipts, and contracting for other products. As rates have risen, organizations have made these requirements more flexible so that 80% of users do not pay a fee.

However, according to a recent report prepared by the consumer association Asufin, each Spanish bank customer pays an average of 150 euros in bank fees per year (equivalent to about 12.5 euros per month). In fact, commissions can reach up to 240 euros per year (20 euros per month). The neobanks’ commitment is to eliminate typical fees for basic services, but creating premium subscription plans includes other benefits beyond financial ones, such as travel insurance, mobile insurance, free foreign currency exchange or cash back for purchases made.

“The triumph of the subscription banking model over the traditional fee-and-service model is that the model ensures transparency and allows users to choose the plan that best suits their lifestyle, providing a more personalized banking experience,” assesses Ignacio. Zunzunegi, Head of Development for Southern Europe at Revolut.

Revolut is the largest neobank in the world. It offers five subscription plans. Free, allowing you to carry out basic operations (account and card) without costs. This opens up a range of four higher plans that offer additional benefits: the Plus plan (€3.99 per month), the Premium plan (€8.99 per month), the Metal plan (€15.99 per month) and the Ultra plan ( ). 45 euros per month). Payments for the plans have risen 40% over the past year as customers increasingly use them as their primary account, according to organization sources. Premium plans offer subscriptions to the Financial Times, WeWork, access to VIP airport lounges, or the ability to invest in a money fund that offers higher returns than lower plans.

Likewise, N26 has four plans. One is free: Smart plan (costs 4.9 euros per month), You (costs 9.9 euros per month) and Metal (16.9 euros per month). Among the benefits of the most expensive plans is travel insurance, which covers flight cancellations or delays, luggage or emergencies during your trip. Also insurance for your mobile phone. Additionally, the most premium plan also rewards the customer’s account balance at 4%, compared to 2.26% offered by the rest of the plans.

Other neobanks such as Monese and Vivid Money, which are becoming increasingly popular, are also betting on a subscription model. In this case, the benefits are associated with financial transactions such as receiving cash back purchases made or improved conditions for certain transactions.

Neobanks can afford to charge lower fees because they have much lower costs than traditional banks. Working exclusively online, they do not incur the costs of offices and employees working in them. And the design is much lighter. These are usually organizations headquartered in a European country, and the banking history of that country extends to other countries. Since everyone has the same business model and does not need branches, the investment in expansion is much lower. This is why some neobanks and fintech companies often have a foreign IBAN when a customer opens an account.

To put it into perspective, Revolut has 6,000 employees worldwide. And N26 employs 1,500 people. Spanish banking giants Santander and BBVA, which have an international presence, have 211,000 and 121,500 employees respectively. Medium-sized and national banks such as Sabadell and Unicaja have 14,000 and 7,500 employees respectively. Kutxabank or Ibercaja, with 5,000 employees each, have staff similar to or even larger than large neobanks and are smaller organizations with strong ties to specific geographic regions.

“The subscription model responds to society’s new way of consuming. People are no longer willing to pay for services they don’t need, and they don’t understand or accept the existence of non-transparent fees. We believe that this model will continue to evolve, but not all organizations will be able to implement it successfully. The high costs and outdated infrastructure that some banks maintain will force them to continue to demand minimums, references and terms,” N26 explains.

For a neobank, if a client makes several purchases using a card, this is already beneficial for the company. Each time a customer pays by card, the bank receives a small commission, which is deducted from the total amount the business receives. Traditional banks, which have a much heavier structure, must incur millions of dollars in costs and therefore do not have as much ability to eliminate fees.

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