Will the boom in subscription growth during the pandemic lead to retention challenges — and a scramble to reduce churn? That growth, according to PYMNTS November Subscription Commerce Tracker, has produced 10 million new digital subscriptions in the first half of 2020. But only a few weeks into 2021, it’s apparent that the short-term future may be a bit uncertain for subscription companies, Vindicia Chief Operating Officer and Chief Financial Officer Roy Barak said in a conversation with PYMNTS.

“What we saw in 2020 was very much a rapid shift in mindset and in consumer behavior,” noted Barak, “and subscriptions went through the roof.” But what we see at the moment, he added, may be a trend toward rebalancing. He noted that with streaming media as but one example, U.S. households have generally added at least one service in the past year during the pandemic. The average stands at 3.8 services per household.

“What we’re seeing now are some changes in consumer spending around that,” he said. The very nature of subscriptions themselves allows some time for reflection, as there’s an initial trial period or a discounted onboarding period. When they end, the subscriber is presented with the choice of continuing, with payment, of course. The decision point has been one where consumers must mull the service they signed up for and whether the value-add is enough. Sometimes the billing systems are at fault when actual subscriptions are in place and payments have been recurring, but a change in payment information short-circuits the whole process.

Macro forces are also at work, where job losses or other income pressures may force consumers to tighten their proverbial belts.

In any of the scenarios, the result has been churn — and in the case of the billing systems noted above, “it’s a regrettable churn that could have been prevented.” For the companies themselves, the challenges of the subscription model, and one that underscores the importance of monitoring and preventing churn, is the fact that subscriber acquisition costs tend to be high.

“In order to achieve a sustainable financial model — and a sustainable lifetime value of the customer — you really need to ensure that the customer stays with you,” said Barak. Vindicia, he said, is focused on the “involuntary” churn that is caused by payment challenges and billing challenges. He said a range of 15 percent to 20 percent of all recurring payments fails, resulting in a significant churn for subscription companies.

Vindicia, he said, monitors client companies to spot payment failures (addressing both active and passive churn) through the use of algorithms and a database with a history of more than 1.3 billion transactions.

“We look at what the underlying causes were [for failed transactions] and we work to heal those transactions, to ensure that the consumer who never really wanted to opt out of the service stays on.” The goal, he said, is to make sure the technical aspects of the billing system and the payment network, in the background, do not affect the customer experience.

After all, an extra six months of recurring revenue for the subscription firm can make a world of financial difference.

Vindicia’s payments solution, he said, can recover up to 30 percent of those failed transactions, increasing the customer lifetime value significantly. He noted that there is no consumer intervention, and friction is removed at the point where subscribers and enterprise interact.

Monitoring Consumers’ Usage 

“We can also monitor the consumer’s usage,” said Barak. “Have they logged in enough during the previous period? Are they making sufficient use of the service? Are they on the right tier of the service?” That type of insight might spur companies to “tweak” their offerings and personalize them, which in turn will reduce churn. Monitoring usage and engagement provides an early indication of the subscriber’s intent to churn. Active churn solutions can help boost upselling opportunities for these companies. Upselling can be done effectively, he said, when robust ID technologies are in place.

“The ability to know that someone is more than a login and a password and email address is important,” he told PYMNTS. “So is being able to understand their preferences — in a way that makes the customer feel comfortable, where they have the choice of what data they want to share and don’t want to share.”

Looking ahead, he said it would be important (and interesting) to see how the subscription boom of 2020 matures, especially for the younger firms, the startups, that focused on top-line growth.

Churn may be a barrier to progress, he said, and will need to be addressed.

“It becomes harder to continue to grow at the same rate at the same percentage points, multipliers, et cetera, as they did early on,” Barak said. “If you have a big leak in your bucket of revenue, no matter how much you sell and bring new consumers on board, it’s going to hamper your ability to continue to grow.”

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Source – https://www.institutionalinvestor.com/

Forecasting 2020 was near impossible. Here’s how the buyside’s favorite equity analysts did it.

In a year unlike any that came before, how does one predict what will happen next?

In 2020, that was the major challenge facing equity research analysts, whose job it is to forecast stock prices and make judgement calls about which companies will succeed or fail. Usually, analysts can rely on past data and analysis to tell them about how a company or sector might perform in the near future. But as the coronavirus pandemic unfolded, it became clear that the answers weren’t going to be found in historic data, according to Juan Luis Perez, group head of group research and analytics at UBS.

“A year ago it was incredibly difficult to forecast how the year was going to play out,” Perez said by phone. “We took the view that it was probably dangerous to try to extrapolate past trends” — for example, how markets recovered from the global financial crisis of 2008 and how the economy was impacted by the last major pandemic in 1918. “The year required a lot of adaptation, and it was very important not to come with very clear beliefs about how this was going to go,” he added.

For UBS — which has made a name for itself in quantitative, data-driven insights — this meant taking in as much new information as possible, as quickly as possible. To provide the best real-time research in a constantly changing environment, the firm’s teams of analysts and data scientists had to deliver “speed and quality,” according to Dan Dowd, the firm’s global head of research. This included responding quickly to client questions and updating views on thousands of stocks in a very short period time, he said.

“We tried from the very beginning to listen as much as we could to what companies were telling us,” Perez added. “We had to be very agile, we had to listen a lot, and from the very beginning we understood that we had to update projections very quickly.”

Their efforts paid off: For the fourth year in a row, UBS has ranked as the world’s top equity research provider in Institutional Investor’s 2020 ranking of the Global Research Leaders. The Swiss bank held onto its crown after racking up 158 team positions for research coverage across the U.S., developed Europe, Latin America, Asia, China, Japan, and the emerging markets of Europe, the Middle East, and Africa.

This time, UBS was closely followed by JPMorgan Chase & Co., which added 24 equity research team positions to its total over the course of 2020, for a final tally of 150 positions globally. The second-place finish is a big step up for JPMorgan, which placed fourth in 2019’s ranking of the world’s top equity research firms.

Like UBS, JPMorgan relied on real-time data and quantitative insights to make sense of the unfolding pandemic and its impact on markets and the economy. “We followed statistics on new cases and hospitalizations to better understand the nature of the virus,” Marko Kolanovic, the bank’s global head of quantitative and derivatives strategy, said by email. “Perhaps even more important was gauging the size and the timing of extraordinary monetary and fiscal measures and their impact on corporate earnings and equity valuation multiples.”

In the face of “extraordinary” market developments, including all-time-high volatility and the fastest market sell-off in history, Kolanovic said it was also important for analysts to keep track of the positioning and flows coming from different groups of investors including hedge funds, institutions, quant funds, retail investors, and others. “Research skills that had to be employed to deliver value to clients ranged from epidemiology to macro-economics, data science, and market microstructure,” he said.

All of this was gobbled up buy-side clients, who looked to sell-side research firms to help them navigate a period of extreme uncertainty.

“Investors’ appetite for information and insights was voracious,” said Noelle Grainger, global head of equity research at JPMorgan. “We saw an increased focus on fundamental bottom-up research, including written research, multi-media content, and time spent talking to analysts, experts and companies.”

To meet this need, Grainger said JPMorgan increased research report publication by 10 percent as readership accelerated. Analysts also spent more time on phone and video calls chatting with clients — an increase from of about 15 to 20 percent from 2019, she said.

Likewise, Dowd and Perez reported a dramatic increase in readership and client engagement at UBS. According to Dowd, some of the best-received publications were a new series of research reports called “Future Reimagined,” which examined what the world would look like after Covid-19.

But while the pandemic was the biggest story of 2020, it wasn’t the only topic that investors were interested in last year. Demand for environmental, social, and governance research also increased in 2020, as the pandemic “heightened everyone’s sense of what were the most important, underestimated risks,” Dowd said.

Interest in alternative data — like that produced by the team of data scientists at UBS Evidence Lab — also continued to grow, Dowd said.

“The use of extra-financial data is becoming not a nice thing to have but a core component of research,” Perez added. He said that UBS has deployed a team of social scientists, data analysts, and machine learning experts — led by Barry Hurewitz, global head of UBS Evidence Lab innovations — to help the firm’s equity analysts better think about and use data.

Dowd “thought it was essential that we built the capabilities to make sure analysts would incorporate data,” Perez said. In addition, the firm is focusing on helping buy-side clients incorporate data-driven research into their investment processes through the UBS Research Academy, Dowd said.

As the Covid-19 pandemic continues to shape markets and policy, Perez warned that economic and stock estimates will remain “very noisy,” with the potential for a lot of dispersion between analysts’ forecasts.

“The responsibility of our firm and every firm is to try to shorten this gap as much as possible,” he said. “You need a framework that belongs mostly to research on what makes you think you’re right and what makes you think you’re wrong. And you need high-resolution data to help you understand what’s going on.”

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