Beware the rise of the subscription model

9 July 2018

The perceived wisdom that millennials favour paying for everything by subscription has become a ubiquitous feature of millennial spending habits. It’s up there with our supposed love of smashed avocado and being unable to buy a house.

Never mind buying things once a year or outright, we want to have our bank accounts chipped away at on a monthly basis. Or that is at least what we are told to believe.

Think of the services you pay for monthly. Off the top of my head, I’ve got Adobe, Audible, National Geographic, Netflix and Spotify. You could push the boat out further here and include items such as phone contracts and insurance, but I consider those necessities, whereas I could live without Netflix (but only if I really had to).

These services are for the most part, innocuous. If you decide one day you’ll go outside in the fresh air instead of binge-watching old episodes of BoJack Horseman you can cancel your Netflix account with the click of a button.

But be warned, while some products and services bought via a subscription are good value, others are structured to rip you off.

The problem comes if you’re paying for the service but not using it, as this is money down the drain. I expect businesses from gyms all the way through to Amazon Prime love this, as you’re automatically their most valuable customer – one not costing them anything in return for your cash.

Other services, such as Adobe Creative Cloud, make the experience trickier. I recently decided to cancel my subscription, but when going through the website to do so was warned that I would have to pay half the remaining value of my 12-month contract to get out of it, which made it feel more painful to cancel.

“Some subscription services are designed to rip you off”

My first thought was: “I don’t remember ever having signed a 12-month contract”. To my chagrin, it turned out that it was right there in my Ts & Cs. After a careful bit of discussion with customer services, however, I was able to negotiate a zero-fee exit.

And then there are all the subscription services that I believe aren’t even worth the money to begin with. Take, for instance, 118 118 Money’s credit card. It’s a zero-interest, zero-fee product. You just have to pay – yes, you guessed it – a monthly subscription of up to £17 to use it. 118 118 Money says the card is an effective solution for people who struggle to access and manage credit, and that familiarity with fixed monthly payments gives the customer clarity on how much they need to pay.

The problem with this, however, is that the subscription works out to an effective 34.5% APR, higher than a typical credit card. Plus, if you don’t owe anything on the card, you’re paying up to £17 a month for the pleasure of keeping a piece of plastic in your pocket, when most other credit cards are free to use as long as you’re paying them off in full each month.

Another product that touts a subscription model is the Travel Money Club. For £5.99 a month, or £60 a year, it gives members unfettered access to foreign currencies. According to the company, the benefit of joining the club is zero fees for exchanging cash and better exchange rates compared to your bank.

Only, there are many products on the market where you can get the exact same service completely for free. Moneywise’s current best buy for overseas spending, for instance, is the Starling Bank debit card, or for credit cards the Barclays Platinum Travel card. Neither costs anything for worldwide spending or cash withdrawals. And there’s no subscription to pay either – of course, you must clear the balance on the credit card each month or you’ll face interest charges. For those wanting to simply use cash, the free TravelMoneyMax tool tells you where to get the best currency exchange rates in your area.

Arguably, subscriptions are only worth the cash if you use them regularly, and you should beware those businesses that add complexity or clever language to mask services that don’t represent good value for money.

Of course, there is one subscription out there that will in fact save you money – one to Moneywise magazine!