Market Sizing Case: Expanding Digital Banking Services

Background information

A European retail bank is considering launching a premium, subscription-based mobile banking app. The app would offer benefits such as:

• Higher savings interest rates

• Advanced budgeting tools

• 24/7 priority customer support

• Exclusive financial insights and perks

  
  

Before investing, the bank wants to estimate the potential market size and identify key challenges and strategic considerations.

Question 1: Estimate the potential number of customers in Germany who would subscribe to the premium digital banking service in the first year.

Data Provided:

• Germany has 83 million people.

• 70% of the population (aged 18-75) actively use banking services.

• Among active banking users, 60% already use mobile banking.

• A recent survey suggests that 15% of mobile banking users would be willing to pay for premium services.

Good Answer:

1. Total banking users: 83M X 70% = 58M (people who use banking services)

2. Mobile banking users: 58M x 60% = 34.8M

3. Willing to pay for premium: 34.8M x 15% = 5.2M

So, an estimated 5.2 million people in Germany could be potential first-year subscribers.

Follow-up question: If the actual conversion rate was only 5%, how would that impact the bank’s business case?

Question 2: Beyond market size, what are the key challenges the bank might face in acquiring and retaining these premium customers?

Good Answer:

1. Customer Willingness to Pay

• Many users expect banking apps to be free.

• Need strong value proposition—what makes this worth paying for?

2. Competition

• Neobanks and fintech startups already offer similar features.

• Does the bank have a unique advantage (e.g., trust, better security, ecosystem integration)?

3. Regulatory & Compliance Barriers

• Stricter data security laws in financial services.

• Does premium access come with risks (e.g., liability for giving financial advice)?

4. Customer Acquisition Costs

• Digital marketing for banking is expensive due to compliance and low conversion rates.

• Will the subscription fee be enough to cover acquisition costs?

Follow-up question: What marketing strategies could make customer acquisition more efficient?

Question 3: If only 10% of the estimated premium customers convert, should the bank still proceed? What factors should influence this decision?

Good Answer:

1. Revenue per User vs. Acquisition Cost

• If 10% of 5.2M subscribe → 520K users

• If the bank charges €10/month, that’s €62M/year revenue.

• Compare to marketing costs: How much does it cost to acquire each customer?

2. Long-Term Benefits

• Could this lead to higher cross-sell (e.g., more loans, investments, mortgages)?

• Would premium users be more loyal, reducing churn rates?

3. Alternative Monetization Strategies

• Could a freemium model work?

• Could partnerships (e.g., exclusive deals with retailers) increase value for users?

Follow-up question: How would you test customer demand before full launch?