While most think of falling leaves and Halloween as annual autumn rituals, financial services companies have a totally different perspective. For these organizations, the fall represents Financial Planning season, when CFOs must map out budgets and set performance KPIs for the coming year. It’s never an easy process, and this year is especially difficult for predicting the overall macroeconomic context. Complicating matters are economic uncertainties, potential interest rate cuts, and—oh, yes! —a presidential election.
But even with all these question marks, CFOs can still fulfill their planning objectives by pursuing some data-driven initiatives. One of the most impactful is reevaluating current technology spend. Most companies—especially those in the FinTech and financial services sector—are finding that the technologies that were originally cutting-edge and demanded premium pricing now are more mature, opening the market to newer and more nimble providers. In addition, organizations that may have gone through a merger or acquisition find themselves with redundant technology that is costly to maintain. It would make sense for CFOs to use planning season as a reason to revisit the tech stack and take advantage of greater efficiencies and lower costs, and most importantly, harvest cash that can be injected back into the business.
“We typically find that banks, credit unions, payment processors, and other financial services companies typically spend a lot more on technology than what is necessary,” explained Blake Wetzel, Chief Executive Officer of AIQ, a consultancy firm that helps businesses renegotiate and procure technology. “There are many reasons why this happens. Sometimes technology is acquired through a merger, and it quickly becomes antiquated. And many times, a company is an early adopter of a specific application or product, such as collaboration applications or cloud storage. As technology matures, new competitors bring innovation into the space, and pricing subsequently drops. Companies that are early or mid-term adopters are subsequently penalized for investing in new technology.”
As Wetzel explains, businesses can partner with companies like AIQ to assess, renegotiate, and procure technology-related products and services. These “procurement-as-a-service” providers will assess the market for a comprehensive range of solutions, such as cloud service, telecommunications, CRM, billing software, business productivity applications, cybersecurity, payment processing, and other innovations. Once a list of suitable vendors is compiled, and the list of required features is defined, the consultancy will then initiate a reverse auction to encourage participants to bid against each other, driving down the cost of the solution.
“The best reverse auction is completely data-driven,” says Wetzel. “When we orchestrate an auction, we have no allegiance to any particular vendor; it is completely up to each participating company how competitive they get. We typically can achieve a cost savings in excess of forty-four percent through a reverse auction, which far exceeds the five to ten percent savings in traditional contract negotiations.”
Wetzel goes on to say that AIQ clients can suggest or eliminate companies for the reverse auction, and have the option to accept or deny any and all bids.
Once the cash is harvested through the reverse auction, businesses typically use the proceeds for one of the three initiatives.
“Some businesses use the savings to fund new strategies, such as market expansion or new product development,” Wetzel notes. “Others use it to bolster EBITDA, and there are also companies that rely on the savings to avoid draconian measures like budget cuts or layoffs. The influx of cash is certainly important for every one of these scenarios.”
By Glenn Goldberg