Tom Nightingale

18 October 2018
Topics in this article
  • Cost Optimization
  • Financial Services


Financial Services is a broad and varied industry, often shrouded in technical terminology and enough complex data to give a mathematician a headache. Having recently had some success in demystifying business financial services myself, I thought it may benefit others to provide deep insight into breaking through some barriers that restrict the ability to deliver change and value.

For this piece, I’m going to focus on merchant services and point of sale finance, though you may find some of the points have broader application. The title here, “Wrong Place, Right Time”, is to emphasize that some of the broader benefits to businesses may be missed, as either we’re looking in the wrong places or so much time and effort is spent on getting any “result” (whatever the criteria for that may be) rather than the “right” result.

Data, what data?

It’s hard to review any opportunity or make any changes without data. With the two areas I mentioned (merchant services and point of sale finance), data is often hard to come by. Typically, there is very little, if any, information shown within Accounts Payable spend and deductions often made at source by the Supplier. As a result, you’re reliant on the third party to provide what you need, even before you can assess the potential opportunity. A big watch out here, is that the Supplier may either withhold the data or try to drown you in it. More is better, but it can be very overwhelming.

One approach is to get comfortable with uncertainty. The alternative is to focus on what drives commercials and impacts the cost, which may allow you to cut through the extreme of being provided with everything. For example, for point of sale finance, these usually are bad debt and delinquency rates, cost of funds, and average transaction values. The level of manual process intervention required of the Supplier should also be taken into account, though an understanding of this will likely need to come from other sources. Remember to take into consideration that the amount of spend you see may be misleading and vastly overstate what is addressable.

Volume is not always the answer to a better deal

Counter intuitive as it may seem, volume of business is not always the silver bullet. It can, in fact, be significantly damaging. For instance, by introducing further volume, you might be contributing bad debt to a finance portfolio. This could actually represent a worsened commercial offering compared to the lower existing volumes originally held.

I’m not saying that volume may not drive better value. Consolidation has driven cost and control benefits for a number of our clients, smoothing portfolio risk, providing operational economies of scale, or simply elevating the Supplier-Customer relationship to a more strategic level. However, it may not necessarily drive the benefits you could expect to see. Consideration for what drives the Supplier cost model will help you understand potential appetite to take on more business from you.

Cash is king

Not losing sight of the total cost to the business is crucial. A focus on discounts may funnel you into a high costs channel. In the world of point of sale finance, cash is likely to still be the cheapest option for you.

For instance, zero percent point of sale finance is one example where increased volume may reduce your subsidy price to the lender. However, seeking cash payment or alternative card payment methods from your customers instead will reduce or remove this particular cost altogether.

Significant benefits can be delivered beyond cost

Benefits can come in many shapes and sizes, and it’s here, for Business Financial Services, that by looking beyond price you can really add value. Examples include introducing a pricing structure that limits interest rate impacts on subsidies, a framework that drives higher customer acceptance rates, or a solution that streamlines the customer payment journey. These may all have much more significant business impacts than a simple price reduction.

Naturally, a solution that ticks several boxes is more likely to please a possibly varied stakeholder base, therefore focusing beyond cost could prove key to delivering change. A great project in this area initially focused on reducing cost, can actually lead to further top-line revenue benefit.

Senior buy-in is key (and expect challenge)

What you are reviewing is likely to play a significant role in the customer payment experience, impact customer retention, and the payment options available to customers. You will likely find it’s of particular interest to the CCO, CMO or CFO, sometimes all of the senior stakeholders. It’s best to get these stakeholders on board with the project from the outset, as their support will give the project the clout it needs to succeed.

Obtaining buy-in for change can take time, and given that these services often drive or facilitate sales, it can feel like an uphill struggle. This is particularly the case if the area has not received significant commercial influence in the past. Aligning emotional engagement is therefore crucial. Savings will often not be high on the priority list among sales and customer experience impacts. Therefore, an approach which highlights benefits outside of cost reduction alongside the immediate financial benefits is likely to get more traction from this stakeholder group.

Right place, right time

Getting to the right answer will unlikely be easy, with a number of hurdles to overcome, but with the right approach this could help unlock value that you hadn’t initially expected was possible. To quote Oscar Wilde “success is a science; if you have the conditions, you get the result”.

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