Time is money
In a world where the key to increased market share is dependent on new, easier to understand and quicker to adopt products, the time it takes from idea to ready-to-use product for the market is crucial.
For every new generation entering adult working life, the lack of patience while searching for a suitable solution (for example, a financial service) is increasing. Studies show that a young person that does not find an answer to their question on a specific web page within 10 seconds is likely to search elsewhere than continue to search on the current website. It is also likely that the same person would instead conduct business via the web page without human interaction, rather than make a phone call to ask what that same finance company can offer. We are in the hands of a totally new behaviour never seen in previous generations.
Current Software Acquisition Approach
We are used to buying software on a license basis. It is common practice when it comes to purchasing access to software and we are used to paying an initial fee along with hourly fees for customisation, such as integrations and customer-specific functionality. In the early days we actually paid per CPU-seconds used on mainframe systems, but for the last 30 years or so it has been standard to pay for a license. For the software vendor this means higher initial cash inflow, but the flipside is lower recurring revenue. For the customer the situation is opposite; he has a higher cost to acquire the initial license to get started, but in the longer term the recurring cost is lower. This might not be optimal for either party and is dependent on whether the customer opts towards higher opex (operational cost) or capex (capital investment) – and also the size of the customer and the ability to carry the upfront cost.
New Ways to Get Access to Software
To balance this, it could be in both the buyers’ and the sellers’ interest to have a relationship where there is an obvious upside to continued cooperation. A lower upfront cost and balancing this out with a higher recurring fee and transactional fee for software usage will secure the continuous connection between the two, and will also ensure continued priority for all customers since every customer is – more or less – equally important. Such pricing models have more of a balanced risk/reward approach as the fixed fee for the customer is normally lower, and when the customer grows (e.g. with more transactions), the transactional fee component ensures that the software vendor benefits at the same pace as the customer.
The Next Step – Acceptance
Now, back to where we started – time to market and how a financial company or bank, can offer customers products that are more attractive. The customer is more likely to pick a company that can provide quick and relevant information and an offer to suit their needs. If a finance company can come up with a new product that is well accepted by the market, it will increase transactions and drive income for the software company as well. With that in mind, it will be in the software company’s interest to create a superb solution. A shared risk, but also a shared opportunity for both the finance company and the software vendor.
The Customer
From the customers’ point of view, the quality of the software they use is increasingly important, and already today the need for excellent software services to the financial customer is the difference between a won or lost deal. Many of the financial companies and banks already have IT departments larger than most dedicated IT companies. It is not unusual to consider the internal resources as ‘free of charge’ and external resources as ‘costly.’ This is of course not true, but it would also benefit the result if the most suitable resource was used in any given situation, rather than the cheapest. A close relationship with mutual financial interests would solve this as well.
Conclusions
• Onboarding of new customers has to be quick and swift to attract new generations
• The time-to-market for new ideas and product is critical
• Software vendors should adopt pricing models with shared risks
• Finance companies should adopt pricing models with shared opportunities
• A pricing model with shared risks and opportunities is in both parties’ interests
Ensuring secure, stable, and up-to-date IT solutions for the finance market spells recurring revenue, by sharing risk and opportunity between the finance company and software vendor.
