FinTechs Force CFOs to Rethink ROI of Digital Strategies

Changing the way larger enterprises — the biggest of the big, the ones that have been around for decades — operate brings that old adage to mind about turning a battleship.

Change is slow, takes a long time and usually involves a large crew toiling behind the scenes.

That’s especially true when finance teams seek to boost their efficiencies and take on new technology that is designed to automate and streamline back-office functions, and ultimately improve cash flow. Done well, the returns on investment (ROI) can be significant, as measured in shortened time to market with new products and services, and better employment interactions within the company.

Matthew Tillman, co-founder and CEO at OpenEnvoy, told PYMNTS’ Karen Webster that FinTechs can help enterprise clients truly modernize and enter the digital age.

Looking for a Connection  

However, that’s only possible if the enterprise and the FinTech are in simpatico, in constant communication about just what modernization means and how to get there — cutting the “dance” between so that all parties benefit.

That is no easy task, given the fact that large firms are made up of siloed departments, and those departments may not talk with one another a great deal. They may also have separate goals and measures of success.

And yet, if there is a common thread that runs through it all, it’s that business is changing and that everybody recognizes the need to become more dynamic and eliminate manual processes, even as they innovate on what they offer their end consumers.

See also: The Days of Manual Invoice ‘Spot Checks’ May Be Numbered

Speaking to his own (pre-OpenEnvoy) tenure at a large enterprise, he said that “the first place you go wrong is by not deciding what your new, ‘modern’ outcome really needs to look like.”

The keyword here is “modern”: Larger enterprises have gotten used to enterprise resource planning (ERP) implementations and other large-scale deployments that take months (and months!) to get up and running. Things have gotten better over time, but the reality is that these firms still have had, in the past, to bolt on plugins to those large implementations.

The FinTech/enterprise relationship is markedly different than the relationships that have dominated tech, where big firms work with large tech vendors (the Oracles, etc. of the world). Those large suppliers pretty much live off of professional services and maintenance fees — so they have a vested interest in keeping legacy tech deployments up and running.

The reality is those legacy companies are really living off of maintenance fees. The software? Well, that’s secondary. The sales cycles stretch out over years and across multi-year contracts, which in turn means that the enterprises may not start to see returns on their investments into those vendors’ products for … years.

Those elongated cycles just won’t cut it anymore, Tillman said.

“When you’re working with an emerging tech company,” he said, they don’t have three years (it costs money to make money, in other words) — and so their own shorter product development cycles wind up having benefits throughout the financial services ecosystem.

By way of example, in the 21st century, he said, microservices have been a favored way of updating various parts of operations and interactions without having to tackle widespread rips and replacements.

Related: NEW REPORT: Cloud-Based Microservices Are Transforming Modern Risk Management

For the FinTechs themselves, serving enterprise clients is challenging as well. Regardless of what solutions are being offered and which pain points are being addressed, the FinTechs must ensure that their solutions are interoperable and can be fine-tuned on the fly if problems arise.

“The business pressures, now, on companies large and small, are consistent,” he said. “You need to get digital going.”

The headwinds converge, though, as FinTechs attempt to sell into the financial suite and beyond. The finance team is capable of building a business case and projecting an ROI when it comes to taking on new tech initiatives. But in designing service agreements with FinTechs, those finance professionals also have to bring that MSA to the procurement team. The cost savings that the finance team wants may not jibe well with procurement.

And all the while, the FinTech provider is waiting months to be onboarded by the enterprise, as everyone navigates the MSAs that span hundreds of pages.

“Different deal structures are the solution,” he told Webster — modeled on the ability to start small, business unit by enterprise business unit, and expand. Fortunately, with Software-as-a-Service, getting up and running once the agreements are codified takes mere days, not weeks or months.

Just as the relationships between companies and their FinTechs are changing, so too are the actual metrics that govern ROI beyond yield optimization.

“When you talk about FinTech companies, they actually have an opportunity not just to bring cost efficiency to the story, but to actually make you money,” he said. “So in payment companies, you see things like vCards [the contact info] with revenue share deals as an example.”

Companies like OpenEnvoy offer would-be clients the ability to calculate cash flow improvements and time to value right off the bat. Part of those cash flow improvements come from new approaches to payment terms between FinTechs and their client firms.

Read more: Embedded Finance Puts Banks, FinTechs on Equal Footing

Many FinTechs may opt not to levy implementation fees, and might charge for services only after a certain ROI threshold is achieved by the enterprise. It’s a shared roadmap approach that benefits both the client and the provider. The shifts in mindset in how to approach these commercial relationships are becoming easier as management teams at legacy enterprises skew younger — they’re tech-savvy and willing to entertain new metrics through which to measure success.

That’s a marked difference from some tech firms’ approaches, where, in Tillman’s words, “It’s about how much of your procurement can we provide for you, how much of your API automation can we provide for you so that we get your data. And eventually, sell you other things such as debt facilities, trade finance and other services.”

FinTechs are better served, he said, by sticking to their proverbial knitting and showing value from initial deployments, and worrying about upselling at a later date, once the relationship with the enterprise client is firmly cemented.

“You get the application, and the value of the application, tracking it over time, and you get the spend insights. We’re not trying to sell you on other things,” he said.

Illustrating those savings directly and immediately to the client firms can show them that manual processes can fall by the wayside and operations can improve dramatically.

“This raises the bar for what software can accomplish,” he told Webster, “and taking a strategic role makes the FinTech a better strategic partner, too.”