Demonstrate that you understand our business..
One of the first things that grabbed my attention when I first walked into the fintech industry was the question – how do you go about selling technology to banks and financial institutions when every offering appeared a ‘me too’ (pun unintended). Needless to say, it continues to be a red ocean market. Practically no differentiation except in the price and a few other frills besides sophistication and latest technology.
So I decided to just go out there and meet a few veterans in the fintech industry. And a user. My question to them was – How do you measure the impact of technology on your bottom line? They were stumped. I rephrased my question – How can I deliver value to you through my software???
This time, their answer stumped me.
They said “demonstrate that you understand my business...” That was a heavily loaded answer. What did they mean?
I found my explanation in the ideas and concepts of Eli Goldratt. He said something on these lines - (and I loosely quote.) ‘It is not the sophistication and sleekness of your software, it is not the latest technology, that brings value. It is how your software impacts your customer’s business that adds value to his customers repeatedly that adds value and impacts your customers’ bottomline’.
Most technology sellers talk to organizations on speed, scale, sophistication and complexity of their technology. This is a red ocean trap. Technology does not give you competitive advantage. If it does, then it could eroded even before you head home from your office.
Imagine a 3 year old kid who wants to entertain himself. Does he get entertained by sophisticated gadget with the latest games on it or just a piece of paper that has fallen near her reach? The gadget has no value for her. She will probably flip it over couple of times and settle down to tear the paper into pieces, roll it over, and throw it around and what not... The kid is now in her own Disneyland. To hell with the gadgets.
Ditto with selling technology. It is the value you bring to the customer’s bottom line that is important and not its sophistication.
It is important “...not to sophisticate the product out of usability”... in the words of Eli Goldratt.
Let us look at an example.
Imagine a situation where a bank takes 45 days to process a loan application (Right from entering the loan details and generating the application number to actual disbursement). Today, the focus on speed and scale makes a technology seller speak about the number of applications that can be “processed” in a day...a metric that has practically no value. If I am processing 50 applications today can this new software help me process say 100 application per day? But how does this help in
delivering value to the bank’s customers?
If the software can cut this cycle time from 45 days to say 10 days or even 20 days it has a huge value to the bank’s business. The bank can create “assets” faster. And, this measurement is all important. How quickly your application turns is clear value that has a direct impact on the bank’s bottom line.Applications turns is the metric. The lower the number the better. But how does the software help in this application turn? For this, we have to turn to Goldratt again.
Imagine that the loan process is a chain. From application to disbursement. And, in this chain there are many touch points, so to speak. Entering the application is a touch point, credit appraisal, credit check, and building & land verification (if it is a home loan etc.), document checks, advocate’s report etc. are all touch points. If a delay occurs, normally, at one or two touch points and if that touch point is causing the major delay then, all the links (touch points) in the chain will have to be “subservient” to this weak link. Software will have to ensure that all the other links “converge” to “uplift” the weakest link. For eg. If physical verification of the property takes a long time and this is causing the delay...then the software should be programmed to send the intimation for the physical checking of the property the moment all the necessary documents are in place...even if appraisal is pending. Will this not be risk? Yes. But it is a small price to pay for achieving strong application turns. The cost can be factored in. Imagine the rise in brand value.
Let us look at another example. A highly successful bank that we are talking to (to sell our software, what else!) collects loan application from all its branches. But processes them centrally. The applications are collected and physically couriered to the central place. This bank has huge savings and it lends out less than 30% of the money in its savings. Wonder how much “loss” they should be incurring for paying interest to savings/deposits account holders!! These loans are centrally processed through software. But if the bank can buy a software that can achieve strong application turns and if the new software can help the branches to process the applications at the locations from where they collect them they have a huge asset management business.
One more opportunity area. We also know that the unorganised sector contributes 80% of employment in this country and 45% (approx.) to the GDP. Most of these are MSMEs and non-salaried professionals and non-salaried non-professionals. Much of the present software in the market is geared towards corporates and salaried class. A vegetable vendor, a small manufacturing unit, a provision shopkeeper find it extremely difficult to access a loan. They are at the mercy of the local
money lender who charges close to 40% interest per annum. He collects the interest upfront while paying his customer the loan money. Software can work their algorithms to focus on such categories and ensure that documents and data required for appraising such a customer is redrawn. For eg. GST data can be used to calculate the income...instead of salary slips, profit and loss statements etc.
These are presently the limitations that is preventing profitability and growth in the banks. If the technology can help in overcoming these limitations, it can add value to the banks and their customers. However, these limitations cannot be overcome for long if the policies and rules that have created these limitations are not changed.
The rules should be changed if they had imposed those business limitations in the first place. Otherwise software has limited use.
So, when my veteran friends told me to demonstrate that I understand their business, they seem to mean business. There is much depth in that statement than what appears on the surface.
“Technology is a necessary condition, but it is not sufficient” – Eliyahu Goldratt.