By Russ Caraotta and Bill Cullity
Financial institutions have traditionally paid consultants to manage and direct their request for proposal (RFP) process for the obvious reason: they asked for help. We believe the real benefactors in the relationship are the RFP winners, and that they should pay the consultant’s fee.
An Outdated Business Model Turned Upside Down
Our recent report entitled “Building Non-Interest Income through Debit” identified the major elements involved with transforming your debit program into a profitable undertaking. Here we look a little more deeply at the first step in your evolution – following a formal process to help find the right processor and network(s).
Outsourcing this function to a professional payments consultant makes a great deal of sense for two significant reasons: first, the banking industry is under significant pressure today to cut expenses, raise revenue and increase capital, and this is an ideal opportunity to achieve all of those objectives, and second, the payments industry continues to experience tremendous identity change as a result of mergers, acquisitions and strategic alliances between the participants that can only serve to confuse banks.
Historically, when an RFP for ATM and debit processing is issued, the consultant charges a fee to the financial institution to manage the endeavor, to insure the integrity of the vendor responses, to provide guidance during the decision making process, to negotiate fees and contracts and to form a recommendation. However, we are taking it one step further by suggesting that a business case can be made which removes the consultant’s fees from the financial institution and positions it squarely on the shoulders of the winning organizations.
Charging the Winning
Sellers Makes Sense
Today’s environment provides compelling grounds for adopting this methodology.
An Established Precedent: This model has been used successfully in the real estate industry for years – the seller of the property pays the real estate commission fee to a third party, who oversees the entire transaction. The property owner has something he wants to sell; as a result of the transaction, he derives a monetary benefit. Like a property owner, a processor and network have something they want to sell to you, and accordingly, derive monetary benefit when it is sold.
Assisting the Confused Buyer: Although processing services are functionally similar across all vendors (commoditization), they don’t speak the same language. But it’s not just a case of creative labeling; it comes down to each vendor having a different view of the world. Can a bank be expected to understand such significant differences?
A New Paradigm for a New Time: Everything used to be a lot simpler. There was more stability in the business world and vendor relationships were more like friendships. Trust played a more prominent role. Unfortunately (or perhaps fortunately), that isn’t the case anymore. Today, everything must be documented, accountability identified and multiple levels of controls need to be put in place. Fraud is a constant peril as outside forces threaten precious customer information. And on top of this, the majority of the leading debit processors have new owners with constantly changing corporate objectives. You cannot afford to be paired with a partner that does not share your organizational values.
Sellers in Agreement
Some might argue that charging the seller just moves the fee from Peter to Paul and that it is still funded by the bank in the long run, but this approach removes the concern that there is “no money in the budget” at a time when consulting guidance is needed more than ever. Interestingly, EFT executives have had an overwhelmingly positive response to this new methodology, because it helps focus their attention on developing winning solutions with qualified prospects that they might have considered long shots in the past. They recognize that their proposal will receive the attention it deserves as debit professionals who understand the industry. Furthermore, it helps them escape the fear of product and service commoditization.
Developments in the banking and financial services industries have created an opportunity to change the RFP pricing paradigm for consultant’s fees. With every party of the relationship in agreement, we believe all will benefit accordingly.
Russ Caraotta can be reached at 716-652-2794 or firstname.lastname@example.org; Bill Cullity can be reached at 603-629-9663 or email@example.com.