Gartner Research estimates that annual spending on cloud-based solutions will grow nearly 66% from just over $23B today to just under $40B by the end of 2015. Much of this growth will occur in the banking & financial services industry as businesses migrate from older, less flexible, on-premise systems to more agile and always up-to-date services in the cloud. For many community banks, this is an entirely new endeavor – one that requires a brand-new skill set that must be mastered to reduce cost and maintain overall competitiveness. So how do you get started? What sort of applications are ideal first candidates for the cloud? What should a bank look for in a cloud solution provider?
As with most things, the best way to begin is to start small. Identify business needs within the bank where you can make use of existing software-as-a-service (SaaS) solutions to generate a quick win and build experience. Assign a project champion / business sponsor within the bank to maximize the positive impact and capture lessons-learned, both about the specific project and SaaS solutions in general. To minimize risk, steer clear of anything that would require sensitive account or personally identifiable information (PII). Initially it may seem that these requirements limit the possibilities, but there are still lots of potential opportunities, including things like email marketing or website optimization. Even basic analytics can be performed without the need for account-level PII.
Selecting a Vendor
You’ve identified the business need and chosen the project champion – what should you consider when selecting a vendor? Of course, much of your existing vendor management process and criteria are still valid. There are, however, some unique aspects to consider when buying a SaaS solution. In fact, the term “Software as a Service” is in most instances a misnomer. The best SaaS applications are much more than merely “software delivered as a service.” The best, most valuable, SaaS applications are, in fact, just the opposite: “Service delivered, where possible, through software.” It may sound silly, but merely changing the way that you think about purchasing SaaS solutions in this way will produce better decisions and ultimately better results.
Criteria to Consider
Privacy & Security
Do they have a culture of data security and privacy and do they demonstrate that culture through their actions? Everyone says that they value these things, but how do they actually behave? One simple yet devious test: at some point during the sales process, “accidentally” send them some data in an un-encrypted email that appears to contain customer PII (use fake data please). Everyone who cares about security will have a policy (in writing) which describes exactly what to do when they receive data from a client or a prospect that contains PII. This procedure typically requires that they notify the sender and possibly their compliance officer of the potential breach, and then destroy all traces of the data. Vendors who truly believe in data security will follow the procedure to the letter, even if that puts the sale at risk.
Service & Support
At their core, are they a service organization, or are they just selling software licenses? Are they domain experts in their field? Do they focus all of their efforts on this specific domain, or do they produce various products across a number of domains? Do they provide support, training, and consulting as an integral part of their solution or is it merely an afterthought? Do they have an online, publicly-accessible support center with training materials, support articles, access to email, web, chat, and phone support? Do they track support issues (or tickets) to their conclusion? Do they measure customer satisfaction? Do they have a publicly-accessible feature request page where you can view the improvements their current users are requesting, along with requests that are planned, in progress, and completed? It’s an incredibly positive sign when a SaaS vendor makes their support articles publicly available, and an even more positive sign when their feature request pipeline is publicly available. When they do these things, you’ll get to see firsthand the quality of support materials they provide, how “alive” the product is, how rapidly it’s being improved, and how they treat their current clients.
Are they open and transparent in the way they do business? One of my favorite quotes of all time is, “Sunlight is the world’s best disinfectant.” When a SaaS company does things in the open, their reputation is riding on it. Not just their reputation with their paying customers, but perhaps even more importantly, with prospects who have not yet paid them any money. And this goes beyond just having a public support center. Will they provide a list of references that you can contact? Can you contact a customer not on the list they provided? Can you contact a customer who cancelled? If the software includes algorithms or performs calculations, are these publicly available or based on publicly available or known algorithms? No matter how brilliant they seem, never buy a “black box” – and never accept “just trust us” as an answer.
The single most important metric for any SaaS company is churn. Churn is the rate at which they lose customers – the opposite of retention rate. There are many ways to calculate churn but the two most common are subscriber churn ([number of subscribers who cancelled] / [number of subscribers up for renewal]) and net churn ([revenue from renewals] / [revenue up for renewal]). Subscriber churn is the percentage of customers who left last year. Net churn takes into account up-sells (existing customers who not only renew, but buy additional functionality). For a SaaS company with yearly renewals, think of it this way: each year the SaaS provider conducts a customer satisfaction survey and asks each customer if they are getting value in excess of what they are paying. Subscriber churn is the percentage of people that answer “no” and cancel. Be certain to ask a SaaS vendor about their churn rate. If they don’t know, give a vague answer, or no answer, be worried.
Bringing it all together
As the world continues to move into the cloud, we need to develop a new set of skills – skills that help us identify gaps in our business execution and then find solutions perfectly designed to bridge those gaps. The web is full of single-purpose solutions that fill a specific need more completely and creatively than anything else does. Imagine a scenario where you have the best, most cost-effective solution for every problem in your bank. With cloud-based solutions, a scenario like that is entirely possible – and surprisingly affordable. The trick, of course, is to select providers with deep domain knowledge, the intellectual horsepower and finesse required to put that knowledge to work in a way that actually benefits your bank, and above all, that you can trust. When you find a SaaS provider that checks all three boxes, you’ll never even consider churning.