Digital Strategy Transforms a Financial Services Firm

Digital Strategy, Access to Data Transforms Financial Services Firm 

Right-size Technology Solutions, Enterprise Data Warehouse Spurs Turnaround

In late 2017, a private equity firm approached Saxony Partners’ Financial Services team with a problem – a Financial Services company they owned was losing money. The company included a large mortgage department, which accounted for the bulk of its revenue.

The firm purchased the company when rates were low and the mortgage industry was riding high. But now rates were going in the opposite direction, the firm was hemorrhaging money, and investors worried that they would not be able to break-even on a sale – if they could find a buyer for the company at all. 

Could Saxony figure out the problem, stop the bleeding, and help the firm get the lender in shape enough to sell?

With that mandate, the team at Saxony got to work. They quickly discovered why expenses were high (one reason: the firm had overspent on technology) and why profitability was low (lack of timely access to data was a factor). Speaking of data, the Saxony team also discovered that the company was not making data-driven decisions, in general.

This research led to a plan, the plan led to a turnaround. And during the process, our consultants uncovered lessons applicable to all Financial Services firms, regardless of their size or organizational health. 

Here’s the inside story. 

A Note About Names

For the sake of privacy, we are keeping the names of both the Financial Services company and the private equity firm anonymous. Leadership at the Financial Services company changed hands at roughly the same time Saxony became engaged in the project. Were it not for those new, energized, effective leaders working in tandem with the Saxony team, the company’s turnaround would not have been so dramatic. 

That said, the work we delivered on behalf of these firms – the thorough business process review, the right-sizing of the technology stack, the real-time pricing database, the custom-built enterprise data warehouse – can all be easily replicated for any other client. 

The Best of Times, The Worst of Times

Between 2012 and 2016, when the private equity firm purchased the company, interest rates were low and trending lower.

“The mortgage industry was doing very well across the board,” said Alex Fan, vice president of Saxony’s Financial Services practice. “People were calling in saying they wanted a new loan, or that they wanted to refinance their current loan because rates were down two to three percent from where they had been.”

No surprise, business at the company was booming during this time. This created two problems. First, there was lots of money available to spend on unnecessary technology. 

“One mistake that was made during this time was this idea of ‘we’re going to invest in the latest and greatest technology so we can be on the cutting edge,’” Fan said. “There’s nothing wrong with that in theory, but in this case the cost/benefit was not in favor of the company.” 

Second, the market was so strong and profitability so assured, that few at the company paid attention to the burgeoning costs associated with this too-big technology stack. 

“They were spending somewhere in the neighborhood of $50,000 per month just on Cloud technology,” Fan said. “And they had just spent $2.5 million on a data warehouse that no one was using.”

By the end of 2017, rates began creeping back up. And as profitability decreased, those two latent problems finally emerged. Without new loans and re-fis, there was nothing to offset the extraordinary costs needed to maintain the technology stack. 

At this point, the firm was losing $3 million per month. And this is when Saxony Partners arrived on the scene.

Lack of Real-Time Data Access Leads to Competitive Disadvantage

Immediately, the Saxony team conducted a thorough review.

“We began carrying out various assessments,” Fan said. “We looked at the people, we looked at their processes, and we audited their technology stack. Only then could we build out a plan of action.” 

Almost immediately, a critical gap affecting profitability became clear: the capital markets team did not have up-to-date pricing information.

“That team could only update its prices twice a week, which meant they couldn’t react to the volatility that was happening in the market,” Fan said. “So, that was the first fix we made.”

Saxony’s team connected the firm to a pricing database that allowed the capital markets team to receive real-time updates. This made a significant impact on profitability, in that the firm could now make sure they weren’t losing money on certain loans. 

“What is measured and managed, improves,” said one of the company executives. 

Aligning Technology and Business Goals

During the initial assessments, the Saxony team discovered a significant amount of wasted technology. Too much money had been spent on custom development tools, data initiatives, and app dev projects. Their spending was out of proportion to the size of their company. Moreover, the investments in technology had been made without consideration for how the various tools would work together to solve business problems.

“Not all technology is going to drive a positive return-on-investment,” Fan said. “A lot of the investments they bought into were great on paper, but it didn’t make sense for what they were trying to do as a company. It needed to be right-sized.”

By meticulously assessing people, process, and technology, Saxony helped the firm pare down and control their costs. 

“We were able to reduce one aspect of their monthly cloud spend by a factor of ten,” Fan said. 

Right-sizing the technology had another significant benefit besides just cost savings. It enabled the lender to access the data they needed to run their business and make better decisions. 

The Impact of All Your Data in One Place

The most transformative element of the project was focused on getting all of the organization’s data into one centralized location: an enterprise data warehouse (EDW). 

Prior to Saxony’s arrival, the firm had spent $2.5 million on a data warehouse project that was not successful. What they bought made sense on paper – an unstructured database augmented with a robust data visualization tool. But the irony was that most of the mortgage data was already structured at the point that it needs to be integrated into the EDW. 

“They were missing out on the real power of having all your data in one place,” Fan said. “You need to synthesize that data in such a way where analysists can use it. The vision of a data lake resulted in their uncurated dumping ground of a data swamp.”

In the end, the EDW proved itself so unwieldy that no one from the business used it. It became a $2.5 million digital paperweight. The business reverted to pulling data manually from its various source systems, resulting in conflicting numbers (depending on who was curating the data). 

“Once we established that the data coming out of their systems was already highly structured, we designed and built a highly-structured EDW to receive it,” Fan said. “That was the more practical approach. Get the data, figure out what the business wants to do with it, and aggregate it so that the reporting makes sense.

“As a result, they started making informed decisions about how to run the business. They could run reports and have confidence that the data was accurate. Best of all, everyone using the data was finally on the same page.”

The Results

Within 18 months, the firm went from losing $3 million per month to breaking even. Since that time, they have strung together an impressive streak of profitable quarters. Their private equity ownership group, which had originally charged Saxony with patching things just enough that they could sell and recoup their investment, reversed course. Instead of selling the company, they have invested more money into it. Today, the company continues its steadily growth and remains profitable. 

Lessons for All Financial Services Firms

So, what? Maybe your firm isn’t hemorrhaging millions of dollars a year. Maybe you are not in need of a turnaround. What’s the lesson for firms that are doing all right, if not great? 

You need a technology partner: Does your technology strategy align with your business goals? Do you feel that the tools in which you have invested are worthwhile? Are they utilized properly and uniformly by your employees? Do they create a seamless, positive experience for your customers?

If you answered “no” or “I’m not sure” to any of those questions – then you need a partner who knows both the Financial Services and technology sectors. A thorough business process review, with an emphasis on people, process, and technology can identify gaps in your technology strategy, and/or areas where you have overspent.

“Saxony helps you leverage technology to accomplish your business goals,” Fan said. “We work in tandem with your leadership to enable you to make data-driven decisions.” 

You need all your data in one place: Every company – Financial Services and otherwise – needs a centralized, secure database – an EDW. Does it need to be structured or unstructured? What cloud platform best suits your needs? How much storage space do you need? What types of reporting and analysis are needed to give you a competitive advantage? 

Again, this is where a trusted technology partner can step in to help.

Integrating all of your data into one place means that your data is clean, and your reporting and analysis is complete and trustworthy. You will have deeper, better insight into your business and your customers. And you will discover inaccuracies, redundancies, and opportunities for automation. 

This is the real intersection of data and your business. Some of this stuff sounds complex, sounds like a heavy lift – but they are attainable, practical solutions we have delivered to firms large and small, across the country, and around the world. 

“At the end of the day, you’re a Financial Services company – not a technology company” Fan said. “We’ve got both the industry experience and the technology expertise to help you identify what you need and what you don’t. We can guide you.”

Leave a Comment