Categories: B2B Payments

Excess SaaS Spend Emerges From The Shadows

Software-as-a-Service (SaaS) ushered in a booming transformation for the enterprise.

Cloud-based services enable companies to be more agile in adopting flexible technologies, while developers often gain value in being able to create solutions that can more easily integrate with others.

Yet for all of SaaS’s benefits, organizations can quickly find themselves in SaaS overload, managing dozens or even hundreds of subscriptions and interfaces in an ecosystem that introduces a whole new range of challenges.

Indeed, one of the most attractive features of SaaS for businesses has also created one of its biggest problems, according to David Shi, Founder and CEO of Trimwire.

While SaaS subscriptions offer businesses a set-it-and-forget-it approach to useful tools, not having to worry about manually managing payments to their software vendors means a massive risk of excess spend.

“This is a huge problem,” he told PYMNTS. “There is a lot of chaos around putting a card onto a website to buy a subscription if you’re not aggressively checking your bank statement every month — which most companies are not doing. There is a huge probability that there is something on there you completely forgot about.”

Complex Bills And Pricing Disparity

One of the biggest reasons businesses large and small end up spending too much on SaaS is the issue of forgetting that they’ve even acquired a subscription in the first place. As Shi explained, startups in particular will sign up for free trials, which require a credit card number, and then end up paying for that subscription for months whether they’re using it or not.

Although common, this isn’t the only culprit of excess SaaS spend.

“There is a lot of opportunity in both canceling unused subscriptions and identifying redundant software subscriptions, finding potential discounts that a company is not aware of, and potentially even negotiating if the prices being charged are much higher for one company than another,” he said, noting that Trimwire’s technology offers a window into what a company’s own industry peers might be paying for the same software subscriptions. “When one company knows another is paying less for the same thing, they have a pretty solid argument to justify a cost reduction.”

Beyond SaaS, Trimwire is also able to automatically tackle another key pain point of subscription spending as organizations increasingly rely on cloud service providers. The industry’s billing practices can be especially challenging for organizations, said Shi.

“It’s a highly technical bill,” he explained, adding that organizations’ own cloud architects or engineers would have to go into system logs to compare usage with that invoice. “Just imagine how much an engineer’s time costs per hour and think about them spending their time doing this.”

While he couldn’t say for certain whether cloud service providers intentionally complicate their bills to make it more difficult to identify excess charges, Shi acknowledged that cloud providers are certainly profiting from this invoice structure.

Broadening Opportunities

For now, Trimwire is focused on automatically analyzing companies’ SaaS and cloud service bills to identify potential savings. But as more industries expand into the subscription business model, there will undoubtedly be a much broader opportunity for organizations to inadvertently over-spend on their service providers.

The good news is the FinTech ecosystem is also evolving to open up opportunities for firms like Trimwire to deepen insights into spend for business customers. Shi highlighted open banking as a particularly exciting opportunity to expand Trimwire’s current data integration capabilities beyond its use of Plaid to access business bank and credit card information.

With the gig economy expanding, there will also be new opportunities in helping professionals like freelancers and independent contractors separate their personal from professional business expenses to combat wasted spending, he added.

Building a company like Trimwire in the current climate of coronavirus uncertainty is also a significant opportunity for the firm as organizations of all sizes and industries become hyper-vigilant about spend and cash management. While Shi said executives are generally well-versed on the breadth of the issue of over-spending on SaaS, the sheer volume of manual workload that has to occur to identify and mitigate that waste is rarely worth the effort.

But when identifying that over-spend is automated, the value becomes immediately clear.

It’s a problem any consumer can have: A free trial period has expired, and a credit card is being charged without notice. Yet when it’s the organization’s commercial card on file, the charges aren’t a few dollars here and there; rather, the costs can run up into the tens of thousands of dollars.

“The average company spends $350,000 a year just on SaaS, and this doesn’t include all of the cloud and other services,” said Shi. “Founders and C-suite executives usually want to spend time on gathering revenue or building the business. Identifying excess spend isn’t something they particularly want to engage in, even if they know they have to.”

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The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

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