artikel | 10 jun 2020

Five steps to facilitate service contract negotiations with the banks (and other large financial actors) – how to prepare for an optimal process

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As a fintech service provider, negotiating a service or co-operation contract with banks can be an equally rewarding as challenging process. In Setterwalls’ previous Fintech forums, we have discussed the pros and cons of the negotiation process with representatives from the major Scandinavian banks. In this article, we share some of the steps you can take to facilitate your negotiation process for the benefit of all parties involved.

Align interests and create common goals
A part which is equally fundamental as it is essential should be to set up a commercial and operative structure which involves shared strategic goals and interests (in contrast to a more traditional and standard service-for-payment offering). Without genuinely shared goals and interests, the potential for any deal to survive the negotiating process is in our experience low and it also significantly increases the risk that problems down the road may become unresolvable with much less room for a common middle ground.

Interest alignment can be done in many different ways and may be more or less easy to achieve, depending on the type of deal and fintech solution at hand. Examples of some common alignment methods are bundling the service offering with a combined offer of shares, revenue or result sharing of the outcome of the co-operation, or shared end-customer values or synergy effects or in other ways. No matter how this is done, it is important that the parties can create and envision a strategic partnership through co-operation, which hopefully can last and grow over time.

Besides the obvious benefits of getting the optimal value out of the deal, creating common goals and interests may also be essential for facilitating the negotiation process both with your negotiating partner and within the bank’s organisation (which never shall be underestimated).  Achieving and building these common goals may in short help to create and support a constructive dialogue on all levels.

Ensure sufficient stakeholder support and management on both sides
One particularly potential challenging issue in negotiating with large and heavily regulated organisations such as banks  is to get the deal through all necessary levels and stakeholders of the organisation in an efficient way. It can be particularly damaging for a deal process if you don’t get the right people involved and engaged early on as you would need to revisit important issues at a later stage. Thus, the inevitable question that ought to be asked (to yourself) in a sales/negotiating process with a bank is – who really is your “sponsor” on the other side. Identify such a person and stay close to him/her(or at least always keep that person in the loop).

It is therefore essential that you meet and mirror the bank’s internal deal process in relevant sectors, for example when it comes to commercial, technical and legal/compliance aspects, in order to establish and maintain channels with the right parts of the bank’s organisation. If you structure your negotiating team appropriately information flow and deal progress can be facilitated and you may be notified on any potential bottleneck issues early on.

With the right stakeholder support, your negotiating partner on the bank side can act as an ambassador for the deal and navigate the process through the relevant forums, in an efficient and constructive way.

Prepare good and structured answers to expected questions
In addition to having good communication channels and providing support to relevant stakeholders, it is also important to ensure that you have prepared answers (which are structured in an easy to understand and pedagogical way) to potential questions on the fundamental issues of the intended deal.

Since there will likely be many different stakeholders involved there will also be a need to clearly explain the fundamentals of the deal for these different persons. Often misunderstandings can occur when the mechanisms of the deal are not clearly set out, which is time consuming and may even risk stalling negotiations.

Therefore, you should ensure that your negotiating contact, who will have to explain and sometimes defend the proposed deal, has the information and support needed to lead the deal through the bank’s internal organisation (which often can be in competition with other projects or processes that occur simultaneously in the bank).

It can often be useful to have ready and prepared documents which explain the fundamentals in an understandable way, to be circulated to relevant persons at an early stage. Areas in which such ready and prepared answers are particularly important are such where the involved persons may not be deep into the main contract negotiations, such as compliance, privacy, information security or some management committees.

If stakeholders instead are provided with a good picture of the essentials of the deal early on, this will likely speed things up and significantly increase the chance of  a successful outcome.

Present credible resources in the important sectors
Credibility is a very important factor when dealing with banks, as reputational damage from working with the “wrong” companies can be particularly high for these organisations. It is therefore important to not only have the right technical and commercial solutions at place, but also to show that you have the right resources available when any unforeseen issues occur (which they will).

Make sure that you have reputable persons engaged, both internally and as external consultants, to credibly show that you can be a stable and sustainable partner for the intended co-operation. According to our experience, in the fintech field the areas where the right people can have the most impact are compliance and legal (including privacy), information security and the core commercial/operational part of the fintech service.

Do not underestimate the potential positive impact of having experienced and renowned persons, whether as personnel, on the board or as advisors, in order to get the deal through.

Ensure that you have the endurance and resources for a longer process than planned
Unfortunately, in banks and similar organisations there will always be a wide range of hurdles, considerations, stakeholders, competing interests, technical aspects (particularly legacy) and necessary/formal signoffs to overcome before the contract can be signed. In Setterwalls’ recent fintech forums, this was something that the panel from the big Scandinavian banks stressed – things can take longer than expected.

The reasons for the long processes are several, and they may to some extent be mitigated by taking the steps suggested in this article. However, there may still be a need for persistence, perseverance and endurance to get the deal through. Therefore, you should ensure that you have both financial strength, fall back positions and alternative plans to set in motion should the deal not be ready when initially desired. But when the deal succeeds you will most likely be rewarded for the hard work you have invested in the negotiations and there will be great opportunities ahead.




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