Action Items

Before entering into any FinTech agreements, your bank should consider the following:

  • The FinTech entity you are working with
  • The agreement with the FinTech
  • The law and regulations related to the arrangement
  • Your own bank and your FinTech goals and strategy
  • The relationship with the FinTech

Financial Technology

We are increasingly helping our bank clients with the negotiation of FinTech (financial technology) agreements. These agreements include, among other things, data analytic services, new products such as enhanced customer experiences and program management agreements where banks act as insured depository support for various payment systems. Recently, some commentators have opined that community banks should not enter into FinTech relationships. Clearly, there are risks involved in these relationships that must be understood and anticipated by the bank, but banks should at least consider this avenue as boards determine how best to address their product and technology concerns and opportunities in the future.

5 Essential Things To Know

Regardless of the product or service, many banks are examining FinTech offerings as a way to enhance their customer’s experience or provide additional non-interest income. Because of their novelty and the various risks inherent with working with a FinTech, any potential FinTech relationship should be approached carefully. We have developed a short list of five of the essential things your bank should know if you are considering an agreement with a FinTech:

  • Know the FinTech entity you are working with
    Your bank should know the FinTech entity you are working with because their reputation could become your reputation.
  • Know the agreement with the FinTech
    Your bank must understand how the agreement will work in practice, what are the parties’ expectations, and if any other parties are involved. You also need to be able to clearly explain the agreement to your board and your examiner.
  • Know the law and regulations related to the arrangement
    Your bank should understand the various laws and regulations governing the arrangement, especially if it is a novel product or service.
  • Know your own bank and your FinTech goals and strategy
    Your bank should know whether the relationship fits with your bank’s strategy and ability to perform under the agreement.
  • Know the relationship with the FinTech
    Your bank should know how the relationship will work after it commences and be actively involved in monitoring it. Have the ability to openly communicate with the FinTech entity.

New FinTech products, services and arrangements are being developed every day. Some are going to serve your bank better than others. If your bank considers these five issues when approaching a FinTech relationship, it will help your bank make the right decisions for the best possible result.

We Can Help You

Please contact us if you are considering a new FinTech product or relationship or if you want to discuss how to approach contract negotiations with a FinTech in light of these issues. We have helped banks negotiate agreements with both early-stage FinTechs and industry-leading FinTechs, among others.

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