Hundreds of new technology companies in payment processing, alternative credit, or data infrastructure have some brilliant technology to do what banks critically need: improve customer experiences, reduce costs, identify risks, and ensure compliance. It is however getting harder to sell to banks, not easier, and the process can take--no kidding--a year or two to complete. What's the problem? Here is some advice on understanding and navigating through this issue.
What you need to know
Vendor programs are designed to disqualify you from the industry, so it's essential to know the right answers in order to be competitive and keep you on the “in” list. Regulators require all bank vendors to meet strict standards as laid out in numerous bulletins. The risk management cycle that the banks have to follow includes extensive planning for the relationship, due diligence and compliance reviews, ongoing monitoring and contract guidelines--and this process often takes 6-12 months.
What new technology vendors actually get on the fast track?
Processes can--in rare cases--be expedited. So if you are planning to sell to banks, there are three keys to getting to the head of the line.
- The solution assists the bank in dealing with a mandatory response to a regulatory imperative like Anti Money Laundering, or increased reporting requirements for initiatives like Basel III and Dodd Frank, and your company has the best product;
- There is a major external change which is affecting customer behavior, and the banks need a response right now to protect market share, examples being remote deposit capture and mobile banking;
- The bank has a technology roadmap in place and your product fits in perfectly, and gets them there faster, better, and cheaper; this can be hard to predict and position.
Processes to master
- Thoroughly understand regulatory requirements and approval processes, and know the questions you will be asked in advance.
- Cultivate multiple relationships inside the bank, including the vendor sourcing and legal and compliance departments that will determine your qualification as a viable vendor.
- Develop relationships with competing banks, and be sure to negotiate non-exclusive contracts for your services.
How does the vendor approval process work?
After a business team agrees with a vendor that a product is interesting and applicable, the vendor management team steps in. They will do two things: (1) squeeze you on pricing and terms and (2) undertake exhaustive diligence. This often starts with sending you a questionnaire, which typically runs to 200-400 questions--and that’s not a typo. The questionnaires vary, but they generally fall into four sections, outlined below.
- Introduction. This section should include your business strategy, and why this is an innovative, cutting edge technology that complements the existing bank systems. You will also need to address your financial condition, and - very importantly -- they will expect a proven balance sheet, with the ability to maintain adequate cash and reserves as the business grows. This will also cover the experience, reputation, qualifications and backgrounds of the principals.
- Technology design and controls. This is likely to be approximately 100 questions, covering licensing of your code, compatibility of your system with bank’s legacy systems, risk controlled environment, and round-the-clock support for the bank and its customers.
- Legal aspects to be sensitive to. This section may have 50 questions, including jurisdictional verification of your entities, records of individual owners, record of similar services provided to other companies, licenses and IP, and discussion of any complaints filed.
- Compliance. Be ready for over 100 questions covering resiliency plan, compliance with all laws and regulations pertaining to your product, employee certification to your code of conduct, safeguarding information, Anti Money Laundering, Fair lending, Foreign Corrupt Practices Act.
No matter what your product does, you are dead unless you can meet these requirements, so it is essential to start preparing your documentation with all of this in mind. Get some feedback from experts who have done this before and develop a thorough and professional package up front that will help you punch above your weight, even if you only have 12 employees. Look like a professional vendor before you are knocked out!