Futureproof your credit data contracts: Four ways Fintechs can gain flexibility

In the credit risk industry, the data landscape is more competitive than ever, so it’s crucial for fintechs to find the best quality data options at the best possible price and with a flexible contract.

Until recently, many organisations (including fintechs) have been unaware of differences in pricing and do not have the knowledge or information needed to negotiate competitive pricing or flexible contracts. Yet due to economic uncertainties, more and more organisations are looking for flexible bureau contracts and to negotiate contracts mid-term if they are no longer fit for purpose.

Why is flexibility a must for credit providers?

For credit providers, flexibility in data contracts is essential, especially during times of economic uncertainty. Changes to the way consumers saved and spend during the Covid-19 pandemic mean that some traditional risk models are no longer effective. A reduction in searches and new account openings made forecasting challenging for fintechs.

What’s more, signing up to a long contract length of term became challenging for procurement and credit risk teams, leaving organisations either committing to high volumes in order to achieve a discount or paying high and unnecessary pricing for lower volume commitments.

Flexibility also helps to safeguard credit providers from losing money if usage drops when consumer borrowing behaviour changes.

In summary, being tied into data contracts that are volume tiered and do not allow for changes to the economic environment means that organisations end up paying much more for the data they use - when committed to a total minimum spend or a minimum spend per product. Given current RPI levels, some customers are being levied the full RPI increase of +7%.

So what can you do?

How are bureaux creating more flexibility in contracts?

With all this in mind and with the FCA (Financial Conduct Authority) now looking into industry concerns around transparency around data quality and pricing, there are steps you can take.

The first place to start is to ensure that data offerings are not restrictive to one provider over another. This also ensures consumers are being offered the best available products at a competitive price.

The good news is, due to more awareness within the industry and calls for transparency and flexibility in contracts have led to bureaux creating more flexibility.

There are three key ways bureaux create more flexibility in contracts:

●      Offering a single unit price per search type as opposed to tiered volume based pricing

●      Allowing carry forward of unused searches/spend to the next contract period

●      Agreeing lower minimum spend commitments whilst achieving improving unit rates

As an interesting side note, some bureaux now offer contracts with ‘Volumes Committed’ on a quarterly basis, with varying stepped pricing for lower or higher volumes at improved rates. 

This is enabling many organisations to adopt a multi-bureaux approach.

Let’s take this one step further.

Four key tactics credit providers can use to get flexibility in contracts

With more awareness in the industry overall, credit providers are looking at ways to gain more transparency and control when it comes to negotiating data contracts.

1. Benchmarking

Benchmarking allows fintechs to ensure that the best unit rates are achieved for the lowest minimum commitment. This allows credit risk and procurement teams to address gaps in the credit industry by providing evidence-based benchmarks and evaluating the quality and accuracy of the data with complete pricing transparency.

This exercise can deliver an additional 25-50% of savings compared to RFP or renewal negotiation. Benchmarking will compare the pricing being offered by the same provider to customers with a similar footprint, as well as a competitive view.

Having an overview of the options available and information on what others are paying for the same products, gives credit risk and procurement teams the power to negotiate and ensure that the bureau provides the same flexibility.

👉 Read our guide for more information on negotiating better terms with the bureaux.

2.   Compare commercial terms

The next step to gaining flexibility in data contracts is comparing commercial terms offered to other organisations with a similar footprint of spend, such as SLA’s and exit terms. Having an overview of what others are spending in the industry allows you to see how your organisation measures up and provides leverage to negotiate better terms.

3.   Be aware of the options available to you

Knowing about the other options and suppliers available to you helps credit risk and procurement teams to gain more power when negotiating with credit bureaux on flexibility and price. Teams can ask their current bureau to provide the same flexibility being offered by competitors. This is key to future-proofing the credit provider’s strategy and prevents vendor lock-in to historic systems and data sets.

4.   Agree limits to RPI increases

When negotiating data contracts with the bureaux, credit risk and procurement teams should always agree limits to Retail Price Index (RPI) increases. For example, we recently identified one client who had been charged over a 7% annual increase for one of the products in their portfolio, which equated to a £30k increase, whereas another limited their RPI annual increase by fixing maximum RPI terms to reduce their exposure.

That’s why it’s so important to agree limits to RPI increases - especially given that RPI is so high.

For organisations who are aware of how to negotiate contracts to get the best quality data at the best price and with flexible contracts, this provides a chance to remain competitive in the market and be aware of what’s happening in the industry as a whole.

Whether you’re tied into a contract now or coming to the end of a fixed-term, you can renegotiate terms and benefit from new flexible contracts that are being offered to your competitors. The key here is to leverage data benchmarking so that you can prove what’s being offered to other fintechs.