The DOs and DON’Ts of credit data contracts

When it comes to credit data contracts, it’s not just about striking a deal on price; financial services procurement teams need to consider a range of factors to make them strategically aligned with evolving needs.

By understanding the nuances involved, you can ensure that your financial institution is positioned to respond dynamically to market changes and technological advancements, without paying over the odds.

In this post, we aim to provide you with practical advice on the dos and don'ts of managing credit data contracts. Whether it's negotiating for flexibility, integrating technology, or establishing valuable partnerships, we share our tips based on over 30 year’s experience. 

The DOs and DON’Ts of credit data contracts 

When it comes to optimising credit data contracts, there are a lot of DOs and DON’TS. 

By embracing these tips, you can ensure more effective and strategic data contract management for long and short-term success:

✅DO: prioritise contract flexibility

In the fast-paced financial services industry, the ability to adapt is crucial. That’s why contract flexibility should be at the top of your list when negotiating credit data contracts. This means looking beyond the immediate cost (although that’s essential to get right) and considering how the contract will serve your short and long-term needs. 

Here are a few key aspects to consider:

• Carry forward of unused spend: Negotiate for the ability to carry forward unused portions of your contract. This ensures that you're not paying for services you don't use and provides flexibility to adapt to changing demands.

• Agree to a lower minimum spend: This approach moves away from traditional fixed-term, high-commitment contracts, offering a more flexible structure. 

• Embed graduated pricing: Make sure your data contract includes graduated pricing based on actual usage. This can lead to significant cost savings, making your financial commitments more scalable and future-proof.

❌DON’T: overlook technological adaptability

Technological adaptability is key for modern credit data management. So when entering into new contracts (or reviewing contracts mid-term), it's crucial to ensure that it supports and facilitates technological growth, rather than hindering it.

Here are a few considerations:

• Cloud-based and data-agnostic systems: Ensure your contract allows for the integration of cloud-based and data-agnostic systems. This enhances scalability and change to ensure your systems remain current and effective.

• Anticipate future tech needs: A forward-thinking contract should account for future technological advancements, allowing your institution to stay ahead of the curve. Actually embed in your contract support for future technological advances. 

✅DO: consider the entire data ecosystem

Similar to the above, an integrated credit data ecosystem is key to operational efficiency. Your contract should support a seamless integration of data across various platforms and systems.

Make sure your contract covers:

• Addressing bureau lock-in: Your contract should provide the flexibility to integrate multiple data sources, helping you optimise data coverage and usage.

• Cloud-based systems: Ensure the contract supports cloud-based systems, which offer greater accessibility and scalability.

• Assessing technology integration: Confirm that new data sources can be seamlessly and quickly integrated into your current systems at a low cost. Look for contractual support for future technological developments.

❌DON’T: accept contract restrictions

Restrictive contracts can lead to various operational and financial challenges. Be wary of terms that could limit your organisation’s ability to respond to market changes or technological advancements.

Look for these key warning signs:

• Rigid contracts: Rigid contracts with high minimum spend (for example) can lead to underutilisation or overspending, impacting your financial planning.

• Standard RPI: Contracts that have a standard RPI can put your institution at a competitive disadvantage. Instead, negotiate a capped RPI, which can be set as low as 3%.

✅DO: agree the best quality data at a fair price

When it comes to data contracts, price is as important as data quality and accuracy. So you’ll need to check the accuracy, timeliness, and completeness of the data—at the same time as ensuring you are paying fair market rates. 

Here are some key elements to consider:

• Evaluate data quality and integrity: Ensure the data provided is accurate, timely, and complete. Assess these aspects against benchmarks to ensure you're getting quality data.

• Make sure you are not paying more than competitors: Get confirmation from data benchmarking that your data pricing is at a fair rate compared to similar lenders in your space utilising the same provider. 

• Verify regulatory compliance: Ensure that your data provider is fully compliant in all areas and can adapt to regulatory changes, protecting your institution from compliance risks.

❌DON’T: miss strategic partnership opportunities

In the realm of credit data contracts, viewing your vendor as just a service provider can be a missed opportunity. 

Here are some ways to embrace the potential of a strategic partnership:

• Strategic partnership value: Seek a vendor who can offer more than just data; one who provides insights and assistance in navigating the credit landscape.

• Beyond basic contract terms: Look for vendors who are willing to engage in discussions about more advanced and bespoke contract terms that align with your strategic goals.

• Consider service and support: Evaluate the provider's reputation for customer service. Reliable support can significantly reduce operational bottlenecks.

✅DO: use data benchmarking

Incorporating data benchmarking into your contract negotiations is a vital strategy. It's about getting negotiation levers to ensure you can put all the above points in place. 

• Informed decision-making: Use data benchmarking to gain a comprehensive understanding of credit data pricing, quality, and accuracy. This ensures your contract terms are competitive and relevant to the current market.

• Align with strategic goals: Data benchmarking allows you to align the contract terms with your broader business objectives. It provides insights to adjust contract terms to support your long-term plans and adapt to future market shifts.

• Future-proof your contracts: By using data benchmarking, you can easily adapt to future trends and challenges. This helps in negotiating contract terms that are flexible and adaptable, ensuring they remain beneficial for your organisation in the long run.

Fine-tune your data contracts with the right terms

To sum up, optimising credit data contracts goes far beyond cost considerations. It requires a strategic approach, including contract flexibility, technological adaptability, ecosystem integration, and recognising strategic opportunities.

By following the dos and don'ts outlined in this guide, you can take steps to ensure your credit data contracts are not only cost-effective but also strategically aligned with your organisation's long-term goals and the dynamic nature of the financial landscape.

Remember, the right credit data contract is about more than just the numbers; it's about securing a strategic advantage that enables your firm to be agile and responsive in today's ever-evolving economic environment.