Banks have endured more than 18 months of the coronavirus pandemic. With the general strength of the broader economy, and businesses adapting to the “new reality,” we are beginning to see the resurgence of regular mergers and acquisitions activity in the industry.

As we hope this continues and the industry returns to a more “normal” level of transactions, financial institutions need to make sure that their partnerships and fintech activity don’t create speed bumps that could slow or obstruct a deal. Whether your bank is contemplating a sale or looking to be acquisitive, there are a few things to keep in mind as you develop relationships in the fintech space.

Know Your Partners
As your bank enters into relationships with fintech organizations, it is important to do your due diligence. Who are they? Who are their competitors? Does your fintech partner have relationships with your competitors? Those relationships may hurt your ability to capitalize on a transaction in the future. What will regulators think? Regulators generally don’t need to approve fintech partnerships, but they do get a bite at the apple during the examination process and the merger approval process, as we’ll see below.

Understand the Contract
We have experienced instances where a fintech offers up an agreement without fully understanding banking and its regulatory environment. It is important to evaluate each contract carefully and, if a change in control is potentially in your institution’s future, it is critical that executives negotiate break-up provisions; active acquirers likely have their own relationships that may not mesh with yours. Additionally, banks that are contemplating a sale must be able to transition customer accounts and products to an acquirer.

Focused Regulators
The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. recently published papers on community banks partnering with fintech companies. Regulators understand the need for banks to innovate, and that one of the quickest and most efficient ways to accomplish that is by partnering with technology companies. A report jointly produced by federal regulators identifies approximately 70 categories of documents and policies that a bank should review while performing its due diligence on a prospective fintech.

We believe regulators will begin to look more closely at these contractual arrangements during the normal examination cycle and during a merger or acquisition approval process. Falling short on the regulators’ expectations could land a bank in the “penalty box” and prevent or slow down a proposed transaction. Be prepared to answer questions and provide information on fintechs, what risk controls are in place and what operational systems support the product being offered. It is important that your fintech contracts are “regulatory friendly” so the approval process goes smoothly.

Own Your Data
As your bank enters into agreements, it is imperative that executives understand who owns the data that is being generated with the product. If a fintech partner will be displaced in the merger process, it is important that both the acquirer and target understand the rights to the data from the start. Coordinating the data between data processers and fintechs is crucial – and needs to be planned in advance.

Cryptocurrency: Yes or No?
While the cryptocurrency markets have been volatile over the past year, crypto remains a hot topic and an area of focus with consumers, particularly younger people establishing banking and investing relationships. Whether or not your organization is active in the crypto markets, it is important to have a thesis as you enter into negotiations. Do your customers want to have access to cryptocurrencies? Are you providing an investment opportunity for clients? If so, you probably use another company to provide backroom and custody solutions. What are the terms of those contracts? What do potential acquirers or business partners think about crypto?

Positioning your bank as an active acquirer or a potential merger target takes careful planning. Data processing contracts, employee benefits and capital issuances have always been a focus during transaction negotiations. In the race for noninterest income and technological advancements, it is imperative that banks take into account the future impacts of the contracts that they are being asked to sign today. Don’t enter into a fintech relationship without considering how it may impact your institution’s future ability to enter into a transaction, either as a buyer or a seller.


Robert Fleetwood


Rob Fleetwood is a partner at Barack Ferrazzano Kirschbaum & Nagelberg LLP.  Mr. Fleetwood concentrates his practice on advising financial institutions on strategic, securities and general corporate matters.  He regularly represents financial institutions on public and private securities offerings, recapitalizations, mergers and acquisitions and contract negotiations.  Additionally, he works closely with clients on their continued compliance with federal and state securities laws, including reporting under the Securities Exchange Act and with corporate governance.


Mr. Fleetwood is an adjunct professor in banking law at the Northwestern University Pritzker School of Law.  He was an adjunct professor of securities law in the graduate program in financial services law at the Chicago Kent College of Law for 5 years.  Mr. Fleetwood is also a frequent speaker in the financial institutions and securities law areas to trade associations and professionals.



Justin Steffen


Justin Steffen is a partner at Barack Ferrazzano Kirschbaum & Nagelberg LLP.  He practices at the intersection of law, banking and innovation.  Focusing on bank-fintech partnerships, regulatory and licensing matters and commercial contracting, Mr. Steffen helps bank and fintech clients de-risk the future of financial services.  Regardless of the legal issue or the technology involved, he prides himself on being his clients’ go-to attorney for navigating novel legal and regulatory issues.


Clients seek out Mr. Steffen for help with managing and negotiating partnerships (fintech and BaaS), payments issues (real time, wires, ACH, card networks, BIN sponsorship), digital asset matters and other technology-focused concerns (financial privacy, artificial intelligence and machine learning and data analytics and usage).


In the last few years alone, Mr. Steffen has helped clients launch products and services including credit, debit and prepaid cards, payment processing, real-time and faster payments services, commercial and consumer loans, digital asset custody and investment products.