By Adam Atlas
Attonery at Law
A fish rots from the head down. The same is true in business, so the saying goes. Most companies have a corporate culture, and that culture is present not only in business relations, but also in legal work. This shares several telling observations about contemporary legal culture in the payments industry.
More than ever, my colleagues and I are working opposite payments counsel inside large payment processors and other platforms that have a take-it-or-leave-it approach to contract negotiation. It's hard to pin the blame for this on one cause, but there are a handful of obvious sources. First, in-house legal counsel are under ever-more pressure to turn documents quickly in support of their internal business clients. This makes it harder for them to engage in productive negotiation, which can be time-consuming.
Second, numerous products and services these days are procured on a take-it-or-leave-it basis. We don't negotiate with app developers when installing or uninstalling apps on our phone. This binary approach to business relationships is present in payments, too, to the detriment of meaningful negotiations between parties.
Third, more complex models may prevent adjustments to key concepts. Payment processors, DDA-account program managers, prepaid issuing program managers and other, increasingly complex providers are subject to specific constraints from payment networks, government and also sponsoring banks, all of which reduce the ability to be flexible in contract negotiations. When negotiating opposite a regulated entity, respect their legal requirements, but do not let them use regulation as an excuse to steamroll your concerns.
Contemporary payments providers (like other businesses) are eager to eliminate all delays to going live. Legal review, which always takes time, can cause delays that are never welcome. The challenge is for payments providers to allow their lawyers enough time to give their contracts the attention they deserve.
Lawyers, of course, have to pick up the pace and get the work done without delay. The rush by everyone brings a degree of excitement, but also takes a toll on quality.
Large payment processors used to rely on their reputations as adroit and honest companies. Previously, when ISOs trusted in processors to pay them correctly and for the right period of time, large processors often said, "We are [fill in the name], and we would never do the wrong thing." This is not true anymore.
Large processors are under never-ending demand for profit, and some have significant debt to service. Whether out of necessity or greed, large processors have sharpened their pencils and are ready to take more from ISOs than before in negotiations, subtle contract wording or self-serving interpretation of language during the course of a contract.
Recently, an ISO was selling their portfolio. Their key ISO agreement required prior consent of the processor for assignment of the agreement, which was necessary to complete the transaction. The processor agreed in the wording of the agreement that consent for assignment would not be unreasonably withheld, delayed or conditioned.
We weren't expecting any problems. How wrong we were. The processor unreasonably delayed and conditioned the consent, causing considerable difficulty to our client. With a different culture, this would not happen.
The takeaway here is that brands are not what they used to be. The Wirecard insolvency and other scandals are additional proof that we must not judge a payments company by their reputation or size alone.
On the bright side, professionals are tending to use simpler language in legal drafting. Naturally, some concepts require a degree of complexity to be properly framed in law. However, wordy agreements of yesteryear are fading away, making room for writing that is easier to understand (though harder to write).
What's in your culture? You might see the answer in how your lawyer represents you.
In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. For further information on this article, please contact Adam Atlas, Attorney at Law by email at email@example.com or by phone at 514-842-0886.
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