Head of Legal|Financing|Fintech|Strategy|Partnerships and Expansion| Innovation|UK Global Talent
As an advisor, I am frequently asked to advise on revenue sharing arrangements regarding partnerships between banks and fintechs. Based on my experience, there are a couple of key models commonly used in the fintech industry: 1. Fixed revenue share - while this model provides predictability, over time, it may not fully account for each party's contributions. For instance, Plaid may take a fixed percentage of the subscription fees earned by fintech apps that leverage their services. The benefit is simplicity however it lacks flexibility as market conditions change. That being said, parties should be free to renegotiate after a significant change in conditions. 2. Variable revenue share - this allows for a more equitable split based on performance, but can be more complex to implement. Payment processors may use a tiered revenue share model, taking a smaller percentage for high volume merchants and a higher percentage for lower volume ones. I think this approach incentivises both parties to maximize overall revenue. 3. Profit sharing or post cost revenue sharing - rather than revenue, the parties agree to split the net profits or revenue post certain expense. The major con with this model is that it requires robust accounting and auditing processes for transparency. 4. Hybrid approach - a combination of fixed and variable components, balancing stability and flexibility. This can be tailored to the specific needs and contributions of each party, though it may be more complex to design and manage. Choosing the revenue sharing model is obviously dependant on various factors such as parties’ bargaining power, market access, product ownership, platform ownership, pricing of the product, parties strategic goal, initial funding/ investment etc. It is therefore critical that all these factors are properly assessed before parties settle on a rev share model. As early stage companies navigate these complex negotiations, drawing on real-world industry examples can provide helpful context and guidance. #fintech#partnerships#corporatedevelopment#
