Electronic payments service provider contracting: Best practices and pitfalls

Duncan Douglass

Journal of Payments Strategy & Systems, 2007, vol. 1, issue 4, 365-382

Abstract: As electronic payment systems continue to expand in transaction volume and technical complexity, traditional financial institution participants have increasingly outsourced portions of their electronic payment services to non-bank service providers. This trend towards greater outsourcing by financial institutions appears to be driving market efficiencies and economies of scale but is also resulting in an increasingly tangled web of contractual relationships. In many cases, the services outsourcing contracts entered into by financial institutions are executed without sufficient consideration of whether the financial institution has fully shifted performance obligations and associated liability risk to the service provider. While no two services contracts are identical, proper drafting and negotiation of certain common contract provisions can significantly improve a financial institution’s relief from the service obligations and liability exposure it intends to shift to the service provider. This paper identifies the relationships between financial institution participants in electronic payment systems and their service providers, highlights the public laws and payment network rules that establish the default framework of responsibilities and liabilities within most electronic payment systems, and suggests contracting provisions to assist financial institutions in drafting effective electronic payment service provider agreements.

Keywords: Negotiating payment systems agreements; payment systems contracts; outsourcing; service providers (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:aza:jpss00:y:2007:v:1:i:4:p:365-382

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