How to Negotiate Favorable Terms with Fiat Infrastructure Partners
Introduction
In the vibrant crypto ecosystem of Latin America, fintech founders and C-level executives face the challenge of building bridges between the digital and traditional financial worlds. Negotiating favourable terms with fiat infrastructure providers is a key step in this journey. These negotiations are key to ensuring that your crypto-fiat transactions are seamless, efficient, and scalable. Having a well-negotiated agreement can lead to significant cost savings, better liquidity management, and improved compliance. This article dives into the step-by-step process of negotiating with these providers, along with practical tips and real-world examples to help you succeed.
The Importance of Strong Fiat Partnerships
Establishing a strong partnership with a fiat infrastructure provider is critical for fintech business, especially one that operates in the crypto space. Fiat infrastructure bridges the gap between cryptocurrencies and traditional financial systems, enabling users to convert digital currencies into local fiat currencies and vice versa. Without a reliable fiat partner, your business could face numerous operational bottlenecks, including slow transaction times, high fees, and potential regulatory hurdles.
Moreover, Latin America is a unique market where each country has its own set of challenges related to fiat currency, from inflationary pressures in Argentina to complex regulations in Brazil. As a result, having a partner like Yativo, which specializes in payment infrastructure in the region, can provide fintech companies with a seamless payment processing experience, covering all the nuances involved.
The Role of Negotiation in Building a Long-Term Partnership
Negotiation is an art, and in the context of fintech, it goes beyond just agreeing on the lowest fees. It is about building a partnership where both your company and the fiat provider can grow together. A successful negotiation is based on understanding both parties’ objectives and finding common ground in areas like:
- Transaction Fees – One of the biggest operational costs for a fintech startup is transaction fees, and these need to be negotiated wisely.
- Compliance Requirements – Ensure that the provider can handle complex AML/KYC regulations in all the regions you operate.
- Liquidity Management – It is vital to secure liquidity agreements that align with your business’s cross-border transaction needs.
- Service-Level Agreements (SLAs) – Define service expectations, including settlement times, uptime guarantees, and customer support response times.
An effective negotiation focuses on securing favorable terms in these areas, creating a strong foundation for a win-win partnership. You should enter the negotiation prepared to understand the limitations of your provider, and vice versa.
Key Factors to Consider Before Negotiating
Before entering negotiations, it’s critical to fully understand both your business’s needs and the capabilities of the fiat provider.
Understanding Your Business Needs
Start by clearly defining your short-term and long-term goals. For example, if your primary need is fast settlement times, you’ll want to negotiate for priority processing. If you’re expecting rapid growth, focus on securing terms that offer scalability without sacrificing efficiency.
You should also consider whether your business needs low fees, high liquidity, or regulatory support. Each of these factors plays a pivotal role in your negotiation strategy. A fiat provider that excels in compliance, for instance, may charge higher fees, but the trade-off might be worth it if you’re operating in highly regulated environments like Argentina or Brazil.
Evaluating the Fiat Provider’s Strengths and Limitations
Every fiat provider has unique strengths and weaknesses. Some providers excel in handling high transaction volumes and cross-border payments, while others are more focused on regulatory compliance. Research your provider’s track record and regional presence. Yativo, for instance, is well-known for its extensive coverage across Latin America, offering seamless integrations with local banks in countries like Mexico, Argentina, and Brazil.
Your goal here is to assess whether the provider can handle your current business volume, as well as your projected growth. Also, evaluate their capacity for compliance support, which is vital in regions where financial regulations can be complex and change rapidly.
Identifying the Areas Open for Negotiation
Several factors can be negotiated with fiat providers. Some of the most common areas include:
- Transaction Fees: These can be per-transaction fees, monthly charges, or percentage-based fees on each transaction. Negotiate for a structure that aligns with your volume and frequency of transactions.
- Settlement Times: The faster you can settle transactions, the better your liquidity. Ensure the SLA includes precise terms on settlement windows.
- Liquidity Requirements: Negotiate for real-time liquidity solutions that will allow you to manage cash flow and large transaction volumes, especially in cross-border operations.
- Customer Support: Ensure there is a robust support structure in place to quickly resolve issues, with an SLA that specifies response times and resolution protocols.
Tips for Negotiating Favorable Fees and Costs
Understanding Fee Structures
Fiat providers usually charge fees based on a few different structures. These could include:
- Per-transaction fees: A flat fee for each transaction processed.
- Percentage-based fees: A percentage of the transaction value, which can be costly for large-volume transactions.
- Monthly fees: Fixed monthly charges for using their infrastructure.
You must evaluate which structure works best for your business. For instance, if you expect to process a high volume of small transactions, a per-transaction fee may be more cost-effective than a percentage-based fee.
Reducing Transaction and Currency Conversion Costs
When dealing with cross-border payments, currency conversion fees can significantly impact your profit margins. Work with your fiat provider to minimize these fees, especially if your transactions span volatile currencies like the Argentine peso or Venezuelan bolívar. Some providers, like Yativo, offer reduced conversion fees for businesses processing high volumes, so be sure to negotiate on this front.
Negotiating Volume-Based Discounts
A great strategy to reduce costs is to leverage transaction volume to negotiate better rates. For example, higher transaction volumes can secure scaling discounts, where fees decrease as your business grows. Some providers are more open to long-term agreements with lower fees in exchange for high volumes, so it’s worth considering this type of arrangement if your business is scaling quickly.
Locking in Long-Term Agreements with Favorable Terms
While short-term contracts offer flexibility, long-term agreements can help lock in favourable rates for the long haul. For example, committing to a multi-year partnership may lead to lower fees and better service terms, especially if your fintech startup shows the potential for rapid growth.
However, it’s crucial to build in flexibility into these contracts. Your business may outgrow the initial terms faster than anticipated, so ensure the contract includes clauses that allow for renegotiation or adjustments based on growth.
Negotiating Service-Level Agreements (SLAs)
Securing Faster Settlement Times
Settlement times are a crucial part of any fintech operation, especially in the crypto space, where liquidity can be a challenge. Ensure that the SLA includes clear timelines for transaction settlements, as slow settlements can limit your ability to manage cash flow efficiently.
A good fiat provider will offer faster settlement times for high-volume clients, and this can be a significant area for negotiation. For instance, if your business is processing large transactions frequently, you can negotiate for priority settlement.
Ensuring High Uptime and Reliability
Downtime in the provider’s system can cripple your operations, leading to frustrated customers and lost revenue. During negotiations, ensure the SLA guarantees high uptime, ideally above 99.9%, with defined penalties for outages. This will ensure that your platform remains operational even during periods of high demand.
Building a Partnership Around Flexibility and Scalability
As your fintech startup grows, your needs will evolve. It’s important to build flexibility into the contract to ensure your fiat provider can scale alongside your business. Make sure your agreement includes provisions that allow for scaling services, whether that involves handling higher transaction volumes, providing additional liquidity, or expanding into new regions.
Liquidity and Cash Flow Management
In the world of crypto-fiat operations, real-time liquidity is crucial. Without immediate access to liquidity, your business may struggle to process large transaction volumes, especially in cross-border transactions.
Securing Real-Time Liquidity Solutions
You must negotiate with your fiat provider to ensure real-time liquidity solutions are in place. This means ensuring that you can access funds immediately upon settlement to keep operations running smoothly. Without it, your business may experience bottlenecks, leading to delays and operational challenges.
Hedging Against Currency Fluctuations
Latin America is known for its volatile currencies, such as the Argentine peso and Venezuelan bolívar. If your business operates in these markets, currency fluctuations can erode profit margins. To mitigate this risk, negotiate terms that include currency hedging provisions, such as forwards or swaps. This will allow your business to lock in exchange rates and protect against sudden currency devaluation.
Compliance and Regulatory Support
Operating in multiple Latin American countries means dealing with complex regulatory frameworks, especially around AML/KYC regulations. As part of your negotiations, ensure your fiat provider has a robust understanding of the local regulatory environment and can provide compliance support.
Ensuring Regulatory Expertise and Support
Latin America’s regulatory environment can be challenging due to constantly evolving compliance requirements in different countries. Each region has distinct rules surrounding Anti-Money Laundering (AML) and Know Your Customer (KYC) processes, and failing to comply can lead to hefty fines or, worse, being blocked from operating entirely.
As part of your negotiation strategy, ensure that your fiat partner is well-versed in local regulations and can provide compliance support. Your fiat provider should have dedicated teams that keep up with changing regulations in countries like Brazil, Argentina, and Mexico. Yativo, for example, provides such support to businesses operating across multiple Latin American countries, ensuring they remain compliant even as regulations shift.
Incorporating Compliance into the Partnership Agreement
When drafting your partnership agreement, make sure to outline the specific compliance responsibilities of both parties. For instance, who is responsible for verifying the identities of users and ensuring proper AML measures are in place? Both parties must align on these compliance procedures to avoid legal bottlenecks.
Also, consider negotiating for ongoing regulatory support, particularly if your business is planning to expand into new regions or offer new financial products. This ensures that your fiat provider can continue to support your growth while remaining compliant with local laws.
Building a Collaborative Relationship
Building a relationship with your fiat partner that’s focused on collaboration is essential for long-term success. This goes beyond merely signing a contract; it’s about ensuring that both parties are aligned on long-term goals and working towards a partnership rather than a transactional relationship.
Establishing Clear Communication Channels
Successful partnerships are built on communication. During negotiations, ensure that there are established channels for regular updates and problem resolution. A dedicated account manager or support team is invaluable for quickly addressing operational issues, allowing you to keep your services running smoothly.
You should also consider negotiating regular performance reviews with your fiat provider. This allows both parties to assess the quality of the partnership and make adjustments as necessary.
Aligning on Long-Term Goals
Your fiat partner should be aligned with your company’s long-term objectives. Discuss your plans for regional expansion, product innovation, or increased transaction volumes, and ensure your provider is capable of supporting those ambitions. A collaborative fiat provider will view your success as a mutual goal and be willing to adapt their services to support your growth.
Performance Reviews and Renegotiation Clauses
As with any partnership, it’s important to include performance review and renegotiation clauses in the contract. These clauses will allow both parties to assess the partnership’s effectiveness regularly. For example, if your transaction volumes significantly increase or the regulatory environment changes, having a renegotiation clause can help you secure better terms that align with new circumstances.
By building a partnership focused on growth and flexibility, you ensure that both your company and your fiat provider can adapt to changing conditions in the fintech landscape.
Case Studies: Successful Negotiations with Fiat Providers
Negotiating with Banco Agrícola in El Salvador
Following El Salvador’s adoption of Bitcoin as legal tender in 2021, Banco Agrícola, one of the country’s largest banks, entered into a partnership with Flexa, a payment network that supports digital currencies. The goal was to enable crypto-fiat transactions seamlessly for the bank’s customers, allowing them to use Bitcoin to make payments and settle loans.
During negotiations, Banco Agrícola worked with Flexa to ensure low transaction fees for Bitcoin payments. They also prioritized the speed of settlements, ensuring that funds were transferred quickly from Bitcoin to fiat, enabling businesses to receive payments in real-time. Another key part of the negotiation was ensuring liquidity across the digital and fiat ecosystems, which was crucial for both the bank and its customers in an economy transitioning to cryptocurrency.
One of the biggest lessons here was the importance of flexibility. Banco Agrícola ensured the contract allowed for scalable services as Bitcoin adoption grew, and incorporated performance reviews to revisit terms periodically as transaction volumes increased. This case shows how collaboration with fiat providers can lead to a win-win situation by anticipating future needs and ensuring long-term scalability.
Working with Mercado Pago in Argentina
In Argentina, Mercado Pago, the fintech arm of e-commerce giant Mercado Libre, has become a significant player in facilitating fiat-crypto transactions. The company negotiated favorable terms with local banks to offer crypto services, focusing on reducing transaction fees for small businesses. Given Argentina’s fluctuating economy and high inflation, these negotiations also focused on providing real-time liquidity to hedge against the Argentine peso’s volatility.
Mercado Pago ensured that they could offer competitive exchange rates for customers converting cryptocurrencies into Argentine pesos. They also negotiated provisions to support cross-border payments, which are essential for small businesses operating in Argentina’s export-heavy economy. By leveraging their strong market presence and growing user base, they managed to secure lower fees and favorable settlement terms, benefiting both local businesses and individual customers using crypto for everyday transactions.
Common Pitfalls to Avoid During Negotiations
Accepting Unfavorable Fee Structures
One of the most common mistakes businesses make is accepting a fee structure that doesn’t align with their transaction volume or revenue model. For example, a percentage-based fee structure might work for low-volume transactions, but it can become prohibitively expensive as transaction volumes grow. Always ensure the fee structure works for your business model, and be wary of hidden fees, such as those associated with currency conversions or cross-border payments.
Overlooking Compliance Responsibilities
Failing to clearly outline compliance responsibilities can lead to significant operational issues down the road. If you don’t negotiate for compliance support, your fintech startup may struggle to meet local AML/KYC regulations, leading to fines or blocked operations. Clarify upfront how compliance will be managed, and ensure your fiat provider is capable of supporting you in this area.
Failing to Address Scalability from the Outset
A major pitfall is not negotiating for scalability at the beginning of the relationship. Many fintech startups enter into contracts without considering how their needs will evolve as transaction volumes grow. Always negotiate SLAs that allow for scalability, ensuring your provider can keep up with your growth and maintain service quality as demand increases.
Conclusion
Successfully negotiating favorable terms with fiat infrastructure providers is essential for fintech startups aiming to thrive in the fast-evolving crypto ecosystem. By focusing on critical aspects such as fees, liquidity, settlement times, and compliance, startups can secure a solid foundation that supports long-term growth and operational efficiency. It’s important to approach these negotiations as a partnership—not just a transactional relationship—so that both your business and the provider are aligned on future goals and can adapt to market changes effectively.
The success stories of Banco Agrícola in El Salvador and Mercado Pago in Argentina illustrate the importance of flexibility, scalability, and understanding regional challenges when forming these partnerships. By following these examples, you can build a solid relationship with your fiat provider that offers competitive fees, regulatory support, and real-time liquidity solutions, all of which are crucial for scaling your business in the Latin American crypto market.