A Guide to Service Level Agreements (SLAs)

Your financial institution's third-party relationships, or vendor partnerships, are critical to delivering best-in-class services and enhancing the customer experience. However, establishing clear expectations has become even more essential as reliance on third-party providers grows.

Enter service level agreements (SLAs). SLAs define each party's performance standards and responsibilities and serve as a framework for mitigating risks.

As we discuss SLAs, consider your institution's current SLAs, what steps you can take to improve your internal processes and policies, and how to better safeguard your operations and foster more trust with customers and organization stakeholders.

What are Service Level Agreements (SLAs)?

An SLA provides clear, documented performance standards so both parties (the financial institution and vendor) know what to expect in the vendor relationship.

SLAs typically include the following elements:

• Basic performance requirements
• Corrective actions for failing to meet standards
• Financial incentives for surpassing expectations

The Importance of SLAs

Third-party relationships can negatively impact a financial institution by introducing operational, reputational, and compliance risks, to name a few. For example, your institution might be affected if your vendor experiences an issue, such as a power outage or data breach.

More than two dozen financial institutions, including Capital One, learned this lesson the hard way when a fintech vendor experienced a power outage and a hardware failure that impacted their services, including payment processing and deposits. When customers can’t access or deposit funds, what may be just a one-off issue can cause consumer harm, leading to potential regulatory fines and reputation loss.

The rise of fintechs further underscores the importance of SLAs and other third-party risk documents, policies, and processes. While these technology providers can drive growth,
improve efficiency, and expand your financial institution’s product offerings, they lead to significant risks.

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