Upfront onboarding and portfolio boarding fees received from financiers

Financiers often pay a one-off fee when a portfolio is boarded onto the servicer's platform: data mapping, loan file review, borrower welcome communications and system set-up. Because the work is real and costly, servicers are tempted to recognise the fee when boarding is completed. In most cases, however, boarding is a set-up activity that does not transfer a service to the financier on its own; the fee is an advance payment for future servicing and is recognised over the period that servicing is provided. Getting this wrong front-loads revenue and inflates margins in the year a mandate is won.

Does the boarding work transfer a good or service to the financier that it can benefit from on its own or with readily available resources (for example a standalone data remediation report or loan file review that the financier could use with another servicer), or is it only an activity the servicer must perform to be able to service the portfolio? Is the fee refundable if the mandate ends early? What is the expected servicing period, and does the financier have an option to renew without paying another boarding fee, which could give it a material right? Are there several boarding tranches during the mandate, each with its own fee?

1. Identify the activities the boarding fee pays for and assess whether any of them transfers a distinct good or service to the financier.
2. If boarding is a set-up activity (data load, system configuration, internal file checks), it is not a separate performance obligation; include the fee in the transaction price of the servicing obligation.
3. If a boarding deliverable is distinct (for example a data quality and file completeness report that the financier owns and can use independently), treat it as a separate performance obligation and allocate part of the transaction price to it on a relative standalone selling price basis.
4. On receipt, recognise the non-distinct fee as a contract liability.
5. Recognise it as revenue over the servicing period on the same pattern as the servicing itself, normally straight-line over the contract term because the financier simultaneously receives and consumes the servicing; expected renewals extend the period only where the renewal option gives the financier a material right.
6. Assess whether a renewal option without a new boarding fee provides a material right; if so, the recognition period may extend beyond the initial term.
7. Deal with the related boarding costs separately under the contract cost requirements (see the contract fulfilment cost issue).

Measure the contract liability at the fee received or receivable. Recognise revenue on a straight-line basis over the contract term (or a longer period only where a renewal option is a material right) unless the servicing is delivered on a markedly different pattern. If part of the fee is allocated to a distinct boarding deliverable, recognise that part when the deliverable transfers to the financier. Revisit the period if the mandate is extended, shortened or terminated (applying the modification requirements), and release any balance remaining when no further servicing obligation exists.

Disclose: (1) the policy for upfront and onboarding fees and the period over which they are recognised; (2) the opening and closing contract liability balances and revenue recognised from the opening balance; (3) significant judgments on whether boarding activities are distinct and on the expected servicing term; (4) remaining performance obligations including unrecognised upfront fees, unless a practical expedient is applied.

• Recognising the boarding fee in full when the portfolio goes live
• treating the fee as revenue because the related boarding costs were expensed in the same period, instead of considering whether the costs qualify for capitalisation
• treating internal set-up work as a distinct service
• ignoring renewal options that allow the financier to continue without paying another boarding fee
• failing to release the unamortised balance when a mandate terminates early.