Breaking Down the Merchant Onboarding Process
In the traditional world of payment processing, a salesperson might go directly to merchant locations, applications in hand, seeking to sign up new customers.
If they were successful, the process to onboard that customer could take weeks while the merchant completed and submitted a lengthy application, the payment provider completed underwriting, and payment devices were delivered to the merchant and set up.
For payment facilitators today, essentially the same process takes place, but often at much greater speed. The PF model has used technology and automation to speed and customize onboarding for a provider’s merchant customers.
While some merchants might still require the lengthier, more hands-on approach because of their size, risk profile or business type, many others can benefit from a streamlined process and be onboarded within minutes.
Regardless of the methods used, the merchant onboarding process truly begins with the first contact between a merchant and a payment provider. For any provider, that contact is the first step toward getting to know who you’re dealing with and completing the KYC/KYB process, a critical part of protecting the payments ecosystem.
Examples of comparisons between a traditional onboarding process vs. that of a payment facilitator abound. A salesperson going door to door can verify the physical location and apparent business activities of a merchant. Online, in a new-school method, a merchant that visits a provider’s web site to learn more or logs into an online portal for service signup is providing an IP address – a key piece of information that again helps verify the merchant’s identity and is of unique use in risk assessment.
Once a merchant decides to sign up, the provider then collects additional information about the merchant through an application process. This is one experience that has greatly improved with the use of technology. Providers can now tailor self-serve applications to gather the relevant information they need to underwrite the businesses they serve, rather than asking for the same information no matter what type of business is applying and how much risk it represents.
Once completed, the merchant application then moves on to underwriting, where the provider conducts due diligence to assess risk and determine whether to accept the applicant. Laws and government regulations, as well as rules set forth by the card networks and other industry bodies, dictate what payment providers must verify and check before agreeing to provide payment services to any merchant.
Individual acquiring banks may also have their own requirements, prohibiting processing for certain business types that are otherwise allowed by law, for example.
But while payment facilitators must follow any requirements to protect the payments system from bad actors, they have some leeway in how these requirements are performed, and this is another area where technology has greatly improved the user experience.
Automated checks of merchant information against databases and lists such as Mastercard’s Member Alert to Control High Risk Merchants (MATCH) and the U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) list – followed by manual review in situations where something appears amiss to the system – can be sufficient to get many merchants up and running, particularly those in low-risk verticals or with low processing volumes.
If the merchant is accepted as a customer, the operational phase begins. The payment facilitator must enable accepting transactions, passing those transactions through the system to their acquiring partner and beyond while monitoring them as they go, and reconciling the settlement of funds once the transactions are complete. This includes tasks such as the creation of a merchant ID on the acquirer’s system, the setting of risk parameters, and linking the merchant to a settlement account.
The PF will also need to address how the payments will be accepted – sending out terminals to physical locations or providing online businesses with what they need to accept payments, whether that’s issuance of the needed lines of code for their web site or another method such as a QR code.
All of this leads to the merchant being ready to accept the first sale. At that point, the merchant is onboarded and payment processing can begin.
Many of these pieces can be as manual or as automated as the payment facilitator wants or needs them to be depending on the PF’s target market. This ability is a significant differentiator for PFs, who are able to tailor their processes to the needs and demands of their own merchant base.