How to Finetune Merchant Onboarding Process

Every startup merchant that wants to accept electronic payments has to get a point of entry into the payment processing ecosystem. That is, it needs to get a merchant account, through which all incoming payments will be settled. This account is, usually, issued by one of the acquiring banks. And the connection procedure is called merchant onboarding. An acquiring bank or payment processor makes a decision, whether it wants to assume the responsibility for the applicant’s business operations. If it does, then it issues the merchant account to the applicant (this procedure: account issuance and responsibility assumption is called merchant underwriting) and onboards the new merchant.

The process of merchant onboarding is described in the video:

Payment services industry has gone through a long process of evolution. Payment card brands (Visa, MC, Amex etc) stand at the top level of the payment services hierarchy, as before. However, new levels of the hierarchy emerged during the last few decades. The task of merchant onboarding and underwriting is often delegated by acquirers to intermediaries. These include independent sales organizations (ISO) and payment facilitators (PayFac).

Evolution of Merchant Onboarding Procedure

Emergence of an ISO allowed prospective merchants to find acquiring partners (that would onboard them) more easily. ISOs, usually, have established partnerships with multiple acquirers, and resell merchant accounts, issued by these acquirers, to the applicants. However, underwriting and onboarding are still performed by acquirers: ISOs just connect the applicants and the acquiring banks with each other.

Emergence of a PayFac allowed acquirers to delegate most of merchant-lifecycle-related functions (including underwriting and onboarding), together with respective responsibilities, to these intermediary entities.
In exchange for their services, intermediaries get their shares of merchants’ revenues.

As taking a new merchant (often without any history) “onboard” is associated with considerable financial risks, every applicant has to go through background verification procedure. He has to provide business documentation, specify activity type, legal address, tax ID, estimated processing volume, etc.

In order to efficiently conduct this background verification, the underwriter should have a sound KYC mechanism in place.

Advanced Merchant Onboarding Practices

In the past, applicants had to provide hard copies of the required documents. Specialists, employed by the underwriter, had to manually sort through the applications and come up with decisions, regarding every applicant. Manual processing of information, coming from thousands of small businesses, that wanted to get merchant accounts, was a very time-consuming process. Moreover, applicants had to wait for decisions for weeks.

Automation of merchant onboarding process allowed both applicants and underwriters to save considerable time and effort. Presently, merchant onboarding forms can be completed and evaluated online. Advanced companies are using special onboarding APIs. Many underwriters prefer to issue whole blocks of pre-allocated merchant IDs, instead of individual merchant accounts. Information provided in the applications is automatically verified. If everything is ok, then the application is approved in a matter of hours, and the new merchant can start accepting payments.

These advanced practices allow to onboard multiple merchants much faster than before. A new merchant can be up and running in no time. And acquirer, processor, PayFac, or ISO, can start collecting its respective fees.

Need more information on modern merchant onboarding practices? Contact us at

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