Digital onboarding: The next step for merchants

A merchant’s journey down the long road of running a business inevitably arrives at digital onboarding. Here, an ISO (independent sales organization) tries to determine if the merchant is eligible for a payment processing partnership.

The merchant—ISO relationship

Merchants come with risks for their potential partners. An ISO can afford to be picky with whom they choose to partner with, so a risky merchant might not get picked. If the onboarding process encounters hurdles, then the ISO might ask the merchant to apply again with more information, or the merchant can be outright rejected. In both cases, an onboarding process that isn’t as smooth as possible leads to both parties losing time and money.

Traditional onboarding

Until digitalization came around, the traditional way of onboarding merchants required the ISO to perform tasks manually: even more experienced staff had to go through at least 30 minutes of transferring Merchant Processing Applications (MPAs) by hand. Also, due to the fact that the data had to be transferred line-by-line, traditional onboarding came with costly errors as well.

In the event of typos, applications could be rejected. Or, if the numbers would’ve been inserted wrongly, the application might be accepted but with faulty rates, which might hurt the ISO on transaction fees. Last but not least, being a manual process, traditional onboarding is slow.

Going digital

Merchant expectations have changed as a result of the rising need for convenience and on-demand services from their consumers. Along with the rise of Fintech, old-fashioned firms that relied on manual processes began to feel the threat. It used to be that payment processing businesses took days, if not weeks, to go over a merchant’s application, which translates into wasted time for the merchant, especially in the case of rejection.

The traditional onboarding process required paper-based work made by people doing AML and credit risk verification. Doing things this way allowed payment processing businesses to feel in control since they approved or rejected merchants based on their own rules.

Although a cradle for fintech innovation, Europe is fragmented. In the UK there are numerous third-party providers that can verify and validate data from merchants for onboarding. The Nordics have Bank ID, a government-issued service that eases the onboarding process. In Germany, the local AML authority requires a video ID for merchant onboarding.

Enter Automation

The key to making a seamless onboarding process is automation. Manual work (e.g. data entry) that has to be performed multiple times can be a major pain point for the industry. As mentioned before, performing manual checks slows down the process and also makes it prone to human error. Also, since it requires more time and effort, it can prove to be costly. An automated onboarding process is smoother, faster, and might cost less.

As PYMNTS states, ‘data sources exist today to allow (providers) to get a good enough sense of who they’re about to business with, and they can still follow their risk and underwriting rules. They can then collate that data and make a risk scoreboard to get a sense of who each merchant is, approve the merchants faster, and then focus on the few that are traditionally the outliers’.

Through automation, risk decisioning and meeting compliance standards can be performed more quickly and merchants can get their approvals faster.