Merchant account
Merchant Onboarding: What Is It and How Does It Work? Share:
In today’s competitive market, businesses must focus on secure payment processing as the key to success. Merchant onboarding helps commercial companies partner with the best payment service providers or gateways. This process needs to collect information about the merchant to verify their business and authenticate their owners. An efficient payment system improves customer trust, reduces fraud risks, and speeds up transactions. Businesses must properly plan and implement their onboarding process to build a payment setup that works for their needs.
With the right knowledge of merchant onboarding, businesses can decrease fraud risk and optimize financial operations. Let’s figure out how this solution works in practice.
When merchants want to accept online payments by partnering with particular providers, they need to undergo an onboarding process. Merchant onboarding is a unique solution for businesses to manage customer payments easily and securely. This works as a fraud prevention mechanism. If not done properly, onboarding can result in delayed or failed transactions, fines, and even poor risk management.
Businesses should take a considered approach to merchant onboarding in order to survive in today’s competitive market. They can get a simple and secure customer experience, maintain compliance with industry standards, and build strong relationships with their payment partners, contributing to business growth and customer retention. Merchant onboarding can ensure that your company is legitimate and capable of handling transactions securely. That’s why it affects customer experience and operational efficiency.
Merchant onboarding is mandatory for all success-oriented businesses. The whole process has clear purposes, such as:
Regulatory compliance. Ensuring the merchant adheres to all legal, financial, and industry regulations. This protects payment providers from liabilities and supports safe operations.
Fraud prevention. Verifying the merchant’s legitimacy to reduce the risk of fraudulent activities and protect customers from potential financial loss.
Business verification. Collecting and validating critical documentation to confirm the merchant’s identity and business structure.
Payment system integration. Establishing secure payment processing systems to ensure smooth transactions between customers and businesses.
Clear communication. Maintaining the transparency and clarity of the merchant’s policies to build trust between all parties.
These objectives make the onboarding process a valuable solution for small and large businesses, looking for market growth.
The payments onboarding flow depends on the industry and the business’s country. Despite possible differences, the average process looks as follows:
To start onboarding, a company should submit an application with all the necessary information and documentation attached. It may take time to make all the necessary preparations. Explore the available providers or gateways to pick the one that you believe might meet your business needs.
A company collects the necessary documents to verify its location and industry. It helps financial entities not to waste time on illegal companies. A genuine company must have all the required documents, such as:
Checking these documents is the best way to eliminate fraudsters. When researching and assessing the company, you can also find the best provider/gateway for your business model.
A company needs to complete several forms of verification. These include:
Know Your Customer (KYC) is a regulatory requirement used by financial institutions, payment providers, and other businesses to verify their customers’ identity. KYC plays a significant role in the merchant onboarding process by preventing money laundering and other fraudulent activities.
Know Your Business (KYB) is the process of verifying that another business is legitimate and safe for collaboration. It also confirms the business is following industry rules and standards, like Anti-Money Laundering (AML). After conducting the necessary due diligence, financial institutions, payment providers, and other businesses can assess the collaboration risks.
Ultimate Beneficial Owner (UBO) ensures that the company has a clear ownership structure, with all identities revealed. Assessing the ownership becomes possible through cross-checks with government registries. This process is essential for payment providers to comply with international AML/CFT standards.
A company should keep track of potential risks associated with merchant onboarding. Assessing the industry, transaction volume, and historical data helps optimize business operations, depending on the low, medium, and high levels of risk. The assessment results can be used in deciding the necessary steps before onboarding a merchant.
A company must meet the necessary technical requirements before setting up an account with the selected provider/gateway. It might be necessary to connect your online store, POS system, or mobile app with the provider/gateway for smooth payment processing. The integration may require technical support, as well as continuous testing to ensure everything works as expected.
After setting up the system and completing all checks, a company can activate the merchant account to accept payments. Most providers/gateways offer detailed training and continuous support to ensure a smooth collaboration. A company may get proper guidance on managing transactions, handling disputes, and complying with legal requirements. You may also get assistance with software installation, fraud prevention, and transaction management based on current business needs.
The merchant onboarding solution should adhere to regulatory requirements to avoid legal consequences. The ongoing compliance can be achieved through efficient verification.
KYC is a regulatory requirement and risk management process used by financial institutions and businesses to verify the customer’s identity. When assessing the risk associated with a business, KYC helps payment providers and acquiring banks approve or decline a merchant application. It ensures that your company is dealing with legitimate people and businesses while preventing money laundering and fraudulent activities. During the merchant onboarding process, KYC usually involves the following requirements:
KYC processes must be regularly updated and automated to maintain compliance and efficiency. A robust protocol not only protects financial institutions but also creates a safer, more transparent environment for e-commerce.
KYB is a regulatory compliance solution that verifies the company’s legitimacy as part of compliance with Anti-Money Laundering laws and supply chain due diligence. This verification process performs background checks and monitors the company’s incorporation and ownership details. Companies require a KYB service to understand potential entities with which they can start a business collaboration. During the merchant onboarding process, KYB usually involves the following requirements:
Following the KYB regulations during merchant onboarding improves the company’s security, leaving no loopholes for fraudsters. This reduces the time and provides an efficient way for the payment provider to streamline the onboarding experience for all parties.
AML checks aim to stop the use of payment systems for illicit financial activities, such as money laundering. It helps businesses assess risk factors, conduct due diligence, and monitor merchant activities to check on suspicious transactions. During the merchant onboarding process, AML usually involves the following requirements:
Incompliance with Anti-Money Laundering causes a significant threat to businesses, creating space for illegal activities. Fraud detection systems can be used to identify any suspicious activities in real time. They proactively identify potential fraudulent transactions, mitigating risks before they cause harm to your business.
Merchant onboarding takes a merchant who wants to sign with you for merchant services to the final approval. The process may present several serious challenges.
Risk assessment, underwriting, and regulatory compliance require time. Collecting the significant data to submit an application requires a back-and-forth with each merchant. Collecting this information manually can delay your payment processor partner, who needs data to take further action. Your customers may also lose patience while waiting for efficient payment processing.
The time it takes to onboard merchants can make selling merchant services less profitable. You may need more human and financial resources to fill the gaps. Your current team may have less time to serve customers and make sales. Inefficient payment processing will impact your overall business productivity.
To ensure your business efficiency, you should know who you are partnering with. Acquirers, payment processors, and other partners in the payment ecosystem must comply with strict regulations, such as anti-money laundering and know your customer laws.
Legal compliance means conducting document checks and sanction checks for each merchant application. It also involves due diligence, which includes:
The due diligence required to meet compliance requirements requires a lot of time. Moreover, there is always a chance of error. Automation of the regulatory check can solve the issue, at least partially.
Acquirers take on risk when they handle online transactions for merchants. They have to cover the costs of fraudulent charges, which makes them want to mitigate those losses. Before approving a merchant account, acquirers ask for specific documentation and additional data to help underwriters detect possible risks and establish adequate processing fees. Customers may need to provide some critical information, including:
Automated payments onboarding allows merchants to complete applications and upload all required documents directly on a provider’s platform. This reduces unnecessary communication and optimizes the entire onboarding process. Automation ensures that all the necessary steps are completed accurately to save time, reduce operational costs, improve security, and enhance customer satisfaction.
If your business depends on online payments, you should optimize financial operations. Using an automated merchant account can help you build a smart system that protects your business’s financial health, market standing, and operational integrity. Here are the main benefits of automated onboarding systems:
Merchants onboard themselves. Merchants can initiate the process directly from their website and follow detailed instructions without waiting for a representative.
Operational efficiency for providers. Merchants don’t need to perform manual tasks when monitoring progress, reviewing submitted data, and providing support.
Data storage in one place. Automated platforms integrate all onboarding data into one centralized system, removing the need for external CRM tools.
Quicker payment processing. Merchants can move from invoice capture to fund transfers in a shorter time than required for manual processing.
Enhanced fraud prevention. Merchants reduce human interventions, aiming to reduce the risks of fraud.
Improved oversight and control. Merchants get real-time access to financial data, including invoices and recurring payment details.
Advanced systems also allow payment providers/gateways to adjust onboarding forms to the merchant’s country or business model. For instance, your company can customize forms according to your operational and regulatory needs, contributing to flexibility and compliance.
Current market trends include a transformation from cash to digital payments. No wonder customers are looking for a personalized shopping experience and an optimized checkout experience. Smooth payment processing becomes possible through efficient merchant onboarding. Its automated solution comes up with the key features, such as:
Real-time verification and approval. Instantly validated merchant information can reduce onboarding delays, allowing businesses to accept frequent payments at high speed.
Integrated compliance. Built-in support for KYC, KYB, AML, and other regulatory checks ensures merchants meet legal requirements without manual intervention.
User-friendly interface. Intuitive dashboards and easy navigation provide a smooth onboarding experience for merchants.
Faster onboarding. Automation significantly cuts down the time required for approval, enabling merchants to go live and generate quick revenue.
Elimination of manual tasks. Merchants can reduce the amount of paperwork and repetitive data entry, reducing human error and leaving more time for strategic tasks.
Adaptability to regulatory changes. Automated systems can be quickly updated, keeping businesses compliant with the recent regulations.
Fraud detection and prevention. Many automated solutions include security features that help detect suspicious activities early, reducing the risk of fraud.
Automating payment processes can save your company a lot of time and money. The main practices for smooth merchant onboarding include:
Keep software up to date. Outdated payment systems may cause a lot of problems. Make sure your automated payment system is regularly updated, not just for new features but for critical security measures as well. Staying updated helps you reduce fraud risk, avoid tech bugs, and get the most out of your new payment processing routine.
Establish strong authentication. When it comes to your business’s cash and financial data, think beyond strong passwords. Implement proper security measures like multi-factor identification for anyone who approaches your automated payments. It’s one of the easiest ways to protect your payment solution and bank account and to protect against unauthorized transactions.
Monitor transactions. Automation can’t catch every single financial detail. Make sure you have extra time to double check fund transfers, vendor payments, and invoices. A quick review will sometimes catch errors and exceptions that don’t stand out to an algorithm, helping you stop small problems while they’re still small. A quick review may help catch issues that don’t stand out to an automated algorithm.
Regularly back up data. Mistakes can’t be completely excluded. Regular backups of key financial data can protect your company from possible issues and can help you recover more quickly. Maintain copies of key records like payment histories, invoices, and approval chains.
Ensure compliance with financial regulations. Don’t forget about your compliance obligations as you automate. When staying in line with tax regulations, industry-specific standards, or global data protection laws, a proper payment automation system should make compliance easier.
Choosing the best merchant onboarding solution is all about finding the right partner. Below are several factors to consider:
Invoice processing capabilities. Look for the solution to automatically obtain invoices, attach them to purchase orders, and detect anomalies before making any payouts. Make sure to proceed with all the necessary corrections before it’s too late.
Integration with existing systems. Consider the automation solution that needs to work well with the existing systems, including your accounting software and online banking. Smooth integration of the payment software can significantly speed up reconciliation.
Security and compliance features. Pay attention to good security when transferring funds and sharing sensitive financial data. Double encryption and fraud monitoring are among the most popular solutions.
Scalability and flexibility. Make sure to handle more than just current business needs. Keep up with your growth, ensuring the availability of multiple currencies, digital payments, or sophisticated invoice processing. No need to invest in features now that you plan to use in the future.
Reporting and analytics capabilities. Look for good reporting and analytics to ensure visibility within your business’s financial operations. Make sure to be able to track transactions easily, detect potential problems in advance, and enhance cost savings in the process.
PayAdmit can help you with smooth merchant onboarding services. Our expert team uses innovations to help merchants submit required documents and receive API credentials. Fast onboarding enables close to instant setup and built-in compliance with the law. So if you’re looking for a secure, compliant, and fast payments onboarding, PayAdmit can cover you on that.
The merchant onboarding process usually takes from 1 to 7 business days, depending on submitted documentation, risk level, and verification requirements.
High-risk merchant onboarding requires stricter compliance checks, longer approval times, and higher scrutiny due to possible fraud and chargeback risks. Low-risk onboarding takes fewer regulatory requirements, shorter approval times, and a simpler verification process, enabling quick access to payment processing.
Ongoing monitoring ensures merchants remain compliant with the law, detect suspicious activities early, and adapt to regulatory changes. It helps mitigate fraud risks, maintain data integrity, and protect the payment ecosystem in the long run.
Providing incorrect information during onboarding can result in a rejected application, delayed approval, or account suspension. In rare cases, it may lead to legal action or blacklisting, damaging the merchant’s reputation and limiting future access to payment processing services.
