Underwriting and onboarding merchants are two of the most essential, yet often overlooked, activities for payment companies and payment service providers. The number and quality of merchants signed on to a platform is a key growth metric. Hitting such targets can help a business grow and stay ahead of the competition in an incredibly competitive industry.
However, underwriting and onboarding new merchants can be daunting. Many merchants are reluctant to sign up for a relatively unestablished payment facilitator. They might choose to stick to popular names like Stripe or Paypal, no matter how expensive. As such, it can be quite a task to get a merchant to buy into your new payment facilitation model. Companies that succeed at this task are often the ones that thrive in the industry.
Merchant underwriting and onboarding are complementary parts of the overarching workflow of payment companies. They help to increase the volume of transactions handled by a payment service, which can lead to greater profits. Underwriting increases the quality of your merchants and reduces the risk to your business, while onboarding increases the efficiency in which those merchants can begin accepting payments through your platform.
But what are these two processes?
Merchant underwriting includes the steps taken to evaluate a merchant’s account application and decide whether they can meet the risk standards to start taking payments.
This process helps payment facilitators, banks and payment processors trust that the merchant will meet standards and accept payments appropriately. The underwriting process is rigorous but can be surprisingly quick. It ensures that payment facilitators can maintain their standards and the trustworthiness of their brand.
Merchant onboarding is the setup and configuration of a merchant on the payment platform. Once the prospective merchant passed the underwriting phase, the payment facilitator needs to setup their account for payments. This step may include setting up the processing fees, pricing, and may require reaching out to its partnered payment processor to convey the information and make all of the arrangements on the merchant’s behalf.
The payment facilitator then sets up the merchant account with the processor and ensures that everything goes smoothly. From there on, it’s a small step to providing the merchant with quick, easy, and painless embedded transactions.
Types of Underwriting Checks That Payment Companies Must Have
During the process of merchant underwriting, there are several checks that payment companies must have. These include:
- Credit checks. Credit checks are reviews of credit reports and financial history and are necessary when approving a merchant to accept and process payments.
- IRS TIN/Name matching. IRS tax identification number (TIN) checks are conducted to verify merchants’ information against official tax records.
- Department of Treasury, Office of Foreign Assets Control (OFAC) Sanctions List. This is a regulatory procedure that checks whether the merchant is on the U.S. government sanctions list.
- Bank account verification. This is an account check to verify the ownership of the account, and the account and routing numbers as entered by the merchant.
What Does a Good Underwriting and Onboarding Platform Looks Like?
Certain key features are common to all good underwriting and onboarding payment platforms. These are essential features of any platform that seeks to be efficient, scalable, and provide a positive experience for its users.
Many of the advantages of a payment platform stem simply from good design. But many others are unique hallmarks of the modern payment ecosystem. The key features and benefits of a good underwriting and onboarding platform are:
Automated underwriting and onboarding for merchants
Modern payment facilitation platforms automate the underwriting and onboarding process. These ensure that underwriting and onboarding can be carried out with little or no human intervention. Using advanced techniques to automate the underwriting and onboarding process is more efficient, results in quicker turnaround times, improves user satisfaction, and reduces the overall costs of underwriting merchants.
Ability to underwrite a large number of merchants quickly
Process automation improves efficiency and enables scalability. In a world where customer demands, and instant satisfaction are rising rapidly, blazing-fast underwriting can make a big difference. Modern Payment Facilitation Platform can carry out massive volumes of checks and audits, produce instant results, and ensure a positive merchant experience.
Convenient aggregation of KYC, AML, and network regulations
A good underwriting platform makes it easier and simpler for you to comply with tedious regulations, such as KYC, AML, and other card brand regulations. They ensure that all such procedures are transparent and easily audited, by aggregating them in one tool.
Reduced risk exposure and improved brand recognition
A proper underwriting process reduces the risk for both the payment facilitator, and ultimately for its sponsoring bank. It also builds trust with the merchants, and improves the payment facilitator brand recognition.
Configuration of a complete 24/7 risk monitoring package
Merchant underwriting checks and only the first step in managing merchant risk. Risk monitoring should be performed on an ongoing basis. A good merchant underwriting should be accompanied by a real time risk monitoring system. This will reduce the overall, and reduce the headcount as risk personnel will be automatically notified when risk levels exceed certain thresholds.