For SaaS companies wanting to offer payment functionality, the choice of a payment partner is a crucial one as it reflects directly on their business. As such, the onboarding process is typically the first touchpoint that a sub-merchant may have with your payment service. If this process is slow and tedious, it can create substantial friction between you and your new clients.
In a highly competitive marketplace, this could be a serious impediment to your business growth and reputation. The key is to look for a payment partner that can help you offer quick and efficient automated onboarding for your sub-merchants.
Automated onboarding enables merchants to use online channels to apply for a merchant account and get approved instantly. They enter the necessary information into an online form, and the underwriting process takes place at the backend. No lengthy phone calls or emails are required, and the entire process happens seamlessly with very little human intervention.
In this article, we’ll take a closer look at automated onboarding including the benefits and value it offers, and discuss how you can implement it easily on your SaaS platform.
TL;DR
- The merchant onboarding process is a risk assessment of sorts that ensures that a merchant’s business carries minimal financial risk. Essentially, the process involves analyzing a business’s financial and other data (some required legally) to determine whether it is legitimate or not.
- Traditionally, merchant onboarding has largely been an error-prone and time-consuming paper-based process involving manual credit risk and AML checks. However, merchants no longer care to sit around for days, waiting for their payment processor to approve their merchant account.
- Automated onboarding is, therefore, an essential requirement for ISVs and SaaS companies that want to offer payment solutions to their customers. It offers a wide range of benefits including improved efficiency, fewer delays, greater data accuracy, reduced costs, better regulatory compliance, and greater customer satisfaction that results in stronger customer relationships.
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What Is Merchant Onboarding?
Before we delve into automated onboarding, let’s take a step back and understand what onboarding merchants really mean. Merchant onboarding starts as soon as a SaaS company or ISV’s new users sign up with a payment service provider (PSP). Note that this is not the same as a software vendor’s user onboarding process whose objective is to help users understand how to use the platform.
Instead, the merchant onboarding process is a risk assessment of sorts that ensures that a merchant’s business carries minimal financial risk. For example, high-risk merchants—those that operate in industries typically associated with a greater likelihood of fraud or chargebacks—will need to undergo stricter vetting than regular merchants.
Essentially, the process involves analyzing a business’s financial and other data (some required legally) to determine whether it is legitimate or not.
What Does the Onboarding Process Look Like?
A typical merchant onboarding process involves the following:
- Pre-screening: At the onset, a payment processor will collect relevant merchant data through an application. Payment companies review these merchant applications to ensure that everything is in order and within acceptable limits. Note that this is just a quick check and not very in-depth. However, it can still be very useful in weeding out fraudsters and scammers.
- Identity verification: Next up, the Know Your Customer (or KYC) process begins. Merchants will need to provide relevant background information to the payment company including proof of identity, proof of address, bank account information, etc. Naturally, this is one of the most time-consuming steps in the onboarding process.
- Reviewing merchant history: A lot of information can be unearthed about a merchant from their credit history. This often involves the personal credit history of the owner, and their track record running other businesses, investments, or settling debts. The business’s tax returns and credit history would also be of immense relevance to the payment company. Any irregularities or red flags could dissuade them from onboarding a particular merchant.
- Additional checks for high-risk merchants: Depending on the level of risk assessed (in the previous steps), the PSP or acquiring bank may conduct an analysis of a merchant’s business and operational model to check if they might be financially viable in the future. This is typically done only for high-risk businesses and may also involve a web content analysis to ensure that their digital presence is legitimate.
- Information security: If the results from the previous steps are all favorable, merchants will need to guarantee that their processes and systems are compliant with the latest data security regulations and norms. Regardless of the payment methods they accept, (e.g., credit cards, contactless payments, online payments, or others), the merchant needs to be 100% compliant with all information security regulations.
Payment Processing with Automated Onboarding
Traditionally, merchant onboarding has largely been a paper-based process involving manual credit risk and AML checks. The process was error-prone and immensely time-consuming. This resulted in greater costs for those involved and frustration and delays for merchants.
However, in recent years, there has been a substantial shift in customer expectations with convenience being a priority. Merchants no longer care to sit around for days, waiting for their payment processor or ISO (independent sales organization) to approve their merchant account.
Automated onboarding is, therefore, an essential requirement for ISVs and SaaS companies that want to offer payment solutions to their customers. Merchants today expect a quick, efficient, and streamlined onboarding process. They should be able to start processing payments as soon as they sign up for your platform. This requires automating several workflows.
First, merchant data needs to be submitted to underwriters online. This can be achieved in two ways:
- Using an API or file-based approach, merchants can send their data online, and underwriters can verify them and issue Merchant IDs (MIDs) almost instantly.
- In some cases, underwriters may issue blocks of pre-activated MIDs to merchants. They would, however, reserve each block for certain pre-approved merchant category codes (MCCs), for example, restaurants.
These merchants can start taking payments right away. However, the payment facilitator (PayFac) has to provide information on every merchant (that gets a MID) within 24-48 hours of them starting to process payments.
- Automation will also be required for the merchant data acquisition process. An API or an online application form can come in handy for this purpose.
- Once you have captured the merchant data, it needs to be submitted to the acquiring bank automatically. Your platform, therefore, needs to integrate with the acquirer, so that the data can be sent via a file or an API. Then the acquiring bank will issue a MID which may be configured within the gateway automatically.
Alternatively, the MID can also be derived from a pool of pre-approved MIDs. Within 24 hours, any new merchant will be included in the report on active MIDs sent to the acquirer. Note that the merchant will be able to process payments even during these 24 hours.
Automated onboarding, thus, enables you to leverage APIs to receive merchant data and documentation online and share real-time notifications about application statuses. It also facilitates the verification of data against online databases which drastically reduces the processing time.
The Benefits of Payment Processing with Automated Onboarding
Automated onboarding offers a wide range of benefits for ISVs as well as merchants who want to start processing payments through their platforms. Let’s take you through some of the most crucial benefits that could be game-changers for your business.
- Broaden your payment options: Today credit card processing is a must for any business selling goods or services. With automated onboarding, your eCommerce sub-merchants will be able to set up payments quickly and efficiently.
- Minimize delays in processing merchant applications: Most business owners these days want to start off quickly and save time on paperwork and documentation. With automated onboarding, you can save plenty of time in processing sub-merchant applications, thanks to instant data transmission. It also simplifies documentation and routes them smoothly between departments.
- Build strong customer relationships: With automated onboarding, ISVs and SaaS companies can create strong relationships with their customers right off the bat. An efficient onboarding experience makes a great impact and stays with your sub-merchants forever. It also showcases the immense value that you bring to the table for your users. After all, convenience and seamless processing are very likely to create great customer experiences.
- Reduce costs: With automated onboarding, there are no negotiating fees. Fees and rates are transparent and sub-merchants are well aware of the charges per transaction. The operational costs associated with printing, stationery, and other administrative charges are also eliminated with automated onboarding. It saves a lot of resources and offers a streamlined process that benefits everyone.
- Generate key data automatically: With automated onboarding, key information is analyzed quickly to produce important outputs. For example, when sub-merchants enter their type of business and other important information, the system will provide them with their MID and MCC.
- Simplify data management: Manual data entry at multiple points is the perfect recipe for errors, inefficiencies, and redundancies. With automated onboarding, you can eliminate all of these possibilities, centralize data entry, and gain greater visibility into sub-merchant data.
- Boost customer satisfaction: Merchants are more than likely to lose business to their competitors if they’re unable to get approved on a payments platform quickly. This can be absolutely catastrophic for a business in the long run. A well-designed automated onboarding process is thus necessary to retain sub-merchants customers and enhance their experiences.
- Improve regulatory compliance: With automated onboarding, you can ensure that all parties are compliant with the necessary data security regulations. This can be quite a challenge with manual onboarding. But a seamless automated onboarding process can easily enforce regulatory compliance with the right technology and streamline the collection of sub-merchant data.
The Bottom Line
These days, both merchants and their customers demand ease, simplicity, speed, and efficiency in payment processing. A manual onboarding process may involve data entry errors and other complexities resulting in substantial delays for merchants. The only way to ensure convenience for your sub-merchants and satisfaction for their end-users is through automated onboarding.
The biggest challenge for ISVs and SaaS companies, however, lies in finding a payment partner that can streamline merchant onboarding with the right mix of technology and due diligence that concludes the process quickly and efficiently. An effective solution will use APIs that can easily integrate into their software platforms and allow sub-merchants to submit their data and documentation online and get approved to accept payments almost instantly.
Thankfully, ISVs and SaaS companies looking to offer payment processing with automated onboarding need not look any further than Stax Connect. We offer a couple of enrollment options that automate onboarding. Stax Connect partners can choose to white-label our API to process new applications, or build custom enrollment flows off of our API in their own software. Either way, our underwriting technology can automate accepting merchant applications within 20 minutes.
