Merchant onboarding can be a complex and onerous process, inhibiting the ability to scale. Learn how digital-first onboarding can streamline the process and aid in portfolio growth.

Despite the overall declines in consumer spending and business revenue, digital payments continue to grow rapidly and provide an important opportunity area for portfolio expansion. Statista reports that this market is projected to total $6.75 trillion in 2021 and undergo a further compound annual growth rate of 12.24% between 2021-2025. This makes one thing clear  —  for companies that are looking to increase their bottom line, digital payments are an obvious investment area.

This is in part due to the rapid increase of small businesses and their preference for digital tools. According to the US Census Bureau, Q3 of 2020 saw an extraordinary rise in business applications of 77.4%, compared to Q2. It is estimated that there are now over 250 million micro-merchants operating worldwide, which provides an exciting opportunity for payments companies. Although their individual transaction rates may be low, the numbers become very substantial when viewed from a vertical perspective.

Capitalizing on this growth will require a streamlined digital onboarding process. The application experience is the merchant’s first real interaction with the payments provider, so this will set the tone for the relationship. If a process is disjointed or too laborious, the merchant may assume that this is the kind of service they can expect going forward. There is also enough competition in the market now for micro-merchants to be selective. Without digital onboarding, payments providers may miss out on a huge revenue opportunity.

Risk Management Considerations

Merchant acquisition presents payments companies with a critical balancing act: growing your portfolio without increasing your risk of fraud. While it’s important to rapidly onboard new merchants, this speed should not be at the expense of adequate risk assessments. This is because a merchant that authorizes fraudulent transactions will likely do more damage to your bottom line than good. Many companies have discovered this truth the hard way when manual steps have been skipped or rushed to quickly push through approvals.

This is where software can provide immediate value. With a manual approach, approvals go through a sequential process; each step must be approved before the next can begin. With the right technology, it is possible to activate an account in tandem with risk assessment practices — or even beforehand. This allows merchants to quickly complete onboarding, without erasing the risk assessment altogether. The faster the process, the more easily the portfolio can grow.

Specifically, digital onboarding can help companies achieve this balancing act at each stage of the process, as laid out below:

Merchant Application

The first step is the application. Manual systems require merchants to write their information on paper forms, often multiple times over. This repetition is frustrating and time-consuming for the customer, but also for the payments teams who end up having to review each one. With a digital solution, forms can be auto-filled with the applicant’s information where appropriate — which saves time and reduces the chance of human error.

Similarly, paper applications can be confusing to navigate. A digital interface can offer helpful hints or interactive guides, to ensure that each section is filled out correctly. Some software programs can even detect if a merchant is spending too long on a section and prompt them for assistance; data trends around these delays can then be used to improve the application form. This saves everyone time and creates a more pleasant applicant experience. Finally, a digital system can be designed to spot abandoned applications, sending merchants an automated nudge to complete them, increasing conversion.

Application Validation: Know Your Customer

Once an application has been successfully submitted, it is on the payments company to verify it. If you’ve streamlined your onboarding process, this will likely mean an uptick in applications. To keep up with this increase, it’s important to improve the validation, or “Know Your Customer” (KYC), process. KYC requirements vary depending on local regulations but often include verifying a business or tax identification number and confirming the listed business address.

With a digital onboarding system, many verification requirements can be requested during the initial application and automatically checked with software. Adding the option to share bank account details and sales turnover on the application form can improve verification efficiency. Furthermore, digital programs can raise flags if any information is missing from the application, before submitting it. This will ensure that the staff doesn’t need to chase down mandatory information. They are freed from the process of manually verifying the more complex details, speeding up the validation timeline, and allowing more merchants to be added to the portfolio.

Onboarding & Underwriting

The final stage of onboarding involves a full risk review to confirm underwriting. When conducted manually, these processes can be very thorough and therefore reliable — but at the expense of speed. As accounts are suspended until this check is complete, a delay in processing can be frustrating to merchants and may cause them to turn elsewhere for faster service. Yet without reliable vetting, payments providers risk approving fraudulent applications.

By deploying a digital onboarding system, providers can automate underwriting programs for low-risk categories and applications that meet certain requirements. Each company can customize these programs, according to their specific markets and the latest trends in high-risk behavior. This protects against the most overt fraudulent attempts without tying up human resources or delaying the merchant experience. The more complex criteria and cases can then be delegated to employees to review manually, for higher security.

The Digital Path Forward

The merchant onboarding process will always carry risks, but the right digital tools will not only make the application process smoother but also safer for payments providers. Automation reduces the burden on both application completion and manual review, without replacing dedicated employees. It gives employees the liberty to focus on the more important elements of the validation process. This, in turn, allows merchants to move swiftly through the onboarding journey, resulting in portfolio growth.

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