Common Questions About Merchant Onboarding

Merchant onboarding can be confusing but the answers to these commonly asked questions can help clarify the process

Is the merchant onboarding process giving you a headache? If so, you are not alone. 

While merchant onboarding is a necessary step payment processors must take to mitigate risks of fraud and money laundering, this doesn’t mean the process is easy to understand. 

Hopefully, the answers to these commonly asked questions will provide some clarity and make the process a little easier to get through. 

What are the necessary steps?

Merchant onboarding requires payment service providers (PSPs) to follow these simple steps. 

  • Scree the merchant’s application for errors and/or irregularities
  • Know your customer (KYC). This means getting background information on the merchant necessary to complete a thorough background check. 
  • Review the merchant’s record of previous transactions
  • Perform a more in-depth analysis of the merchant’s business and operations model. This step is not always necessary but it is still recommended any time you partner with a new merchant. 
  • Get assurances that all of the merchant’s future transactions will adhere to current security standards. This typically involves a signed contract. 

What documents does the merchant need to submit?

Merchants must provide proof of identity for everyone involved in the business. Merchants must also provide documents showing proof of address, along with income tax returns and bank statements. 

Company registration documents are also required. For example incorporation certificates or LLP agreements. 

Why are some merchants considered high-risk?

The merchant onboarding process is vital for verifying clients considered a higher risk. What makes a merchant a high-risk one? In most cases, the industry determines the level of potential risk. 

Merchants in industries like online gambling for example are at a higher risk of fraud. If the merchant has a high number of chargebacks, it can also indicate a greater risk. 

How does the process help prevent fraudulent activities?

The combination of pre-screening, KYC processes, and merchant history verification steps helps to identify organizations that may be participating either knowingly or without their knowledge in fraudulent activities like money laundering. 

Merchant services play a pivotal role in modern commerce, ensuring businesses can accept various payment methods, providing financial insights, and fostering customer trust through secure and reliable transactions. Identifying potential fraud is an effective way of preventing it from reoccurring. 

What happens if irregularities are detected during the onboarding process?

If irregularities are detected, the first step is to conduct a more thorough review of the merchant’s previous transactions. You may also want to start a personal credit history check. 

Some areas that can raise concerns include irregularities in reported sales, frequent cross-border transactions, and unresolved debts. 

Is onboarding a standard practice for all merchants who partner with PSPs?

Onboarding is not only standard practice, but it is also a regulatory and legal requirement all PSPs must follow. There are no exceptions. 

The process verifies the legitimacy of the merchant’s company and ensures everyone is in regulatory and industry compliance. 

While going through the onboarding process can be time-consuming, especially when it involves larger organizations, it is also a vital part of industry compliance requirements. Don’t forget, as a PSP provider, you are also legally required to report any irregularities or fraudulent activities to industry authorities. 

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