Merchant Onboarding Explained

Opening a merchant account is a necessary step for online businesses to process financial transactions. However, the process of onboarding is not as simple as filling out an application form. It involves various stages of checks and evaluations that ensure compliance with regulations and minimize the risk of financial fraud. This article will delve into the onboarding process of merchant accounts and the various stages involved in assessing the eligibility of applicants.

When merchants want to open a merchant account to process  transactions, they need to undergo an onboarding process in order to prove their compliance with all regulations and standards required to operate an online shop. Although the requirements of each acquirer may defer, the general structure of the onboarding process is the same and has several stages:

 

1) Pre-checks

 

Based on the characteristics of the business model, merchants can apply in several acquiring banks. Usually, they contact a payment service provider that will help them with analysis and suggestions of banks that would best fit the needs of merchants’ businesses. Moreover, merchant service providers assist with the whole onboarding process and support clients once they get onboarded. In order to initiate the process, a new client has to provide some basic information, so that his application can be presented to the banks:

 

• Company name
• Applying URLs
• Targeted countries
• Projected volume
• Processing history (if such is not applicable - a business plan)
• Test credentials (if applicable) that would allow banks to review website's content

 

Once this information is collected, the application is ready for a pre-check. The submission happens via email or through an online portal depending on banks’ procedures. When the pre-check reaches bank’s risk and compliance teams, they perform initial checks of the client to make sure he is not involved in any listings of the card brand schemes, sanctions, violations or adverse media. Then, they evaluate merchant’s business model, billing method and financial stability to make sure that the business does not impose a significant risk to the bank. In the time frame of several days, banks reach out to the merchant (or his payment service provider) to inform if the application has been pre-approved or declined. By pre-approving a merchant application, the bank accepts the application for a more in-depth review, meaning that the client can now submit all the documentation he has on record. Occasionally, banks would impose some additional conditions to the merchant with the purpose of minimizing the potential risk associated with onboarding the new client. If the applicant agrees to meet the set terms or requirements, the acquirer would grant a pre-approval.

 

At this point or in some cases even before the "Pre-check” stage, the merchant is given a pricing offer that he needs to confirm in order to move on to next stage of onboarding - “Full Application”

 

2) Full Application

 

At this stage, the merchant starts collecting the required documentation to officially submit the application. When he has obtained the full pack of documents, the merchant usually needs to fill out and/or sign an application form or merchant agreement. Additionally, directors and principals might be requested to go through an ID verification to prove their identity. The process of reviewing the provided information is also referred to as “Underwriting” and is divided into two parts – KYC/KYB and Website compliance. It involves evaluation of the risk and confirmation about the accuracy of the submitted documents. This is the most complex part of opening a merchant account but is as important for the merchant as it is for the bank because in this way, business owners know that their online businesses are protected. Here’s what the banks would expect to see:

 

• Company documents -Certificate of Incorporation, Memorandum and articles of association, Share Certificate, Certificate of Registered Address, Certificate of Directors, etc
• Identity Documents (valid) - Passport/ID card for each director/principals
• Proof of Address - Utility bill – , Bank Statement (not older than 3 months)
• Proof of domain ownership
• Signed PCI DSS Self-Assessment Questionnaire (SAQ)
• Proof of Company Bank Account – Bank Confirmation letter or statement
• Business License (if applicable)
• Business specifics - Desired settlement and processing currencies, billing descriptor, etc
• Contact details - Email and phone number of the director/principals

 

While the list of documents mentioned above is what is requested by almost every bank, it is not exhaustive and acquirers might request additional documents. It also depends on banks‘ policies how recent the documents need to be. Usually they accept documents issued within the last 6 months but some acquirers might request renewed documents so the onboarding may sometimes take longer than usual. Moreover, some businesses like crypto exchange, nutraceuticals, gambling and others would require the provision of additional industry-related documents (such as legal opinions, service/manufacturing/reseller agreement, license, etc.) and in some cases with high-risk merchants, acquirers require an enhanced due diligence (EDD) that might prolong the underwriting process. During this phase, the pricing that would be applicable also needs to be discussed between the merchant and the acquiring bank (and the payment service provider if such is involved in the process).

 

At this stage of the process, there’s a back-and-forth communication between the bank and the merchant (or the PSP if such is involved in the onboarding) as banks might not approve all of the documents and request new, translated or notarized and apostilled ones.

 

A website compliance also takes place simultaneously. Banks review the applying URLs and investigate all of the functionalities of the webpage. Before accepting a website to their portfolio, acquirers need to make sure there’s no misleading content or breach of the standards provided by the card brand schemes. The 4 elements they check in more depth are: company information and card scheme brand logos on the footer, website’s policies, the pricing and last but not least – the checkout page. If there’s any missing or confusing information, acquirers would request merchants to make the necessary changes on the URLs.

 

Due to these requests, the onboarding process can be finalized in between 2 weeks and several months depending on merchant’s response time and readiness to address banks’ request; as well as bank’s acceptance of the provided documents and websites. When all the requests have been fulfilled, acquiring banks go through client’s whole application once again to confirm their final acceptance. The merchant would then get an official approval and proceed with signing the merchant agreement. Upon countersigning the contract, the acquirer will submit a request for MID issuing.

 

3) Merchant Account (MID) Issuing

 

The MID issuing takes couple of days due to technical work involved in the setup. Acquirer’s integration team will set up the merchant account in their systems and provide the client with API keys and credentials to his merchant account. Catalystpay’s Technical team uses these credentials to set up the merchant account within our payment gateway. Once this is completed, the merchant receives a welcome letter with all the technical information he needs to integrate the MIDs from his end. There are multiple ways for the merchant to integrate – they can either use any of the pre-integrated plug-ins, or use our hosted payment page, or even go custom with Server-to-server integration.

 

As a final step after the integration is completed, merchants need to start testing if the MIDs work properly by making successful test transactions on the website.

 

Having active MIDs does not mean merchants cannot proceed with opening a merchant account in other acquiring banks as well. In fact, having multiple acquirers is strongly recommended as it would help shop owners with achieving business continuity. This would help by increasing conversion rates, decreasing the business costs, rerouting unsuccessful transactions to other acquirers that would accept them, and would allow merchants to negotiate their agreement terms. Moreover, if there’s an unexpected issue with the primary acquiring bank, he might run into trouble if he does not have a backup plan in place – namely another acquirer.

 

At CatalystPay, we always strive to bring the best experience for our merchants and their clients. Our merchants do not only add new payment methods to their online stores but also improve and scale up their business by growing their sales, enhancing their financial management, becoming more efficient in processing payments and delivering a better customer experience through multiple payment methods. To achieve these goals, we encourage all merchant seeking a new merchant account to contact a PSP that will provide an extensive support during the whole onboarding process.

 

Author: Anna Miteva, Senior Underwriting Account Manager