Merchant onboarding is the process a platform or marketplace uses to verify a seller’s identity, confirm their business details, and screen them against compliance requirements before activating their account. Platforms that work with individual sellers run Know Your Customer (KYC) checks; platforms that work with registered businesses run Know Your Business (KYB) verification. Every seller, regardless of size or structure, needs to go through Anti-Money Laundering (AML) screening that continues well past the initial sign-up.

In fiscal year 2024, financial institutions filed 4.7 million suspicious activity reports (SARs) flagging transactions or accounts with signs of illicit activity. Merchant onboarding helps prevent illegitimate sellers from operating on these platforms.

Below, we’ll discuss how each piece of onboarding works in practice: what information sellers need to provide, how platforms verify it, and what triggers a manual review or a decline.

Key takeaways

• Merchant onboarding includes identity verification, business verification, and AML screening. These have to clear before a seller can accept payments.

• KYC applies to individual sellers, while KYB applies to registered businesses and involves identifying anyone who owns the company.

• Sanctions screening and risk-based monitoring continue after a seller is onboarded and don’t stop at initial sign-up.

What does merchant onboarding involve for platforms and marketplaces?

Merchant onboarding is the process of collecting a seller’s information, verifying it’s accurate, and deciding whether to activate their account. It’s a way for marketplaces to confirm who the sellers on their platforms are before any money moves.

What is KYC verification for individual sellers in merchant onboarding?

KYC verification confirms that an individual seller is who they claim to be. A platform that onboards independent contractors, freelancers, or sole proprietors uses KYC as the main compliance check since there’s no separate business entity involved.

Many KYC flows in the US and EU ask for the same core details: full legal name, date of birth, residential address, and a government-issued ID number, such as a Social Security number in the US or a national ID number in the EU. Sellers that process higher volumes might also need to submit a photo of a government ID, such as a driver’s license or passport, along with a selfie matched against it.

Automated identity verification tools compare submitted documents against government databases, check for signs of tampering, and run facial matching in seconds. Automated checks also apply the same standard to every seller, which minimizes the uneven review regulators tend to flag during audits.

What is KYB verification for businesses in merchant onboarding?

KYB verification applies when a seller operates as a registered company rather than as an individual. It confirms that the business exists as a legal entity and identifies the people who own or control it.

Platforms collect several categories of information during KYB: the business’s legal name and any “doing business as” (DBA) name, its registration or incorporation number, its tax ID such as an Employer Identification Number (EIN) in the US, its registered address, and details about its industry and expected transaction volume. Platforms also cross-check this data against government business registries to confirm the company is active and in good standing.

KYB also identifies ultimate beneficial owners (UBOs). Under US and EU rules, this typically means identifying anyone who owns 25% or more of the business, plus at least one individual who manages or directs it, such as a CEO or managing member. Each of those individuals usually goes through their own identity check, similar to KYC.

How does AML compliance shape merchant onboarding?

AML rules require platforms to screen every seller against government watch lists before they can accept payments. Names get checked against the Specially Designated Nationals List of the US Office of Foreign Assets Control (OFAC) and other sanctions databases. A true match blocks onboarding outright, while a partial match gets routed to manual review to rule out a false positive.

Platforms also conduct risk scoring, assigning each seller a score based on factors such as transaction volume, industry, and geography. A high-volume seller in an industry AML guidance treats as higher risk (e.g., money services) gets watched more closely than a seller that runs a small retail storefront. Platforms that incorporate AML screening into the automated onboarding flow can clear low-risk sellers in the same pass as their KYC or KYB checks and save manual review for sellers that warrant it.

Compliance monitoring doesn’t end with onboarding. A sudden peak in transaction volume, payments structured to stay just under reporting thresholds, or a chargeback pattern that doesn’t match the seller’s stated business typically gets flagged for compliance review. Depending on what a review reveals, a platform might request more documentation, restrict payouts while the review stays open, or, in more serious cases, file a SAR with the appropriate authority.

What information do sellers need to provide during merchant onboarding?

The exact information a platform collects during merchant onboarding depends on whether the seller is an individual or a business, but each flow covers similar categories.

Here’s what sellers should be prepared to provide:

• Legal identity: Individual sellers submit their full legal names and dates of birth, matched against the ID documents used during verification. Business sellers submit their legal names, DBA names, and structures (e.g., limited liability company, corporation, partnership).

• Address and registration: Individuals provide residential addresses checked against address databases to confirm they’re real, deliverable locations. Businesses provide registered addresses along with their registration or incorporation numbers.

• Tax and ID numbers: Individuals submit government-issued ID numbers, such as Social Security numbers and national ID numbers. Businesses submit EINs or equivalent tax IDs.

• Banking details: Both submit bank account information for payouts (routing and account numbers or equivalent local bank identifiers).

• Industry classification: Business sellers submit merchant category codes. Platforms use these to assess risk and apply the correct compliance requirements.

• Beneficial ownership: Businesses identify anyone who owns 25% or more of the company, plus at least one controlling individual, such as a CEO or managing member. Each goes through their own identity check. This information is collected at initial onboarding and rechecked only when risk factors or new information warrant it.

• Volume estimates: Business sellers provide estimated transaction volumes and average transaction sizes. This helps calibrate risk monitoring from the start.

• Contact information: Both individuals and businesses provide phone numbers and email addresses. These are used for verification codes and account notifications.

What happens when a seller fails verification during merchant onboarding?

Not every seller passes onboarding on the first try. What happens after a verification failure depends on what caused that failure. With a simple document mismatch, the platform typically asks the seller to resubmit or correct the field that didn’t match. This can often be caused by a typo, a recent move, or a maiden name that hasn’t been updated on an ID.

With a sanctions or watch list match (when a seller’s name overlaps with an entry on OFAC’s list or another sanctions database), the compliance team will check to see whether it’s a true match or a coincidental name overlap. If it’s a true match, the platform has to deny onboarding, keep a record of the match, and, depending on the jurisdiction, potentially report the match to regulators. If it’s a coincidental overlap, onboarding can move forward.

Risk-based declines (when a seller’s profile falls outside what the platform is willing to onboard) can go one of two ways. The platform might give the seller an explanation with no path to reapply or a path to reapply after a waiting period. Risk-based declines can be triggered by factors such as an unverifiable business address or an industry the platform doesn’t support.

How Stripe Connect can help

Stripe Connect orchestrates money movement across multiple parties for software platforms and marketplaces. It offers quick onboarding, embedded components, global payouts, and more.

Connect can help you:

• Launch in weeks: Use Stripe-hosted or embedded functionality to go live faster, and avoid the up-front costs and development time usually required for payment facilitation.

• Manage payments at scale: Use tooling and services from Stripe so you don’t have to dedicate extra resources to margin reporting, tax forms, risk, global payment methods, or onboarding compliance.

• Grow globally: Help your users reach more customers worldwide with local payment methods and the ability to easily calculate sales tax, value-added tax (VAT), and goods and services tax (GST).

• Build new lines of revenue: Optimize payment revenue by collecting fees on each transaction. Monetize Stripe’s capabilities by enabling in-person payments, instant payouts, sales tax collection, financing, expense cards, and more on your platform.

Learn more about Stripe Connect, or get started today.

FAQs about merchant onboarding