Today’s businesses need to prioritize simple, secure payment processing with automated onboarding. One key aspect of payment processing is merchant onboarding. This process integrates a business with a payment service provider (PSP) or payment gateway, laying the foundation for a streamlined, compliant, and efficient payment processing system.

A well-executed merchant onboarding strategy enhances the customer experience and trust while decreasing fraud risk, delayed transactions, and noncompliance penalties. Businesses must carefully plan and implement their merchant onboarding process to build a payments setup that works for their needs. Although the details of merchant onboarding are complex, the process doesn’t have to be complicated. Here’s what you need to know.

What’s in this article?

• What is merchant onboarding?
  
• Merchant onboarding: Key players and components
  
• What documents do businesses need for merchant onboarding?
  
• How does the merchant onboarding process work?
  
• What is “Know Your Customer”?
  
• How Stripe Payments can help
  

What is merchant onboarding?

Merchant onboarding is the process where a payment company sets up a business to accept and manage customer payments easily and securely. To do this, a business generally needs access to the functions of a merchant account. A merchant account is a bank account that is used specifically for accepting customer payments, usually by card or other electronic transfer. The account is used to hold onto customer funds before they’re transferred to a business’s main bank account.

Merchant onboarding has significant implications for a business's operational efficiency, customer experience, and risk management. A poorly executed onboarding process can lead to delayed or failed transactions, increased risk of fraud, and noncompliance with industry regulations, ultimately damaging the business's reputation and potentially resulting in financial penalties or loss of customers.

Businesses should take a considered approach to merchant onboarding in order to thrive in today's competitive and highly regulated payment landscape. It enables them to provide a simple and secure customer experience, maintain compliance with industry standards, and build strong relationships with their payment partners, ultimately driving business growth and customer retention.

Manual vs. automated merchant onboarding

Merchant onboarding can be handled manually or through automated systems. Manual onboarding often involves more human review and longer approval times, while automated onboarding uses technology to verify information in real time.

Automated onboarding is commonly used by digital-first businesses, marketplaces, and software-as-a-service (SaaS) platforms that need to onboard merchants quickly and at scale.

Merchant onboarding: Key players and components

For a successful merchant onboarding experience, it’s important to understand the roles of several key players and how they interact during the process. These parties work together to operate a secure and functional payment processing environment, and they include:

• Merchants
  Merchants are businesses, retailers, or service providers that need to accept payments from customers. They establish relationships with payment service providers or payment gateways to facilitate transactions through various channels, such as online, in-store, or mobile payments.

• Payment service providers
  Payment service providers (PSPs) are companies that offer payment processing solutions for businesses. They handle the technical aspects of processing transactions, such as authorization, clearing, and settlement, and ensure compliance with industry regulations and standards. PSPs may also offer additional services, such as fraud detection and risk management.

• Payment gateways
  Payment gateways are the technology platforms that facilitate the secure transfer of transaction data between the business’s systems—such as their online store, point-of-sale (POS) system, or mobile app—and the PSP or acquiring bank. They are responsible for encrypting sensitive data, such as credit card information, and ensuring the secure transmission of this data during the transaction process.

• Acquiring banks
  Acquiring banks, also called “merchant acquirers,” are financial institutions that partner with PSPs to process and settle transactions on behalf of businesses. They are responsible for underwriting merchant accounts, assessing the risk associated with the business, and ensuring compliance with regulations.

• Card networks
  Card networks, such as Visa, Mastercard, American Express, and Discover, are organizations that establish the rules and standards for card transactions. They facilitate the communication and settlement of transactions between the acquiring bank and the issuing bank (the bank that issued the customer’s payment card).

• Issuing banks
  Issuing banks, also referred to as “issuers,” are financial institutions that issue payment cards—meaning credit, debit, or prepaid cards—to customers. They are responsible for authorizing transactions, ensuring the customer has sufficient funds or credit available, and ultimately transferring the funds to the acquiring bank.

• Regulatory bodies
  Regulatory authorities and industry bodies, such as the Payment Card Industry Security Standards Council (PCI SSC), establish and enforce regulations and standards that govern payment processing. They aim to protect customers and ensure the security and integrity of the payment ecosystem.

What documents do businesses need for merchant onboarding?

Before initiating the merchant onboarding process, businesses should prepare the necessary documents and materials. Gathering these materials ahead of time can expedite the process and minimize potential delays in a process that can be time-consuming.

Here is a list of key documents and materials businesses should plan to have ready:

• Business registration documents: Copies of the business's registration documents, such as articles of incorporation, certificates of formation, or other relevant documents that verify the legal existence of the business.

• Tax identification numbers: The business's tax identification numbers, such as the employer identification number (EIN) in the United States or the equivalent in other countries.

• Ownership information: Information about the business's ownership structure, including details about the owners, partners, or directors. This may involve providing personal identification documents for key stakeholders, such as government-issued IDs, passports, or driver's licenses.

• Financial statements: Recent financial statements, such as balance sheets, income statements, and cash flow statements, to provide insight into the business's financial health.

• Bank account information: Details about the business's bank account, including the account number, routing number, and the name and address of the bank.

• Business licenses and permits: Copies of any relevant business licenses, permits, or certifications required to operate in your industry or jurisdiction.

• Business website and online presence: Information about your business's website, online store, or mobile app, including URLs and descriptions of the products or services offered. If you use an ecommerce platform, the platform might also have additional requirements.

• Payment processing history: If the business has a prior payment processing history, provide statements or summaries of previous transaction volumes, chargeback rates, and other relevant information.

• Business plan and revenue projections: A detailed business plan, including revenue projections and anticipated transaction volumes, may be requested, especially for startups or businesses with limited operating history.

• Compliance documentation: Any documentation related to your business's compliance with industry regulations or standards, such as Payment Card Industry Data Security Standard (PCI DSS), General Data Protection Regulation (GDPR), or other data protection and privacy policies.

How does the merchant onboarding process work?

The merchant onboarding process involves several steps to establish a working relationship between a business and a PSP or payment gateway.

Here's an overview of the typical merchant onboarding process:

1. Prepare your business information and choose a provider: Gather necessary information and documentation, as outlined in the previous section. You should also research PSPs and payment gateways to find the best fit for your specific needs.

2. Submit your merchant application for review: Submit an application to the PSP or payment gateway, providing information about your business, its owners, and anticipated transaction volumes. The PSP or payment gateway will review the application to ensure your business meets the requirements and is a suitable candidate for their services.

3. Complete compliance checks and risk assessment: The PSP or acquiring bank conducts due diligence to assess the risk associated with your business, taking into account factors such as the type of business, transaction volume, chargeback history, and compliance with relevant regulations and industry standards. This process may involve background checks, credit checks, and verification of the information you provide them.

4. Set up and integrate your payment account: Once approved, set up your account with the PSP or payment gateway. This involves connecting your online store, POS system, or mobile app with the PSP's payment gateway. The integration may require technical support from the PSP or payment gateway, as well as testing to ensure everything works as expected.

5. Train your team and access ongoing support: Most PSPs and payment gateways will provide your team with training, resources, and ongoing support to ensure a smooth and successful partnership. This may include guidance on using the payment platform, managing transactions, handling disputes and chargebacks, and adhering to security and compliance requirements.

6. Monitor performance and optimize over time: After the onboarding process is complete, continually monitor and optimize your payment processing systems to ensure maximum efficiency, security, and compliance. This may involve updating software, implementing new fraud prevention measures, or adjusting transaction limits based on changing business needs.

What is “Know Your Customer”?

Know Your Customer (KYC) is a regulatory requirement and risk management process used by financial institutions, PSPs, and other businesses to verify the identity of their customers or clients. The primary goal of KYC is to prevent money laundering, terrorist financing, and other fraudulent activities by ensuring that businesses are dealing with legitimate people and companies. While KYC verifies identity, Anti-Money Laundering (AML) processes focus on monitoring transactions over time to detect suspicious activity. Together, KYC and AML help PSPs and acquiring banks meet regulatory obligations and reduce financial crime risk.

KYC plays an important role in the merchant onboarding process, since PSPs and acquiring banks are required to conduct KYC checks on businesses before establishing a relationship. KYC helps assess the risk associated with a business, which then helps PSPs and acquiring banks make informed decisions about whether to approve or decline a business’s merchant application.

During the merchant onboarding process, KYC typically involves the following steps:

Collect business and owner identity information: The business provides necessary information and documentation, such as company registration details, tax identification numbers, and ownership structure. They may also be required to submit personal identification documents of the business owners or key stakeholders, such as government-issued IDs, passports, or driver's licenses.

Verify submitted information and documents: The PSP or acquiring bank verifies the information provided by the business, using reliable and independent sources such as public records, credit bureaus, or commercial databases. This helps ensure that the business is a legitimate business entity and that the individuals involved are who they claim to be.

Evaluate business risk and compliance factors: The PSP or acquiring bank assesses the risk associated with the business based on various factors, such as the type of business, transaction volumes, geographic location, and compliance history. Higher-risk businesses may be subject to enhanced due diligence procedures, including deeper background checks and ongoing monitoring.

Monitor account activity on an ongoing basis: After the initial KYC checks and onboarding process, PSPs and acquiring banks are required to monitor their businesses' activities regularly. This helps identify any changes in the risk profile, potential red flags, or suspicious activities that may warrant further investigation.

You should expect to deal with KYC during the merchant onboarding process and afterward.

How Stripe Payments can help

Stripe Payments enables businesses to set up and accept 125+ payment methods, including ACH Credit Transfers. It provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Reconcile payments automatically: Easily reconcile ACH Credit Transfers to a specific payment or invoice with an automatic reconciliation engine that uses virtual bank accounts for each customer and tools for troubleshooting.

• Simplify refunds: Make refunds or return excess funds to the customer.

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs and Link, Stripe’s digital wallet.

• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.

• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.

• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.

• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.