Today’s businesses need to prioritize simple, secure payment processing. 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?
  
• What does the merchant onboarding process look like?
  
• What is “Know Your Customer” (KYC)?
  
• Merchant onboarding with Stripe: How to get started
  

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. It 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.

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.

• 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.

What does the merchant onboarding process look like?

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. Pre-onboarding preparation
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. Merchant application and 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 necessary requirements and is a suitable candidate for their services.

3. Compliance 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. Account setup and integration
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, for frictionless payment processing. The integration may require technical support from the PSP or payment gateway, as well as testing to ensure everything works as expected.

5. Training and 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. Ongoing monitoring and optimization
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” (KYC)?

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 businesses.

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:

1. Identification
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.

2. Verification
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.

3. Risk assessment
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 more in-depth background checks and ongoing monitoring.

4. Ongoing monitoring
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 on an ongoing basis afterward.

Merchant onboarding with Stripe: How to get started

When you onboard with Stripe, you gain access to a suite of powerful tools and features for accepting payments, managing subscriptions, and preventing fraud. Here’s an overview of the merchant onboarding process with Stripe:

1. Sign up for a Stripe account
Begin by signing up for a new Stripe account. You’ll need to provide your email address, create a password, and complete a brief questionnaire about your business.

2. Provide business details
After signing up, you’ll need to enter your business information, including the legal name, address, tax identification number, and the type of products and services you offer.

3. Verify your identity
Like other PSPs, Stripe requires new businesses to verify their identity as part of the KYC process. You may be asked to provide personal identification documents, such as a government-issued ID, passport, or driver’s license.

4. Connect your bank account
To receive payouts from Stripe, you’ll need to provide your bank account information, including the account number and routing number. Stripe supports payouts in more than 135 currencies and works with bank accounts from numerous countries.

5. Integrate Stripe with your platform
Stripe offers a range of integration options, including prebuilt plugins for popular ecommerce platforms like Shopify, WooCommerce, and Magento, as well as custom integration using Stripe’s APIs and SDKs. You can choose the best option based on your technical expertise and business needs.

6. Test your integration
Before going live, make sure to test your Stripe integration to ensure it’s working correctly. Stripe provides a testing environment where you can simulate transactions and check for any issues.

7. Go live and accept payments
Once you’ve completed the onboarding process and tested your integration, you can start accepting payments from customers. Stripe handles the transaction processing, security, and compliance aspects, allowing you to focus on running and growing your business.

Stripe’s merchant onboarding process is simple and user-friendly, making it easy for businesses of all sizes to set up and start accepting payments quickly. For more information, get started here.