08 Feb

By Sienna Harper

Category: best high risk merchant account provider, best high risk merchant services, E-Commerce, Fraud Prevention, high risk merchant account instant approval uk, high risk merchant account provider, high risk merchant account solutions, High Risk Merchant Accounts, online payments, Payment Gateway

Best Practices in Merchant Onboarding and Monitoring Comments Off

Best Practices in Merchant Onboarding and Monitoring

If you’re a merchant acquirer or payment service provider (PSP), onboarding merchants are key to your growth. Of course, you want more merchants, bringing in more transactions. However, onboarding questionable merchants that authorize fraudulent transactions result in charges and losses that impact the bottom line.

How can you balance the trade-offs, ensuring that you can quickly and seamlessly onboard good merchants while preventing bad merchants from hurting your business? In a new report, the Aite Group looks at: Balancing Risk and Return: Best Practices in Merchant Onboarding and Monitoring. The global payments space is growing rapidly and changing quickly as the sophistication of both the technology and fraud attacks advances. The report looks at best methods and technologies that you can use now to improve risk assessment, monitoring and management.

Before jumping into the report, let’s consider other, related best practices. For US banks, the Office of the Comptroller of the Currency (OCC) provides Risk Management Guidance. One of the major recommendations of the guidance is to “adopt risk management processes commensurate with the level of risk and complexity of its third-party relationships .”

Risk Management

This risk management approach is very applicable for onboarding merchants:

  • What is the transaction level of the merchant and their network?
  • What industry and segments do they do business in?
  • What transaction amounts and range?
  • What channels are they going to use?
  • What countries are they operating in?
  • What resources are necessary to properly vet and monitor the merchant?

As not all merchants are the same, the level of risk and amount of due diligence checks necessary change accordingly.

While there are differences in the level of due diligence, there are standards that must be met. There are legal compliance factors, such as AML, KYC and KYCC. There are standards and rules of the card networks; they demand that there are specific legal contracts with all merchants that control the relationship with all 3rd parties. There are also rules for credit underwriting, as the merchants are in effect offering unsecured loans.

Merchant Onboarding

There’s a seven-step process to successfully onboard a merchant:

  • Prescreening
  • Identity verification/KYC
  • Merchant history check
  • Business and operational model analysis
  • Web content analysis
  • Information security compliance
  • Credit risk underwriting

Onboarding and Underwriting Process

One key component of creating a more successful onboarding process is automation. A major pain point for the industry is manual work, such as data entry, which might have to be done multiple times. Manual work slows the process down and also introduces points of failure in the system. Manual work also adds a significant cost to the process. This is not to say that people should not be in the process at all. Rather, people should focus on spotting fraud, not on data entry.

Automation also enables smoother integration between the steps. If data is digital from the start, then the entire process has the potential for automation, especially in the case of smaller merchants. New risk assessment automation, as well as integration and optimization tools, are on the market, so dramatic improvements are already possible.

Automating the process accelerates merchant onboarding by 30-40%

The typical bank merchant onboarding process is manual with many potential points of failure. A bank representative armed with card program brochures and books must visit the merchant premises. If the merchant then wishes to “come on board” with the bank, the business details are written out on paper and sent to the bank processing center once the agent returns to their office. The back office staff must then conduct an initial credit check after they re-enter the details in the CC application. If a transcribing error occurs the credit check cannot be completed, necessitating further communications with the merchant.

Credit checks are commonly conducted with input from one or more agencies, with the details again being manually transcribed. This manual process may again introduce transcription errors. Once creditworthiness has been established for the merchant, the application-case file is passed to a manager for approval. Following approval, a merchant account Id and PIN is generated and sent to the agent, who then delivers the merchant card account information to the customer.

Capgemini uses the IBM architecture to power the Merchant Onboarding solution. Vendors must then prove financial worth once the credit checks have been completed. Another agent must wait for the vendor documents to be received and assess vendor financial credibility. If the vendor is approved the case is passed to a manager for final approval. The overall process can take up to 6 weeks, with tracking often managed on paper or spreadsheets.

Merchant Monitoring

Merchant acquirer’s or PSPs can’t stop their risk management after onboarding. What if a merchant fundamentally changes the nature of their business, or the volume of transactions or transaction amounts dramatically change? A change in the risk criteria requires reassessing the merchant; as they can already be doing damage, the quicker, the better.

Ongoing monitoring should watch for:

  • Spikes in activities
  • Exceeding thresholds
  • Out of area or unusual cross-border activities
  • Changing website products or links
  • The inclusion of people on sanction lists
  • Adverse media mentions

While monitoring automation has already seen great success, there’s an issue with false positives. It’s difficult to fine-tune the matches, so the industry seems to accept that it’s better than the alternative. There are also issues when merchants go into new segments or offer new channels as the technology doesn’t seem to keep up with these changes.

The industry is getting tougher to compete in. There’s more competition, encouraging growth in higher-risk segments and markets. There’s a rise in CNP fraud, as counterfeit fraud becomes more difficult. There’s a demand for new channels as eCommerce and mobile commerce gains ground. The complexity and breadth of compliance requirements are expanding. As Aite notes: “Risk and compliance projects will take an increasing share of the investment budget available for business innovation .”


Technology though offers hope to the situation. The ability to digitize procedures that were previously paper-driven automate manual processes, and to analyze and assess risk using advanced data analysis tools provides opportunities to dramatically improve the merchant onboarding process. Merchant acquirer’s and PSPs that embrace new technologies can lower costs and generate better returns while successfully managing risk.

Operationalized Risk Models

Acquirers make sizeable investments in developing risk models or purchasing them from companies like Dun and Bradstreet, Bisnode and Creditsafe. However, without a way to integrate these models into the onboarding process, the risk decision-making point becomes another bottleneck, slowing down onboarding and increasing risk with manual, error-prone credit checks.

Risk analytics and decision making can become fast and simple with a solution that provides an easy way to operationalize industry-standard risk models, such as SAS, Excel, Python and R models, within an onboarding process. Look for a visual configuration interface that makes it easy to map the input data the model needs to execute the analysis, and the output data that will be returned to the onboarding process once the model has executed.

Using operationalized risk models gives acquirers the opportunity to fully automate credit checks and risk decisions. This is a very efficient way to manage risk where the process is well understood, standardized and repeatable, such as for small to medium-sized merchants. In these cases, straight-through processing is possible for nearly instant decision making and approval of merchant applications. Using business-defined rules, an automated and digitized process can instantly and without manual labor determine the specific terms and conditions for each merchant as well as identify exceptions that require further investigations.

Cloud-Powered Onboarding

Turning merchant onboarding into a business differentiator often requires going where the clients are. Today, they are everywhere, using the Web, mobile phones, tablets and other devices to do business. Serving merchants means acquirers must take advantage of the cloud to offer the level of onboarding service they expect.

Using the cloud can create anxiety for acquirers who are rightly concerned about the security and privacy of merchant data. But sophisticated modern cloud offerings are built to allay these concerns by leveraging proven cloud environments such as Amazon Web Services. They also create private virtual cloud deployments with robust industry-standard encryption to keep data, resources and billing secure. In addition, the cloud offers greater business flexibility and cost advantages, as development and deployment environments can be established quickly without heavy infrastructure investment, and implementations can be scaled up or down for precise load management.

With payment services becoming more and more of a commodity, merchant onboarding can be a valuable selling point, offering acquirers a unique opportunity to showcase their value to clients. Using automation and digitization technologies that focus on reducing the complexity of the process, enable rapid, highly accurate risk decisions and support both the e-commerce and physical store merchants, acquirers can successfully balance demand for fast-even instant-onboarding with the need to ensure compliance, reduce business risk and control costs.

Share this Post!

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Post Calender