The purpose of this article is to familiarize the key merchant services industry players (particularly, large-size merchants, wholesale resellers and PSPs) with merchant onboarding mechanism as an advanced feature to be considered during payment gateway selection. If this is the first time you are reading “Payment Gateways II” series, please, start with the Introduction as it will improve your understanding of the current post.
Merchant onboarding concept
Traditionally, payment gateways served as a type of middleware that allowed conversion of transactions sent in a simplified format into the gateway into the more elaborate format of an underlying processor. Over time the same merchants started using multiple processors concurrently – one for credit cards, one for debit cards, one for gift cards etc. Later, ACH processing was added to the mix. Some payment gateways started offering direct integrations with card networks (Amex, Discover or Visa).
As a result, the process of merchant setup with all of the processing parameters became more and more complex, because in some cases setting up a merchant required provisioning of credentials with multiple institutions. (Every time a merchant account is set up a series of steps must be taken, and certain information about a merchant must be collected). Provisioning process was often conducted manually, involved the work of many people, and took time.
To solve the problem many processors came up with automated on-boarding tools or APIs that allowed to provision merchants in real time within their systems. Consequently, payment gateways also started offering merchant onboarding and provisioning functionality.
Basically, availability of automated merchant onboarding mechanism allows the responsibility for initial data entry to be delegated to the merchant and, potentially, eliminates manual procedures involved in the underwriting process. Let us take a closer look at the merchant onboarding process.
Merchant onboarding process
Information about a merchant is submitted to an onboarding API, then background verification is performed and merchant provisioning takes place in real time. Assuming everything checks off, a new merchant account is provisioned and the new merchant can start processing transactions right away.
As we can see, in this way the whole process of merchant setup is considerably simplified, especially for PSPs dealing with multiple small-size merchants.
To illustrate the advantages of automated merchant onboarding, let us consider a practical example.
If a reseller business (payment service provider) has to deal with many merchants with relatively low profit margin on each, then this business might consider choosing the processor which supports the merchant onboarding mechanism.