Taking The Pain Out of Merchant Onboarding

“If PayPal can board me in 5 minutes, why can’t my acquirer?” Automating the boarding and underwriting process has completely reinvented what used to take days (even weeks) and cost a lot of money. But does it save time at the expense of other downside risk? In a recent digital discussion, MPD CEO Karen Webster spoke with Recombo’s VP of Electronic Payments Reed Clayton and Peter Fitzpatrick, author of the “Ultimate Guide to Automated Merchant Onboarding,” to get their views – and thanks to the interactive polling during the discussion, that of the payments community.

Ever since Square introduced its first mPOS device in 2009, merchant onboarding has become a strategic agenda item for the merchant acquiring space. The real innovation wasn’t the dongle that attached to a phone, it was a simple onboarding process that got a small merchant up and running. Today, automated underwriting has completely reinvented the process for merchants and acquirers. MPD CEO Karen Webster spoke live with execs Reed Clayton and Peter Fitzpatrick of Recombo and the PYMNTS community (via interactive polling)about the pros and cons of automating and approving the onboarding process.



Why is time so important? Has Square changed the merchants’ expectation of what the appropriate time is?

Software companies that have entered the acquiring/processing market are changing customers’ expectations. Customers are asking: If PayPal can board me in 5 minutes, why can’t my acquirer? They want a better, faster experience overall.

Within the industry, these software companies are not maintaining the same underwriting standards as traditional acquirers. But according to Clayton and Fitzpatrick, the customers really don’t mind.

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The merchant boarding timeframe for software companies like Square, Stripe, and PayPal are at around 5 minutes, while for traditional acquirers, it takes 3-5 days. The gaps are so large because software companies have automated the merchant boarding process, and they also do less KYC and adjudication work than a lot of the traditional players do. Often, they’ll do very little until the merchant has processed a substantial amount of transactions – that’s a very significant difference.


Audience Poll Question #1: At your organization, how long does it take to board the average merchant? 1) Under an hour, 2) Hours, 3) Days, 4) Weeks, or 5) I’m not sure.

Results: The audience’s answers mirrored what was explained above – most suggest that it takes days for them to onboard merchants, nowhere near under an hour.



The way that companies can calculate cost is by asking how much any IT that used to process applications cost, and how much other stakeholders will cost.

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The merchant boarding cost per merchant shows that Square spends about twenty times less than the traditional acquirer, and Intuit and PayPal are not far behind. Square has streamlined their onboarding process to the point where their merchants don’t speak to anyone to get set-up. The rebuttal to this is that some merchants feel they want to talk to people for specific, specialized set-up. But normally, said Clayton, those working with Square want to go online and be instantly approved and set-up.


So how have these organizations achieved such a large cost advantage? They have done so by automating much of their business, meaning that customer onboarding, underwriting, customer service requests, fulfillment are all automated.

It is important to note, however, that there is a difference between how Square, Intuit, and PayPal board merchants and how most traditional acquirers do it. Traditional acquirers do more with adjudication upfront, while micro-merchant processors tend to only conduct that work after a merchant processes enough volume.


Audience Poll Question #2: At your organization, how much does it cost to board a merchant? 1) Less than $50, 2) Between $50 – $200, 3) More than $200, or 4) I’m not sure.

Results: The biggest response was “I’m not sure,” followed by “Between $50-$200.” It’s common, said Fitzpatrick, that when people do not have software that offers the metrics, it is difficult to calculate the cost, which is why many may not know off-hand.


The cost, however, is not the only important factor when looking at these software companies’ competitive advantage.



New entrants (the software companies) provide a smooth, fast onboarding experience that merchants have come to expect. Recombo says they are the disruptors due to the data shown and after working with some of the largest acquirers and payment processors in the world. Traditional acquirers and payment processors have noticed attrition in their portfolios increase, and after research have found those customers are going to organizations like Square and Stripe.


But what, exactly, has allowed the software disruptors to accomplish such short onboarding time periods and such low costs?

What they’ve really done is two things: automated the onboarding process, as well as lowered their adjudication standards compared to traditional players. Software companies do less to verify they’re customers. and the low-cost business model supported by automation of the onboarding process is really what’s giving them success.


What most people may take away is saying that this part of the process is faster – but it must be missing important steps. Aren’t acquirers paying for this missing piece on the backend? 

There’s no question, said Clayton, that some of these firms do less to verify who their customers are, and while that’s made them easier to work with, that also may be their largest weakness The customer, however, doesn’t care – they want a faster, less costly process. For example, merchant applications like Stripe’s take a minute to set up, are only a page long online, and are a customer-friendly process.

The way to beat the disruptors, especially for the risk managers who are happy to introduce friction to reduce the risk, is to provide the same experience without compromising the adjudication standards. The way to do that is automation, and that can be done in less than 15 minutes.

Acquirers don’t have to compromise their standards – they’re really just automating the process. Data sources exist today to allow them to get a good enough sense of who they’re about to business with, and they can still follow their risk and underwriting rules. They can then collate that data and make a risk scoreboard to get a sense of who each merchant is, approve the merchants faster, and then focus on the few that are traditionally the outliers.


The Breakdown:

Provide the same easy, digital application experience with automated onboarding. Build digital applications that enable correct completion on the first application. Goal: Make it as fast and easy to complete an application without error (not just missing information, but actually the right information in line, whether that is a tax ID number or NCC code).

Build the business rules engine. Goal: Automate the underwriting and adjudication process working with the risk scorecard (not injecting or relaxing what the firm’s risk rules are, just simply take those rules and build them into a scorecard).

Create a risk scorecard. Goal: Automatically approve or decline accounts based on information collected in the application and by the rules-based engine (using it to determine whether or not merchant is a pass/fail, getting data back on a merchant very fast).

Take a risk-based approach to adjudication. Goal: Determine high, medium, and low risk products and Determine high, medium, and low risk regions. For software disruptors, their average approval rate would be expected to be close to 100 percent.



Recombo identified reasons why the current onboarding process at most acquirers is unable to replicate the experiences of the software-based platforms.

1) The one trick pony: Building product-specific boarding processes that can’t be scaled across verticals, product lines and regions. Boarding platforms tend to be the last thing the development team thinks about when developing a new product. Acquirers have needed to hold back a product launch or expansion into a new region because they cannot reuse a boarding platform they have already built for another product or region.

2) Being too dependent on the development team: Digital applications that aren’t flexible enough to be managed by the business unit without development resources. No matter how much planning acquirers do before they launch their boarding process, there will always be things they’ll want to change after they’ve built it. Little things like where in the form they request the SSN, or whether they use one long form or several small forms to collect information.


Very large players will often look at smaller merchants as just too risky to deal with. They represent a large percentage of business and a small percentage of overall sales, and a risky segment at that. How do they get past that? 

In many cases, large acquirers don’t want to take on high-risk merchants. Because the onboarding process for these small merchants is still very high with these larger acquirers, it’s not profitable. But if they can automate it and bring the cost down to a few dollars, it does become a profitable business. Everyone wants that instant gratification, and when they start an application process, they want to be able to finish it and get it done quickly.



Acquirers really have to understand what their business objectives are when they start a process like this, as well as get all of the stakeholders on board early so that they can understand what their expectations are, and what types of data they need to see. The key takeaway is having platform flexibility.

Build in-house requires process & technology expertise, is commonly run over budget and over time, and can cause mistakes to be made. The IT departments out there are not necessarily experts at developing, and are not always flexible in making changes dynamically during the process.

Specialized technology on the market like Agreement Express is flexible. It allows for a rapid customer onboarding platform and can combine many point solutions.


How do disruptors get 100% approval ratings considering the networks’ KYC requirements?

The truth is that they may skirt them a bit. There’s no doubt that they’re doing enough work to cover their bases, said Fitzpatrick, but they may not be as careful as the acquirers.


What types of data do systems need to accommodate to make decisions more robust? How do they help create the risk scorecard that manages risk downstream?

Acquirers need to determine what types of credit products they need to get information back on a merchant, either in real-time or right after sign-up. When building the risk scorecard, every organization already has thresholds as their risk rules. By automating them, they can take a large swath of data in and come to a decision very fast. Having the data in a central place where the risk people can access it is much more convenient and less costly as opposed to checking multiple systems manually.


Audience Poll Question #3:What is your organization’s biggest pain point related to merchant boarding? 1) Time to board, 2) Cost to board, 3) Scalability of process or team, 4) Inconsistent risk adjudication or compliance standards, 5) None of the above.

Results: “None of the above” was the most common answer. Clayton said that this is perhaps because they missed audit or KYC as possible pain points. What if something changes with a merchant and you have to go back and re-adjudicate an entire portfolio? That comes with time and cost. With a flexible platform, it’s easy to go back and get information needed.



When companies make a decision to automate, it prompts them to look at the entire end-to-end process, particularly with building interactive scorecards. Organizations usually have all of that data, but it’s just how do they go ahead and stitch all of that together and automate. Recombo, in particular, has been able to give companies best practices in speeding things up.

Some projects start with acquirers that want to enter the mPOS market, and others start with acquirers that are looking for a way to refill their portfolio faster. Many are losing their customers to disruptors. This may be because it’s so easy to switch, so if a customer has a negative experience, they can immediately start experimenting with these disruptors.



What is the one piece of advice Recombo has to offer the traditional players in the space as well as the disruptors in terms of taking the onboarding process and management of the merchant portfolio to another level?

For traditional acquirers, said Clayton, automation will allow them to maintain their risk standards, and for disruptors, increase risk standards. Not only can you achieve faster onboarding and better compliance, but there’s also something to be said around the data gathered around those merchants. There is a chance to introduce new products during the application, or to do a cross-sell or up-sell in real time.

All of this amazing data at their fingertips may be the way to introduce complimentary products and services. That’s something that some firms have already been successful in doing.


To listen to the full digital discussion, click here.





The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

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