Instant onboarding — the ability for a merchant to complete a one-page digital application, then instantly process payments — has, more or less, been heralded as the best thing to happen in payments and to merchants in decades. WePay Co-founder Rich Aberman begs to differ.
Sure, instant onboarding creates a slick experience for a business interested in obtaining a merchant account, he told Karen Webster in the latest episode of their Unscripted podcast series. However, it’s not the “magical secret sauce” it’s often purported to be.
The real “secret sauce,” he said, is having a risk engine that can access and act on data about the merchant’s processing history once they are up and running. That is, a system that is as transparent as it is dynamic so that merchant expectations are always well-attuned to how their businesses will be managed on that platform, based on their business performance, and so that fraud can be spotted and responded to in real time.
Risk And User Experience
The basic blocking and tackling of onboarding for new merchants, Aberman noted, involves know your customer (KYC), anti-money laundering (AML) and network screens to make sure bad actors aren’t trying to gain access to payment capabilities and that businesses are not in violation of network rules. Those checks can be automated and a merchant can be onboarded instantly, provided they pass those screens.
However, that’s not where the rubber meets the road.
For new merchants, there’s not much more that a merchant services provider can know about them, Aberman explained. There’s a point of diminishing returns in trying to figure out more about a new merchant than just letting them onto the platform and monitoring them closely, in real time, as they do business.
For a merchant services provider, that makes the instant more about being rock solid on what comes next. For the majority of merchants, that is what’s most important — faster access to their funds. Aberman said this comes down to two things: real-time access to data and the newness of the merchant.
The Data Dive
On the first consideration, there are massive troves of data — outside of what the transactional data says about chargebacks — that one can look at to see whether a business is healthy. If one is looking at invoicing, Aberman noted as an example, they can look at the payments and whether they are paid pre- or post-service, whether the invoices tend to come from a set of recurring customers or a lot of new customers, and if there is a feedback loop so that the merchants are connected to whether or not a customer is satisfied with their services.
All of this data, he explained, grows over time, getting richer and more informative. The more a firm builds history, the easier it is to see aberrations, because a baseline can be set. For instance, one can see if a payment accepted by a merchant is widely out of line with what is historically normal. It also gives the firm an opportunity to build an online reputation on review sites like Yelp.
That data gives merchant services partners more levers to play with as a merchant risk profile builds, including how long these merchants have to wait for funds or how much they pay for processing services. That’s only possible, though, if the merchant services platform can both take in and act on that data in real time. That’s where traditional platforms struggle, Aberman said.
Those systems are batch, he explained, and so they can’t be that nimble. They might eventually see a fraud problem, but that could be a day late with whatever losses they’ve already incurred because of that daily bottleneck in their information flow. That is something that will become more complicated as instant payments — and instant access to paid funds for merchants — becomes a more common demand among merchants.
“That is obviously the ideal experience from the merchant side — to have access to funds immediately in your account. [However], that should be of concern to anyone who works in risk management. But it’s coming, and so [it’s] really up to us to figure out a way to provide the experience that finds a way to manage the underlying risk implications,” Aberman said
The second consideration, Aberman explained, is how new the merchant may be.
A new-to-the-world merchant comes wrapped in a bundle of potential risk since it lacks a business history. There is also the new-to-the-payments-business merchant, the business that has been sending invoices through FreshBooks to clients for years and now wants to payment-enable those invoices. That merchant has a business history, and data about its cash flow and financials that comes from the accounting system integration. This business presents a different risk profile, and a very different potential outcome when it is onboarded and given the ability to process payments.
The Post-Onboarding Future
Onboarding, Aberman told Webster, is a bit of a red herring, since it speaks to a conversation that will soon be irrelevant when businesses are looking for a merchant services solution. The future of merchant services, for many businesses, he said, won’t be about looking for a processing partner because those firms — or Uber drivers, or even Etsy shop owners — that use accounting software with invoicing will find payment capabilities built into the platforms to help run their businesses.
“They will find themselves accepting credit card payments as part of that other software tool that is an integral part of their business,” Aberman said, adding that they will never again think about payments processing as a separate service or something they need to “find.”
That means the onboarding and approval processes that go along with that will increasingly become an afterthought for many merchants. The “faster” and “instant” part of the onboarding value proposition will slowly shift, as the value equation will be measured more in terms of the funds businesses see in their accounts, rather than how quickly they were able to dispense with the paperwork to accept card payments.
“The onboarding question is increasingly going to be a red herring,” he said.“The real questions about instant and real time will begin when these merchants start transacting on the platforms.”