Discover how to balance rapid merchant onboarding with security by using best practices in KYC and monitoring. Implement automated risk management processes to streamline onboarding, prevent fraud, and stay ahead of compliance challenges as the global payments industry evolves.
Merchant Onboarding
If you’re a merchant acquirer or payment service provider (PSP), onboarding merchants is essential for continued growth. Bringing in more merchants drives more transactions, but onboarding questionable merchants who authorize fraudulent transactions can lead to significant losses impacting your bottom line.
The global payments space is evolving rapidly, and fraudsters are becoming more sophisticated. To balance the trade-offs between quick onboarding and fraud prevention, it's crucial to use the right technologies and methodologies. Aite Group's report "Balancing Risk and Return: Best Practices in Merchant Onboarding and Monitoring" explores key methods and technologies to improve risk assessment and monitoring.
With the growth of digital channels since the pandemic, micro-merchants have become accustomed to fast onboarding. While speed is essential, thorough onboarding processes are crucial to preventing bad actors from entering the payment system.
Merchant Risk Management
Effective risk management is crucial during merchant onboarding. Some key factors to consider include:
High-risk industries, such as gaming and foreign exchange, attract fraudsters due to high transaction volumes. Understanding the specific risks involved helps determine the level of onboarding friction required.
Due diligence varies based on merchant risk, but all merchants must meet minimum standards such as Anti-Money Laundering (AML) and Know Your Customer (KYB) compliance. These standards help ensure transparency and minimize risks.
Gratify's Merchant Onboarding Process
Gratify's merchant onboarding process involves a multi-step thorough process:
Automation plays a key role in onboarding. By automating data entry and other manual tasks, PSPs can reduce human error and costs while speeding up the onboarding process. Automation also improves integration between onboarding steps, particularly for smaller merchants.
Merchant KYB and Verification
Ensuring the legitimacy of a merchant is a critical part of onboarding. KYB procedures collect information such as company name, tax identification number, business address, and beneficial ownership. This information helps meet legal requirements and supports further due diligence efforts.
Adding fraud checks to the KYB process also enhances transparency, making it easier to identify questionable accounts.
Merchant Monitoring
Risk management doesn't end with onboarding—ongoing monitoring is essential to identify changes in merchant activity, such as:
While monitoring can be automated, false positives are common. Fine-tuning monitoring algorithms can help reduce these false positives and improve the overall effectiveness of merchant monitoring. The rules for monitoring come directly from the business, determining what specific behaviors and patterns to watch out for, ensuring tailored risk management.
The Role of Technology in Risk Management
The complexity of the payments industry is increasing, with a rise in Card-Not-Present (CNP) fraud, demand for new payment channels, and expanding compliance requirements. Investing in technology, such as automated workflows and data analysis tools, provides opportunities to improve risk management and reduce onboarding friction.
By digitalizing processes and automating risk assessment, merchant acquirers and PSPs can lower costs and manage risk more effectively. Embracing new technologies allows PSPs to onboard good merchants faster while mitigating the risks posed by problematic accounts.
Request a demo today to see how Gratify can accelerate your operations and deliver faster, more secure merchant onboarding.
