The Concept of Merchant Onboarding

The concept of merchant onboarding is extremely relevant for both prospective merchants and various types of payment aggregators and resellers. These include ISO, payment facilitators, and payment service providers. Merchant account applicants want to start accepting electronic payments as soon as possible. At the same time, payment aggregators of various sorts want to make payment experience for merchants from their portfolios smooth and seamless. In this article we are going to look at the main phases of merchant onboarding procedure. We will also explain how you can improve it.

Payment Services Hierarchy: from Credit Card Networks to Acquirers and Processors to Resellers and Merchants

First and foremost, we must understand that merchant onboarding (or merchant boarding) process takes place at the lowest level of the payment services hierarchy. We can compare merchants, especially, small-size ones, to the tiniest blood vessels of the human body. Acquiring banks and processors represent, so to say, major arteries. Credit card associations represent the top level of the hierarchy. Next level (top-to-bottom) belongs to acquiring banks and processors. A payment processor is, usually, a sort of a technical arm of the respective acquiring bank.

It is the acquirer/processor that makes the decision to issue a merchant account to the applicant. By issuing a merchant account, the acquirer automatically assumes liability for the new merchant’s operations. Primarily, we are talking about financial and legal liability. That is why rigorous background verification is necessary.

Initially, acquirers had to consider all merchant account applications themselves. The numbers of applicants (most of them with insignificant expected processing volumes) kept growing. So, it became unprofitable for acquirers and processors to consider every single application separately. As a re