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Taking the Pain and Risk Out of Merchant Onboarding

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The underwriting process for merchants, especially those who are new to the space, has been anything but easy. Merchant onboarding applications involve the tedious collection of paperwork and process …

The underwriting process for merchants, especially those who are new to the space, has been anything but easy. Merchant onboarding applications involve the tedious collection of paperwork and process of getting accounts approved. But in today’s digital world, automated underwriting technology can be used to speed up the process, provide better data, and ultimately help banks and other financial institutions make better decisions. At the same time, it extends payments to micro-merchants who may have otherwise not been eligible.

On Tuesday, July 8th, MPD’s CEO Karen Webster hosted a live digital discussion with Recombo’s Reed Clayton, Vice President Electronic Payments and Banking, and Peter Fitzpatrick, author of the “Ultimate Guide to Automated Merchant Boarding,” to highlight how automated underwriting molds a quicker, safer, and less costly merchant onboarding process.

This discussion covered:
- How to build a digital application, automated workflow, and risk scorecard to process merchant applications faster while maintaining proper risk levels and anti-fraud requirements
- How to increase your adherence to compliance regulation.

Published in: Business, Economy & Finance

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  • The Scenario (tell us about the market)
    new entrants (software companies) provide a smooth, fast onboarding experience that merchants have come to expect
    We know that these software companies are disruptors because of the data we just showed you, but also through 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.
    What has allowed the software disruptors to accomplish such short onboarding time periods and such low costs?
    There are two things the software companies do:
    They have automated the onboarding process
    They have lower adjudication standards than traditional acquirers. They do less to verify who their customers are and what they do. And while it has made them easier to work with, it might end up also being their largest weakness.
  • This is an example of a disruptors application process, it is about a third of Stripe’s application.
    When you sign up for an account with Stripe you first create an account with your email and a password. Then, after setting up and testing the connection with the payment gateway you need to activate your account to start processing real credit cards. That is where the customer completes this application.
    As you can see, it’s much less detailed than a traditional merchant acquiring application. It takes only a minute or two to complete and leads to automatic setup. After it is submitted, the merchant can process credit cards immediately.
    What are acquirers doing to compete with this experience?
    They’re working on building platforms that provide comparative onboarding experiences, but they face the challenge of doing so without sacrificing their adjudication standards.
    If you look at an application process like this one, it asks for very few pieces of information and presumably does very little adjudication.
    They ask for a description of the product sold, the tax ID number, some personal information about the owner, the banking information, and a few other pieces of information.
    But a traditional acquirer asks for a great deal more information.
    Information about the business, its address, information about the product, how long the delivery method is, which sales channels are used, and what percentage of sales each channel represents.
    They ask for personal information for the singing officers or the owners, they commonly ask for a personal guarantee or business financials.
    It’s a lot more information about the account.
    This is the real challenge: The software disruptors are willing to work with low adjudication standards, and most traditional acquirers are not. But merchants do not care about that, they commonly decide to work with whomever is easiest to work with.
  • How can merchant acquirers respond to the threat created by these new entrants?
    1. 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
    Build the business rules engine
    Goal: Automate the underwriting and adjudication process working with the risk scorecard
    Create a risk scorecard
    Goal: Automatically approve or decline accounts based on information collected in the application and by the rules-based engine


  • What are the mistakes that you’re seeing these companies make?
    The mistakes that are being made when building boarding platforms:
    The number one mistake that we’ve learned to avoid is building the one-trick-pony digital boarding platform. Boarding platforms tend to be the last thing the development team thinks about when developing a new product. A few times we have seen acquires need 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. Either that, or they launch with a manual process, and provide a poor customer experience, especially for digital processing products.
    The second most important mistake we see is building digital applications that are not flexible enough the be managed by the business unit without development resources. No matter how much planning you do before you launch your boarding process, there will always be things you’ll want to change after you have built it. Little things like where in the form you request the SSN, or whether you use one long form or several small forms to collect information. Generally Product Teams that have built hard-coded forms need developers to make those changes, and it hampers their success because Square and PayPal don’t have the same problem. They have so many more developers, software development is their core competency.

  • Transcript

    • 1. Taking the Pain (and Risk) Out of Merchant Onboarding Tuesday, July 8th, 2014
    • 2. Presenters & Host Reed Clayton VP ePayments & Banking Recombo Peter Fitzpatrick Author Karen Webster CEO MPD
    • 3. POLL At your organization, how long does it take to board the average merchant? – Under an hour – Hours – Days – Weeks – I’m not sure
    • 4. 3-5 Days Square Stripe PayPal Traditional Acquirer 5 minutes 5 minutes 5 minutes Merchant Boarding Timeframe
    • 5. POLL At your organization, how much does it cost to board a merchant? – Less than $50 – Between $50 - $200 – More than $200 – I’m not sure
    • 6. Merchant Boarding Cost Per Merchant
    • 7. Software companies have disrupted merchant acquiring
    • 8. Beat the disruptors: Provide the same experience without compromising adjudication standards
    • 9. Use automation to do the same adjudication you do today, in less than 15 minutes
    • 10. How to beat the disruptors Automate your boarding process 1. Build digital applications 2. Build a rules-based engine 3. Build a risk scorecard Take a risk-based approach to adjudication 1. Determine high, medium, and low risk products 2. Determine high, medium, and low risk regions
    • 11. Mistakes identified working with the world’s largest acquirers 1. The one trick pony: Building product- specific boarding processes that can’t be scaled across verticals, product lines and regions 2. Being too dependent on the development team: Digital applications that aren’t flexible enough to be managed by the business unit
    • 12. Build or Buy? • Build in house • Requires process & technology expertise • Commonly run over budget and over time • Can make mistakes noted previously • Specialized technology on the market • Agreement Express: rapid customer onboarding platform • IBM or Oracle: BPM platforms • Many point solutions that can be combined
    • 13. POLL What is your organization’s biggest pain point related to merchant boarding? – Time to board – Cost to board – Scalability of process or team – Inconsistent risk adjudication or compliance standards – None of the above
    • 14. POLL How does your organization prioritize the pursuit of a solution? – High: we’re looking to solve it now – Medium: we’ll be working on it over the next 12 months – Low: we’ll address it sometime in the next 12 – 18 months – Very low: it’s not on the radar
    • 15. Check your email shortly for your free copy: The Risk Executive’s Guide to Automated Underwriting Thank You for Attending
    • 16. Questions? Type your questions into the chat panel. Reed Clayton VP ePayments & Banking Recombo Peter Fitzpatrick Author Karen Webster CEO MPD