AI Overview
The payments industry,particularly for Independent Sales Organizations (ISOs),is at a critical juncture and needs to embrace the speed and efficiency of FinTechto remain competitive,according to Allen Kopelman.Traditional practices like requiring voided checks,bank letters,and managing lengthy,multi-day application processes are identified as bottlenecks that severely slow down deal flow and productivity.The author suggests three immediate solutions:implementing application uploadsvia simple links,utilizing smart applicationsfor real-time verification and auto-populating data to eliminate manual errors,and replacing twenty-page contracts with simple sign-up links,mirroring the successful onboarding models of companies like Stripe and Square.
Beyond streamlined applications,the article emphasizes that ISOs must modernize their entire service platform to attract and retain customers.This includes leveraging crowd-sourced intelligenceto flag problematic prospects early,preventing wasted time,and revitalizing customer portalsto offer more than just basic statements.Modern portals should be active financial hubs where merchants can manage chargebacks,view detailed transaction data,and access embedded financeproducts like credit cards,lines of credit,and equipment financing,not just traditional cash advances.By focusing on selling a compelling product suite(including features like Buy Now,Pay Later and digital assets) rather than just processing rates,
As seen in Green Sheet: Is it time to go fintech?
By Allen Kopelman – Nationwide Payment Systems Inc.
Is a voided check truly necessary? Not every business owner carries a checkbook anymore; in fact, some do not even utilize checks. Likewise, is a bank letter essential? Why must we request a signed affidavit when modern tools such as Plaid are readily available to verify bank accounts digitally? Furthermore, why should updating a customer profile when they get a new bank account take two to three days? In short, why must boarding a new merchant be such a painful process, often resulting in a pended application?
As we frequently hear on “Shark Tank,” “There has to be a better way.” Consequently, here are three straightforward approaches that can significantly speed up our deal flow:
Application Uploads: We need to fully automate the merchant onboarding process. This can be accomplished by enabling Merchant Level Salespeople (MLSs) to simply click on a link to submit merchant applications. Similar to a payment link, this method would dramatically reduce data entry errors and accelerate approval times by eliminating the need for manual data input.
Smart Applications: We can save substantial time by implementing smart onboarding systems that include real-time verification capabilities. For example, these systems can cross-reference federal tax IDs to check if the merchant already has applications on file, auto-populate addresses, correctly format phone numbers, and instantly verify a customer’s account and routing numbers, therefore removing the requirement for a bank letter.
Sign-up Links: ISOs must study the models of Square, Stripe, and other FinTech companies and replace the cumbersome, twenty-page merchant applications with simple, direct sign-up links. Imagine the increase in productivity and happiness this would generate for your MLSs, not to mention the improved experience for your merchants!
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Crowd-Sourced Intelligence
Has your GPS ever provided an early warning about potential police activity or an unexpected slowdown on the road ahead? Similarly, imagine having an application that could alert ISOs and MLSs to the presence of serial offender prospects. Undoubtedly, this would solve a host of problems for everyone involved in the application chain.
Have you ever submitted an application and then been asked to provide more information, only for the application to be rejected two or three days later? Perhaps the merchant had an excessive number of chargebacks, applied too many times for services, or another agent had already submitted the deal. Whatever the underlying reason, this scenario constitutes a significant waste of time for both you and the business owner.
We have accumulated a wealth of data from recent industry consolidations that we can and should leverage. Therefore, implementing crowd-sourced intelligence on prospects would greatly benefit the entire merchant application process.
Customer Portals
Creating a dedicated customer portal for merchants was a major initiative roughly fifteen or more years ago, but it never gained widespread traction for several reasons. Initially, early prototype portals were not particularly impressive or feature-rich. Moreover, retailers who were simply using countertop terminals often did not see a need to log in regularly.
Today, however, these portals have significantly more to offer. Merchants can conveniently access authorizations, batches, and statements—eliminating the need for slow snail mail. Crucially, they can now even manage their chargebacks directly within the portals. Chargeback documents no longer need to be mailed or faxed; responses can be uploaded straight into the system.
Embedded finance represents another area where FinTechs are well ahead of many ISOs. We need to start offering more diverse financing options within the customer portal. While some companies have already implemented loans in the portal, we need to broaden our offerings to include credit cards, lines of credit, and equipment financing, not just basic cash advances.
In conclusion, loans should be offered within the portal; while some companies currently do this, more need to adopt this practice. Give merchants a compelling reason to log in and keep coming back to your platform. Does your ISO possess its own gateway and virtual terminal? If so, why not offer a free Woo Commerce plug-in and API for your larger merchants? Furthermore, payroll is another profitable product that is successfully being used by FinTech companies such as Toast, Square, and QuickBooks.
It’s Go Time!
ISOs need to start acting immediately. If you have not yet developed an automated boarding tool, it is imperative that you partner with someone and acquire one now, because Stripe, Square, and other FinTechs are currently winning market share. Although the traditional practice of going door-to-door for business is not entirely over, the method for acquiring new business is undeniably shifting, and it is indeed time to go FinTech.
FinTechs may, at times, do a poor job of underwriting, but they excel at boarding business at a far greater speed. We often spend our time trying to convince their existing customers to switch to us, yet they are systematically outmaneuvering us in the crucial area of onboarding new accounts.
Another essential point to remember, which I have discussed previously, is that FinTechs do not primarily sell processing; they sell a comprehensive product suite. Consequently, their customers rarely complain about high processing rates because what they truly value and want is the accompanying technology. ISOs that own their own technology stack can attract and retain more customers by capitalizing on emerging trends like these:
Buy Now, Pay Later (BNPL): Consumers can now opt into BNPL during both in-store and e-commerce checkouts. It is time for ISOs to fully participate in these evolving BNPL revenue streams.
Digital Assets: With all the current interest and discussion surrounding stablecoin and various digital assets, it remains to be seen whether cryptocurrency will gain significant traction within the merchant community, or if ISOs will, once again, be the last to incorporate these nascent currencies into their platforms.
Hey ISO owners, let us collectively put an end to these outdated practices. How many products and services on the “go-FinTech checklist” (in the sidebar accompanying this article) does your company currently offer? It is time to invest, time to change, and time to Go FinTech!
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FAQ: Frequently Asked Questions
What is Merchant Onboarding?
Merchant onboarding is the crucial process by which a Payment Service Provider (PSP), acquiring bank, or ISO registers, verifies, and sets up a new business (merchant) to be able to accept and process electronic payments. It involves application, documentation, compliance checks, and integration.
What is an ISO in the context of payment processing?
An ISO (Independent Sales Organization) acts as a registered intermediary between an acquiring bank or PSP and a merchant. They typically find, sign up, and service merchants, essentially reselling the payment processing services of the acquiring bank or PSP, but they do not directly handle the financial flow.
Why is the onboarding process so important?
Merchant onboarding is a mandatory, legally required process that serves to vet and verify the legitimacy of a business. Its primary purpose is to:
Protect the payments ecosystem from fraud, money laundering, and bad actors.
Assess the financial and compliance risk associated with the merchant.
Ensure the merchant complies with all relevant regulations (like KYC/KYB and AML).
What is the difference between KYC and KYB?
KYC (Know Your Customer/Client): Refers to verifying the identity of the individual owners, directors, and key stakeholders associated with the business.
KYB (Know Your Business): Refers to verifying the identity and legal existence of the business entity itself (e.g., checking incorporation documents, business licenses, and tax IDs). Both are integral to a strong merchant onboarding process.
How long does the merchant onboarding process usually take?
The timeline can vary significantly, ranging from a few hours to a few weeks. Factors that influence the duration include:
The business’s risk profile (high-risk businesses require enhanced due diligence).
The complexity and completeness of the documentation provided by the merchant.
The level of automation used by the ISO or PSP. Fintech solutions aim to automate this process to achieve much faster, sometimes near-instant, approvals for low-risk merchants.
What key documents are typically required during onboarding?
The required documents generally fall into a few categories:
Business Registration: Articles of incorporation, business licenses, and tax identification numbers (TIN/EIN).
Ownership/Identity: Personal identification (passport, driver’s license) for all principal owners and proof of address.
Financial/Operational: Bank account information, recent financial statements, and information on the business’s website/online presence.
How does a Fintech ISO/PSP speed up the onboarding process?
Fintech leverages technology to create a faster, more streamlined experience through:
Automation: Using APIs and specialized software to instantly pull data from government registries, run credit checks, and screen against AML/sanctions lists.
Digital Experience: Providing an online portal with guided application forms, secure document upload, and clear progress tracking.
Risk-Based Prioritization: Employing risk scoring to instantly auto-approve low-risk merchants while flagging higher-risk cases for manual, enhanced review.
What types of risk are assessed during the underwriting process?
Merchant underwriting is the process of evaluating the risk associated with a merchant. Key risk areas assessed include:
Financial Risk: Assessing the merchant’s stability to ensure they can cover potential chargebacks and liabilities.
Fraud Risk: Checking for signs of intent to engage in fraudulent activity.
Compliance/AML Risk: Screening owners and the business against sanctions and watchlists to prevent money laundering.
Reputational Risk: Ensuring the business vertical is reputable and not associated with excessive complaints or illegal activity.
What happens after a merchant is approved and processing payments?
The risk management process does not end with approval. Once live, the merchant is subject to ongoing monitoring which involves:
Real-time transaction monitoring to detect suspicious activity, unusual transaction patterns, or spikes in chargebacks.
Periodic reviews to ensure the business’s information and risk profile have not changed over time.
What are the main benefits for a merchant partnering with a modern Fintech ISO/PSP?
Merchants benefit from:
Faster Go-Live: Quicker onboarding thanks to digital and automated processes.
Enhanced Security: Access to advanced fraud prevention tools and compliance with standards like PCI DSS.
Flexible Payments: The ability to accept a wider range of payment methods and currencies (for global reach).
Better Experience: Streamlined, modern payment technology with less friction.
