The success of any business today relies heavily on its ability to adapt to digital transformation. With the rise of e-commerce and fintech, customers expect a seamless and streamlined experience for onboarding. An efficient merchant onboarding process is critical for financial institutions looking to lend to small and medium-sized businesses.
The Importance of Merchant Onboarding
Companies must strike a balance between preventing fraud and reducing friction for merchant customers. This can be a challenging balancing act to keep up, so proactive companies invest heavily in designing a smooth and effective process.
Here are some top reasons companies need to focus on creating a solid merchant onboarding process:
- Merchant Experience: An efficient process reduces frustration and enhances the customer experience. Word spreads fast online and 90% of consumers rely on referrals.
- Desired Speed: We live in a world of instant gratification, even in business. Note that 40% of internet users will close a web page that takes more than three seconds to load.
- Preserved Trust: The onboarding process typically requires disclosing sensitive data. SME owners will trust a more well-designed process with security features built in.
The Merchant Onboarding Process
Each lender or payment processor uses a different onboarding process. Nevertheless, there are some similarities. Review the following.
- Collect merchant information. This step includes collecting basic information such as legal name, business address, business registration, and documentation.
- Verify merchant information. Financial institutions then move on to the verification process, including checking creditworthiness, legal documentation, and business history.
- Complete underwriting. The underwriting process involves the creation of the terms and conditions that the merchant must agree to before being approved by the bank.
- Create and activate the account. Merchants then receive account information that provides access to the bank's financing or payment processing system.
- Monitor compliance. Merchants must adhere to the agreed-upon terms and conditions to maintain their accounts with the institution, such as sales volume and industry restrictions.
Best Practices for Merchant Onboarding
At face value, merchant and payments onboarding look like an overly complicated process, and in some ways, it is. Your team can change this by initiating best practices that maintain an efficient process with few-to-no hiccups.
Keep it simple.
Financial institutions have intense competition from fintech companies that have streamlined their onboarding processes. Even PayPal now offers merchant working capital loans. Business owners have flocked to these alternatives and will need equally simple processes from other financial institutions to be tempted away.
Automate wherever possible.
Is someone still reviewing every application you receive, or do you only manually review flagged applications? Ideally, your team practices the latter. Automation tools streamline the process and reduce the need for manual intervention. Automated workflows speed up the onboarding process and reduce errors.
Use e-signatures.
The use of electronic signatures expedites the onboarding process. It can also add to your institution's green initiatives to attract younger entrepreneurs if they are part of your target market. An overwhelming majority of Gen Zs and Millennials would pay even more for sustainable products and services.
Accessible communication.
Few things are more frustrating than signing up for a new account and having no one to assist with questions. Encourage merchants to give contact information early, so your team can reach out when applications remain incomplete.
Use strict security methods.
Merchant onboarding requires collecting sensitive information. Make sure your institution is following best security practices to protect customer data. The process should also be GDPR compliant and use secure communications whenever possible.
How To Avoid Common Pitfalls in Merchant Onboarding
The best way to avoid common mistakes is to identify them early on and develop a contingency plan. These are the pitfalls banks are most likely to encounter:
- Lengthy Underwriting Process: Financial institutions should strive to have a fast but comprehensive underwriting process that gives merchants confidence in their institutions.
- Lack of Transparency: If you keep business owners guessing, they may take their business to a competitor that publicly publishes the information they need to make decisions.
- Insufficient Back-Office Resources: Ensure your bank has back-office support teams with sufficient resources to keep up with the volume of merchant onboarding requests.
- Inadequate Security Systems: Your data security measures also affect the level of security SME owners can provide to their customers. They will consider this when choosing a bank. Hacker attacks happen every 39 seconds and SMEs want to stay off the radar.
How Ezbob Can Help You Streamline Your Onboarding Process
When we first started our company, we offered direct loans to SMEs. After years of successfully providing this service, we saw the potential for growth in the industry by connecting larger lenders to the customer base we once served.
Now, we provide embedded finance solutions that digitize the merchant financing process. There's no need to build an onboarding process from scratch. We provide a ready-to-use automated solution, which can be implemented in just a couple of months.
Would you like to see how our platform can simplify your digital merchant onboarding process? Book a demo to get started.
Get in touch today to find out more about how our lending solutions can help you digitise processes and transform your lending offering.
