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The Challenges of Merchant Onboarding for Marketplaces

Vasco Alexandre
Co-founder & CEO

Posted :

March 8, 2023

Featured in :

eCommerce

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Why Merchant Onboarding Is Still A Struggle

If we had to single out the most impactful tech trend of the last 20 years, the rise of the marketplace model would be a strong contender to mobile or cloud. By connecting users with a vast amount of merchants, marketplaces are able to offer unrivalled products selections to customers. From Amazon to Alibaba, eCommerce marketplaces continue to grow at an exponential rate. Gross merchandise sales of the top 100 marketplaces rose 18% last year, to stand at $3.23 trillion.

Yet, eCommerce marketplaces still struggle in one essential area: merchant onboarding. From speed to risk management and regulatory aspects, there are plenty of challenges that marketplaces continue to face in 2023 with regards to onboarding their sellers. Let’s take a closer look at these issues, and what solutions are on offer.

What are the Challenges?

Speed

Speed plays a crucial role in the quality of your onboarding. It typically takes 3-5 days to onboard merchants for traditional marketplaces. For marketplaces & PSPs that have automated their onboarding process, such as Paypal, it takes as little as 5 minutes. With such a drastic difference in time, the decision as to which marketplace to join is a no-brainer: merchants will not wait around while you perform KYB checks, spend days activating references or cataloguing products via manual paper-based onboarding.

For marketplaces that have automated their process, onboarding can takes as little as 5 minutes. If you’re unable to onboard your merchants in minutes, your competitors will. Consistent growth demands that you increase your volume of merchants, and this will imply to speed up your merchant onboarding.  Time is of the essence when it comes to merchant onboarding for eCommerce marketplaces, and for those that fail to reduce their process - from application to approval so that merchants can start making revenue- theirs might soon be up.

Risk Management

With that said, marketplaces must be careful not to to trade data integrity and accuracy for speed. Indeed, risk management is another area where traditional marketplaces struggle: failure to comply with AML, KYC, along with other regulations, can result in hefty fines, whilst improperly determining a merchant’s creditworthiness increases the risk of losses. The problem with marketplaces that are too heavily relying on manual checks is that they are liable to human error when assessing a merchant’s legitimacy.

Marketplaces must be careful not to to trade data integrity and accuracy for speed. For example, in the instance of a manual data entry such as KYC, even mistake as simple as a typos can lead to a merchant application being rejected. Or, if numbers, such as a merchant’s business tax identification, are wrongly inputted, the application may be accepted yet with faulty rates, which might hurt the ISO on transaction fees. These lapses in risk management are all the more consequential for categories that are attractive to money launderers and fraudsters.

Ever-changing regulations

What’s more, merchant onboarding regulations are not fixed: the regulations can change in a heartbeat, and traditional marketplaces lack the resources to keep up. For example, in January 2018, the PSD2 introduced many regulatory changes for EU eCommerce players. While many platforms used to operate as commercial agents, they were forced to acquire a “Payment Services Agent” licence to manage the financial flows of their platform. Keeping up-to-date with these changing regulations takes time and expertise that many traditional marketplaces do not possess.

Merchant onboarding regulations also vary from country to country. For example, Germany mandates in great detail what a customer must do to pass identification and verification. Additional requirements imposed by national law include enhanced liveliness detection in Spain, a secondary ID document in France, and seven additional risk checks in Italy.

What are the solutions?

Automation to speed up onboarding & reduce risk

Automated merchant onboarding can help accelerate onboarding while eliminating traditional, manual, paper-based processes that, as we have seen, are inefficient, time-consuming and prone to failure due to complex systems and data entry errors. In our increasingly digitalised world accelerated by the health crisis, merchants expect to be up and ready to do business on marketplaces in minutes, not hours, and automating the process- from validating data to notifying them about incorrect or expired documents- ensures that this is possible.

By automating their onboarding processes, eCommerce marketplace are also able to dramatically reduce risk of money laundering or fraud. Manual data entry from KYC to AML is inevitably prone to human error. By automating data, marketplaces are able to ensure there are no errors in the evaluation of merchants and are able to protect themselves from financial and reputational risk.

Personalization to meet regulations

No two merchants are the same. Requirements with regards to industry, country and are prone to change with time. With automation, marketplaces are able to automatically gather data, standardize it, apply the appropriate checks and determine compliance during onboarding.

How Dotfile can help

Ultimately, keeping up-to-date with regulations, managing risk against fraud and doing all this in a matter of minutes to outperform your competitors is a superhuman task: that’s why it’s best left to tools that can do it for you.

Dotfile allows you to build the right onboarding flow for your marketplace. You can chose from our catalog of third-party verification the providers that are the most relevant to you. Our easy workflow builder enables you to create a step-by-step process that will only take minutes for your merchants to complete.

We consolidate on a single platform all the components you need: identity verification, company data enrichment, AML/PEP screenings, contract signature and more.

If you are interested to learn more, feel free to reach out!

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