Why Automated Merchant Underwriting & Onboarding is a Must for ISOs and PayFacs

Many merchants turn to independent sales organizations (ISOs) and payment facilitators (PayFacs) to handle their payment needs. These intermediaries liaise between the merchant and the banks, processing payments and assuming the risk of the transaction. For merchants, the appeal is clear: they gain access to the major acquiring banks, which might have rejected them individually due to their smaller size and higher risk. This access is important to the end customer who wants to use the payment method of their choosing.

In order for ISOs and PayFacs to maintain their appeal, however, they have to make the onboarding and underwriting process as easy as possible. They charge a small fee for each transaction they process, so the merchant must be able to see the value for the cost. This ease of onboarding for merchants must be balanced with a thorough onboarding purchase to mitigate the risk of fraud.  

This is where automation can make a real impact, both for the merchant experience and the provider’s risk level. It may sound like a dangerous solution, considering there is so much at stake; many people feel safer having a human manually make the decisions. But in fact, automation leads to a quicker and more consistent process while supporting human employees.

Automation Does Not Displace the Human Workforce 

A common misconception is that introducing automation into the underwriting and approval process necessarily replaces all humans involved. This is not the case. Due to the sensitivity of these approvals, automation is not trusted to make every decision entirely on its own. Instead, automation is built into the approval process to help inform human workers and provide them with more reliable data to make an informed decision.

Specifically, automation can be used to request, extract, and organize information from prospective merchants. Application forms ask merchants to upload important documentation that can be laborious to assess. Automation software processes it into a more digestible format for review. Automation can also be used to detect trends or anomalies in applications, flagging those that are likely to be risky so that employees know where to focus. This ensures that staff resources are used more effectively, allowing more applications to be processed.

Automation Speeds Up the Process

The PayFac model relies on having a large merchant customer base, with each merchant having its own sub-account within the PayFac’s umbrella account. This means that the application process must be quick, accessible, and efficient to keep merchant volumes high. It must also be secure and comprehensive to reduce the burden of risk on the PayFac. Achieving this duality can be challenging, but automation makes it much more attainable.

Automation speeds up the approval process by using machine learning and artificial intelligence. These technologies identify trends and patterns, making it easier to spot problematic applications and approve those that meet standard parameters. The software can assess each application far more quickly than a human, which means merchants can receive their approvals almost instantly if their application is solid. Applications that are unconventional or risky will be sent to a human for assessment, protecting the PayFac without delaying the process for every single applicant.

Due to the higher level of insight offered by the software, the applications themselves can be streamlined to require only the most relevant information. A shorter form will reduce the chance of application abandonment: a real issue for PayFacs and ISOs. Salecycle’s Remarketing Report found that finance abandonment rates were 75.7% with the second most common reason being that the application was too long (34%).

Automation Curbs Human Error

The last key benefit of automation is that it makes applications more secure. While manual review is necessary for more complex cases, human employees are at risk of error, such as inputting a figure wrong or checking the wrong box. These relatively minor mistakes may seem innocuous but can result in costly decisions, such as approving a high-risk merchant or rejecting a lucrative application.

Automation removes the possibility of human error, ensuring that all data is input correctly and therefore that all analysis is accurate and easy to understand. A risk assessment requires exact numbers and advanced analysis: much more achievable when supported by automated software. Human employees can then leverage this more valuable evidence to draw more accurate conclusions. 

Automation: A Must-Have

The potential market for PayFacs and ISOs is substantial, but these tech companies need to offer the most convenient, trustworthy service possible. Merchant subaccounts all share the same PayFac umbrella account, so a rigorous risk assessment benefits them all. Despite this, nobody wants lengthy forms to fill out and nobody wants to wait days for a decision. With automation, PayFacs and ISOs don’t need to compromise – and neither do the applicants.

Looking for more information? Download our free Fintech Customer Acquisition Palybook.

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