April 19, 2021 at 09:01AM

The old maxim “slow and steady wins the race” definitely does not apply when it comes to onboarding merchants to their payment processors. If onboarding is about assessing merchant risk — and it certainly is — speed matters. Payment facilitators and other providers strive mightily to reduce underwriting review and streamline merchant approval, which of course benefits their top lines. But with a blur of approvals comes heightened risk.

For the PayFacs and growing ISO and ISV challengers tackling and reviewing merchant applications and making recommendations to the underwriters, the key goal has always been to minimize application time with simpler forms, and with the right checks in place that are appropriate for lower- and higher-risk firms.

David O’Brien, CEO of Agreement Express, which is focused on merchant underwriting and onboarding tools for ISOs and PayFacs, said service providers should strive to drive a sports car and not an old clunker when it comes to merchant approval. And, contrary to what might be conventional wisdom, the need for speed, he said, need not come at a cost to safety.

Technology — chiefly through software and intelligent automation (though there’s still room for the human touch) — can transform risk management into a fluid, fleet process, said O’Brien.

New Expectations  

Changing expectations are bringing the payments ecosystem to demand instant digital customer onboarding, O’Brien said. For the merchants, of course, no one wants to handle money anymore, certainly not in-store, and no one wants to grab pens at the register and sign receipts. Younger generations also expect to use digital form factors and devices to make their payments.

O’Brien said that PayFacs and ISOs are at the center of this digital shift, but need to grapple with the risks posed by smaller firms and even whole verticals (think online gaming and sports) that are making the great leap to online commerce: “What’s interesting about this industry is that your clients are entrepreneurs. They’re the backbone of the country. So when you come in as a partner and say ‘hey, I want to be your partner and help process payments’ … If you’re introducing a bunch of friction points, it’s long, and it takes 10 days to underwrite you, that’s problematic.”

As O’Brien noted, people are expecting a frictionless, fast experience, and they’ll go to the provider that delivers — causing more traditional providers to lose out.

And yet, with speed comes the threat of chaos. To use another auto analogy: O’Brien quoted racing great Mario Andretti, who said words to the effect that “if everything is under control, you are not going fast enough. Except, when we’re talking about underwriting, you want everything under control.” There’s a fear factor that’s firmly entrenched in the underwriting process, said O’Brien, that causes worry about going too fast and not flagging risk, and that represents a key point of friction.

“There’s this feeling that ‘if we change our processes, we’re going to let more bad risk in,’” he said. That fear is misplaced.

He pointed to underwriting automation software such as his own firm’s Merchant ScanXpress, which is an end-to-end solution that handles much of the work, while still alerting underwriters as and when they’re needed.

This channel-specific scorecard automatically reviews all merchant applications, making recommendations to approve or deny based on criteria that warrants further review, tied to credit scores, bankruptcies, or other metrics the underwriters set. Through plug-and-play configuration, it allows firms to adapt and grow as the businesses expand into new markets instantaneously. The end result is that underwriters exponentially increase their capacity for apps-per-underwriter, see higher revenue volumes and benefit from unprecedented speed-to-market.

But even the most high-tech approach needs a strong culture of change management at the underwriter, O’Brien told Webster.  It’s never a case of simply flipping a switch, though he noted that the software must always support configuration changes at the click of a button and have capabilities to adapt and grow with your business.

“Software is about the people as well. And so the change management part can be another big friction point,” he said. Industries automate because they have to (Schlitz beer, for example, didn’t shift overnight to automating, but they almost went out of business when they didn’t meet the challenge head-on).

But done well, he said, there can be a network effect that can give rise to “libraries” of underwriting rules, creating different risk profiles for different verticals in a plug-and-play setting. “This is one of those cases where going faster can make things safer,” he said.

What PayFacs, Mario Andretti And Merchant Onboarding Have In Common …

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