Why Do Payment Providers Request Documents During Onboarding?

If you're a business owner looking to accept payments, congrats! This major milestone can really give your business what it needs to get off the ground. Offering your customers multiple methods of payment can effectively boost sales and consumer confidence. However, when it comes to opening a merchant account, you may come to realize that there's more to it than just a simple click. Opening a merchant account is similar to opening a bank account. There are security verifications that you must go through to protect your business from potential fraud. Generally, your payment provider will request documentation to confirm your identity and business practices. This process can move smoother if you keep in mind that these verifications are for your own benefit. If your payment provider is forthcoming with what documents they may need upfront, then this process can be pain free and easy to complete!

Why is my business information important?

Providing multiple documents to your payment provider can be challenging for many business owners. Many popular payment platforms can have little to no document requests upfront, which can seem like a better solution. But have you considered why such verification steps are taken by some payment providers and not others? The answer can be rather complex, but for most, the answer usually points to KYC (know your customer) verification.

This is a regulatory requirement that all payment processors must follow. Some providers rather perform upfront due-diligence, while others may choose to do this once the merchant’s account is actively running payments. In each circumstance, the same amount of work takes place, but depending on when these verifications are done, it can have a much different outcome.

After Approval Verification

It’s no secret that plenty of merchants would say that they’d rather open their account now and deal with verification later. However, if merchants care about future deposits, they may want to consider a provider who does verification upfront. Getting approved for a merchant account with all the KYC verification out of the way helps merchants know in confidence that deposit interruptions are far less likely to happen.

Payment providers that conduct KYC verifications post approval tend to place a business’s deposits on hold until these verifications are complete. This means the business owner will then be required to supply documents that they may or may not have readily available, which can lead to longer holds. Business owners should inquire with their payment provider prior to signing up for their services. You should ask if the provider conducts any additional verifications after approval that can cause disruptions to your deposits.

What types of documents are commonly requested?

Certain document requests depend on your business type and how you plan on accepting payments. However, most payment processors have a base requirement of the following documents:

Signed Merchant Agreement

This document contains all your business information, such as your legal name, address, phone number and email address. Your signed merchant agreement is where you will find your pricing details and agreement terms which would be helpful in future circumstances. This signed agreement is needed to validate the beneficial owners of the business and any guarantees that may be applicable. Ultimately, a signed merchant agreement is what a provider will use to validate all aspects of who runs the business and how they run the business.

Driver’s License

This document identifies you and your personal information. A payment provider must adhere to regulatory requirements like ‘The US Patriot Act’ which requires that the provider identifies all managing members of the business.

Voided Check

A voided check helps identify the bank account affiliated with your business. Voided checks confirm routing numbers (ABA) and bank account numbers (DDA) for deposits to be made. A payment provider must match the legal entity that corresponds to the bank account on file to the business applying for the merchant account.  

Common Additional Documents

In addition to these basic documents, other documents can be requested from you during the onboarding process. These documents will be requested depending on your business type, ticket sizes or processing volumes. Common additional documents can include the following:

Payment Processing Statements

Processing statements are the key to telling the new payment provider what your previous history looks like. These statements include sales and refund volume along with disputed activity. Your new provider will validate your average volume, average and high ticket sizes with percentages of disputed activity. Your overall performance is what a payment provider is looking for.

• Average Volume: The amount of sales you run per month on average.
• Average Ticket: The average total of each completed transaction.
• Highest Ticket: The highest total of each completed transaction.

Business Bank Statements

Business bank statements demonstrate the business’s financial activity along with their ability to accept larger ticket sizes. Your payment provider will compare your average ending balance with your requested average and high ticket amounts on your merchant application. This is important to the payment provider as higher tickets can yield higher chargeback amounts which they will want to make sure your business can cover.

Year End Financial Documents

These documents can include tax returns, profit and loss statements or audited financial documents. This requirement is typically reserved for larger businesses who plan on operating with higher volume limits. These documents are used to assess your business's longevity. Due to high processing volumes, potential high tickets or future delivery, business's liquidity will be important to the payment provider.

Certification of Analysis (COAs)

Certificates of Analysis are a common request for businesses operating in the CBD space. The certificate demonstrates all the active ingredients in your products which should provide the total THC content percentage. Your payment provider will analyze the results to ensure your products are compliant under 0.3% THC content.

Conclusion

In conclusion, document requests are important to your business as they make sure you don't run into any interruptions. Understanding why your payment processor requests documentation can make a significant difference in your business operations. It's the responsibility of your payment provider to help guide you through these document requests along with helping you understand their purpose. Next time your payment provider asks you for a document, try to understand its purpose in protecting your business!

Get the support you need during the onboarding process with a payment provider that understands your business. Apply with us on our application page or ask a Redde team member through our chat.