Merchant Onboarding Guide: Steps, Requirements & Best Practices

Merchant onboarding is the foundation of a trusted partnership with the businesses that rely on your platform. Whether you’re a fintech startup, an e-commerce marketplace, or a bank, onboarding plays a crucial role beyond just ticking compliance checkboxes. It’s your first line of defence against fraud, regulatory penalties, and reputational damage.

A Mastercard report reveals that traditional acquirers take an average of 3-7 days to onboard a merchant. To stay competitive, banks are turning to automation—streamlining processes by aggregating public data, leveraging existing customer information, and eliminating redundancies. Meanwhile, payment facilitators are cutting onboarding time dramatically, from days to mere minutes by using automation and innovative Point of Interaction solutions. Speed matters, but so does security.

If you’re a payment service provider (PSP), onboarding doesn’t just involve filling out forms and checking boxes. It’s about striking the perfect balance—making the process smooth and intuitive for legitimate merchants while maintaining the necessary rigour to detect and deter fraudulent activity. A lax approach can open the floodgates to chargebacks and revenue losses, while an overly strict process may drive potential merchants away.

In this guide, we’ll explore how you can achieve that balance—onboarding merchants efficiently while safeguarding your business from fraud. Let’s dive in.

Related Reading: Mastercard and Smile ID Collaborate to Accelerate Merchant Onboarding in Africa

What is Merchant Onboarding?

Merchant onboarding is the process of verifying the identity and legitimacy of merchants before granting them access to your platform. It’s a critical step that ensures compliance with regulatory standards, mitigates fraud risks, and fosters trust between you and your business partners.

Think of merchant onboarding as a rigorous background check—just as an employer screens a potential hire to ensure they’re a good fit, businesses must vet merchants to confirm they meet compliance requirements and align with operational standards.

Typically, the onboarding process includes several key steps:

• Verifying the merchant’s identity
• Collecting and reviewing necessary documents
• Conducting background checks
• Assessing financial risk
• Ensuring adherence to industry regulations

A well-executed merchant onboarding process is a balancing act. It needs to be thorough enough to prevent fraudulent activities and meet compliance standards, yet efficient enough to avoid friction that could deter legitimate businesses from joining. If your business can offer a seamless onboarding experience, it stands a better chance of attracting and retaining merchants.

The Key Players and Components in Merchant Onboarding

A successful merchant onboarding process involves multiple stakeholders, each playing a critical role in ensuring compliance, security, and operational efficiency. Understanding these key players and their functions helps businesses streamline onboarding while mitigating risks and enhancing the user experience.

1. Merchants

Merchants are businesses that need to accept payments from customers, whether online, in-store, or via mobile channels. They partner with payment service providers (PSPs) and acquiring banks to facilitate secure and seamless transactions. During onboarding, merchants provide key business details and financial information to meet compliance and regulatory requirements.

2. Payment Service Providers (PSPs)

PSPs are companies that offer businesses the infrastructure to process payments. They handle critical functions such as transaction authorisation, clearing, and settlement, ensuring compliance with industry regulations. PSPs also provide value-added services such as fraud detection, risk assessment, and multi-channel payment solutions to support merchant operations. Examples of PSPs are Paystack and Moniepoint. 

3. Acquiring Banks

Also known as merchant acquirers, these financial institutions partner with PSPs to process transactions and underwrite merchant accounts. They evaluate the risk associated with each merchant, ensuring compliance with anti-money laundering (AML) and Know Your Customer (KYC) regulations to prevent fraud and financial crimes. Examples of Acquiring banks are Standard Bank Group and Access Bank PLC. 

4. Payment Gateways

Payment gateways serve as the bridge between merchants and financial institutions. They securely transmit transaction data from the merchant’s website, point-of-sale (POS) system, or mobile app to the acquiring bank for processing. Gateways encrypt sensitive payment data to prevent unauthorized access and ensure compliance with security standards such as PCI-DSS. Examples of Payment Gateways are Paymentology and Peach Payments. 

5. Issuing Banks

These financial institutions provide customers with payment cards (credit, debit, or prepaid) branded by card networks such as Visa or Mastercard. Issuing banks verify and authorize transactions, ensuring sufficient funds or credit availability before approving purchases. Examples of Issuing Banks are First Bank of Nigeria and Absa Group Limited. 

6. Card Networks

Organisations like Visa, and Mastercard, set the rules and standards for card transactions. They facilitate the settlement process between acquiring and issuing banks while ensuring compliance with security and operational standards.

7. Regulatory Bodies

Regulatory authorities and industry bodies, such as the Payment Card Industry Security Standards Council (PCI SSC), establish and enforce compliance guidelines to protect customers and ensure the integrity of the payment ecosystem. Compliance with these regulations is crucial to avoid financial penalties and reputational damage.

 

What Documents Are Required for Merchant Onboarding?

Collecting and verifying documents is a critical aspect of the merchant onboarding process. These documents help businesses assess the legitimacy of merchants and mitigate potential risks. However, given that the merchant market in Africa is still developing, businesses seeking to onboard merchants may not always require a full suite of documentation. Instead, they can adopt alternative methods to ensure compliance while enabling a smoother onboarding experience.

Standard Merchant Onboarding Documents

Businesses seeking to onboard with payment providers should be prepared to furnish a variety of documents that establish their legitimacy and operational standing. In an ideal scenario, companies should review and collect the following documents to facilitate the onboarding process:

1. Business Registration Documents

Payment providers require official documentation that verifies a business's legal existence. These may include:

• Certificates of incorporation
• Articles of association
• Business registration certificates

2. Tax Identification Numbers (TINs)

To ensure tax compliance, businesses must provide their tax identification details, such as:

• Employer Identification Number (EIN) or equivalent tax ID in their jurisdiction
• VAT registration number (if applicable)

3. Business Licences and Permits

Merchants must provide proof of compliance with industry and regional regulations by submitting:

• Business operating licences
• Industry-specific certifications

4. Ownership and Management Structure

Understanding the ownership structure helps in assessing potential risks and ensuring compliance with anti-money laundering (AML) regulations. Required details include:

• Ownership breakdown with key stakeholders
• Personal identification documents (passports, ID cards, driver's licences)

5. Proof of Address

To verify the merchant's operational legitimacy, businesses must submit documents confirming their physical location, such as:

• Bank statements
• Utility bills
• Tax bills

6. Financial Statements

Financial transparency is crucial for assessing the financial health of a business. The required documents may include:

• Balance sheets
• Income statements
• Cash flow statements

7. Payment Processing History

For businesses with prior transaction experience, payment providers may request records to assess past performance, such as:

• Chargeback rates
• Transaction volumes

8. Online Presence

Businesses are often required to provide information about their digital footprint, which may include:

• Business website URLs
• Social media profiles
• Mobile app details
• Terms and conditions

9. Business Plan and Revenue Projections

Startups or businesses with limited operational history may need to submit:

• A detailed business plan
• Projected revenue and anticipated transaction volumes

10. Compliance Documentation

Merchants must demonstrate their adherence to relevant regulatory standards and security frameworks, such as:

• Payment Card Industry Data Security Standard (PCI DSS)
• General Data Protection Regulation (GDPR)
• Industry-specific compliance policies

These documents are crucial for managing risk and ensuring compliance with regulatory bodies. They help businesses evaluate potential red flags in terms of financial history, ownership, and online presence.

Related Reading: Business Verification in South Africa

Adjusting to Africa’s Merchant Market

Watch how Smile ID performs Informal and Formal Merchant Onboarding below 👇

Despite these standard requirements, many merchants in Africa operate informally and may not have all the necessary documentation readily available. Companies looking to onboard such merchants can take alternative approaches to balance compliance with accessibility. Some of these include:

1. Tiered KYC approaches

Businesses can implement a flexible onboarding framework that allows merchants to start with minimal documentation and scale up verification requirements as they grow or conduct larger transactions.

2. Digital verification solutions

Leveraging biometric identity verification, mobile number verification, and geolocation data to confirm identity and address without traditional paper documentation.

3. Data partnerships

Collaborating with local financial institutions, telcos, and credit bureaus to cross-verify merchant details and assess risk based on alternative data points such as mobile money usage, transaction history, and social media activity.

With the right combination of traditional document requirements and innovative verification methods, businesses can strike a balance between compliance and accessibility in the African market. 

Risk Management Through Documentation

Each document collected during onboarding serves a vital role in risk assessment. Payment providers evaluate potential merchants based on:

• General Risk Signals: Legitimacy of business operations and regulatory compliance.
• Beneficial Ownership Risk Signals: Transparency in business ownership to mitigate financial crimes.
• Financial History Risk Signals: Evaluating stability and financial responsibility.
• Online Presence Risk Signals: Ensuring the credibility of the merchant's digital footprint.

Preparing the required documentation in advance helps businesses avoid onboarding delays and fosters a seamless partnership with payment providers. In the next section, we will explore the various stages involved in the merchant onboarding process and how businesses can optimise their approach for a successful integration.

Related Reading: CBN Orders POS Operators to Register with CAC, Gives Ultimatum

The Full Merchant Onboarding Process

A well-structured onboarding process not only ensures compliance with regulatory requirements but also helps mitigate risks and enhance operational efficiency. In the African market, where merchant onboarding challenges often stem from informal business structures and fragmented regulatory environments, a streamlined and adaptable approach is crucial.

Here’s a step-by-step breakdown of the merchant onboarding process:

1. Pre-onboarding Preparation

Before initiating the onboarding process, businesses should gather all necessary documentation, as outlined in the previous section. Researching and selecting the right PSP or payment gateway that aligns with business needs is also a key step in this phase.

2. Merchant Application and Review

Merchants are required to submit an application that includes key details such as business ownership, operational scope, and anticipated transaction volumes. PSPs or acquiring banks then review this information to assess suitability. In regions where official documentation might be scarce, companies can work with local credit bureaus or industry associations to validate merchant credibility.

3. Compliance and Risk Assessment

This stage involves thorough due diligence to evaluate the merchant’s compliance with industry regulations and risk exposure. Elements assessed include business type, transaction volume, and historical chargeback rates. Verification methods such as Know Your Business (KYB), Know Your Customer (KYC), and Anti-Money Laundering (AML) compliance checks are conducted.

Businesses may rely on regional compliance partners or deploy biometric verification solutions to streamline compliance processes.

4. Business Verification

Once initial compliance checks are completed, the verification of business details takes place. This includes cross-referencing registration numbers with government databases, confirming ownership structures, and verifying operational models.

5. Account Setup and Integration

Following successful verification, the merchant’s account is set up with the PSP or payment gateway. Integration may involve linking the merchant’s website, point-of-sale (POS) systems, or mobile applications to enable seamless payment processing.

6. Training and Support

Merchants receive training and support to help them navigate the payment platform, manage transactions, and comply with ongoing security measures. This ensures they can efficiently handle disputes, refunds, and chargebacks.

7. Agreement Signing

Contracts and agreements are signed digitally or physically to formalise the business relationship and outline service terms, fees, and responsibilities.

8. Ongoing Monitoring and Optimisation

Merchant onboarding is not a one-time event; continuous monitoring helps detect fraudulent activities, track compliance adherence, and adjust processes to evolving regulatory requirements.

Addressing KYC, AML, and Fraud in Merchant Onboarding with Smile ID

Know Your Customer(KYC) in Merchant Onboarding

Know Your Customer (KYC) is a regulatory requirement and risk management process used by financial institutions, PSPs, and other businesses to verify the identity of their customers or clients. The primary goal of KYC is to prevent money laundering, terrorist financing, and other fraudulent activities by ensuring that businesses are dealing with legitimate people and businesses.

KYC plays an important role in the merchant onboarding process, since PSPs and acquiring banks are required to conduct KYC checks on businesses before establishing a relationship. KYC helps assess the risk associated with a business, which then helps PSPs and acquiring banks make informed decisions about whether to approve or decline a business’s merchant application.

During the merchant onboarding process, KYC typically involves the following steps:

• Data Collection and Verification
  Onboarding begins with collecting essential merchant data, including business registration documents, tax identification numbers, and beneficial ownership details. This data is verified against authoritative sources to confirm legitimacy and compliance.
  
   
• Risk Assessment and Compliance Checks
  PSPs and acquiring banks conduct risk assessments to evaluate potential fraud and financial risks. Compliance checks, including AML and KYC screenings, help ensure adherence to regulatory requirements and prevent illicit activities.
  
   
• Technical Integration
  Merchants must integrate payment solutions with their platforms, such as e-commerce websites, POS systems, or mobile apps. PSPs provide APIs and technical support to ensure a smooth onboarding experience.
  
   
• Ongoing Monitoring and Support
  Merchant onboarding doesn’t end with account approval. Continuous monitoring of transaction activity helps detect suspicious patterns, while PSPs offer ongoing support to address technical or compliance-related issues.

Watch how Smile ID’s Business verification Solution smoothens the KYC process for merchants below 👇

AML in Merchant Onboarding: Mitigating Financial Crime

Anti-Money Laundering (AML) measures are essential to preventing illicit financial activities during and after merchant onboarding. Businesses must assess risk factors, conduct due diligence, and continuously monitor merchant activities to identify suspicious transactions.

Smile ID's AML Check Solution offers:

• Sanctions screening, checking merchants against global watchlists to ensure compliance.
• Transaction monitoring, leveraging AI-driven analytics to detect unusual activity.
• Ongoing risk assessment, identifying shifts in merchant behaviour that may indicate a potential financial crime.

See it in action 👇

Related Reading: Sanction and PEP Screening: A Vital Step in KYC & AML Compliance

Fraud Prevention in Merchant Onboarding: Ensuring Secure Transactions

Merchant fraud presents significant risks to both financial institutions and consumers. Fraudsters employ various techniques, but the most common forms of fraud by merchants include:

• Creating accounts onthe marketplace or payment provider platforms to accept credit card payments, often setting up online stores to sell non-existent goods under the guise of legitimate businesses.
• Developing legal merchant accounts with minimal risk of processing illegal transactions via card payments.
• Launching online stores that are registered as merchants on marketplaces, selling fake products at discounted prices to lure unsuspecting customers.
• Swapping personal information with legitimate individuals to mask their true identity and evade AML regulations.
• Abusing chargeback systems 

Smile ID's Biometric Authentication suite enhances fraud prevention through:

• Liveness detection technology ensures that only legitimate users can access onboarding systems.
• Facial recognition matching, comparing submitted selfies with official identification for accuracy.
• Behavioural analytics, identifying suspicious patterns and anomalies during onboarding.

These features allow businesses to proactively detect and prevent fraudulent merchant activity, protecting both their operations and their customers.

A Unified Approach to Merchant Onboarding with Smile ID

Smile ID provides an integrated approach to merchant onboarding that combines KYC, AML, and fraud prevention into a seamless workflow. By utilising our solutions, businesses can:

• Streamline onboarding processes, reducing manual effort and enhancing efficiency.
• Ensure regulatory compliance, staying ahead of evolving KYC and AML regulations.
• Protect against fraud, leveraging advanced biometric and AI-driven fraud detection tools.

In an environment where compliance and security are paramount, Smile ID empowers businesses to onboard merchants with confidence, ensuring trust and integrity across their payment ecosystems.

Use Cases and Advantages of Automated Merchant Onboarding

As businesses navigate higher-risk markets and increasing transaction volumes, the importance of an automated and seamless merchant onboarding system cannot be overstated. Automation streamlines the complex processes of onboarding while ensuring compliance, fraud prevention, and operational efficiency. This section explores key use cases of automation in merchant onboarding and the advantages it offers.

Use Cases of Automation in Merchant Onboarding

Automation is particularly valuable in:

• High-Risk Markets with Large Transaction Volumes

In markets with high transaction activity, automated solutions help payment service providers (PSPs) maintain effective fraud prevention strategies. Automated onboarding systems ensure swift yet secure and compliant onboarding, reducing the likelihood of errors and delays.

• Document Verification Across Languages and Formats

Collecting, verifying, and assessing documentation in multiple languages or formats can be cumbersome for compliance teams. Automation simplifies this process by standardising and streamlining document verification.

• Ongoing Due Diligence

Risk evolves post-onboarding, making continuous monitoring a necessity. Automated systems enable real-time risk management, flagging suspicious activities and ensuring compliance with evolving regulations.

• Fraud Prevention Tools

Advanced automation can incorporate tools such as:

• IP scoring

• Phone verification

• Adverse media checks

• Real-time sanctions and PEP screening

These capabilities create a robust ecosystem for fraud-free merchant onboarding.

Advantages of Automated Merchant Onboarding

An automated and seamless merchant onboarding process delivers significant benefits to businesses and their customers, including:

• Enhanced Security

By adhering to KYB (Know Your Business) and AML (Anti-Money Laundering) compliance, automation strengthens financial crime prevention measures. Verification of UBOs (Ultimate Beneficial Owners), background checks, and real-time risk monitoring fortify the system against bad actors.

• Increased Customer Confidence and Loyalty

A secure onboarding process demonstrates transparency and reliability, fostering trust among customers and partners. Businesses that provide compliant and transparent services are better positioned to retain loyal customers.

• Streamlined Onboarding Experience

Manual onboarding processes are often time-consuming, error-prone, and costly. Automation reduces these inefficiencies by offering a faster, smoother, and more reliable experience for both merchants and PSPs.

• Regulatory Compliance Across Jurisdictions

Financial regulations vary by country and are subject to frequent changes. Automated onboarding systems help businesses stay compliant with local and international requirements, such as PSD2 and AMLD6 in the EU or FinCEN regulations in the US. By integrating these compliance measures into onboarding workflows, businesses can ensure they meet all legal obligations seamlessly.

• Fraud Reduction

Fraudulent activities during onboarding can lead to significant financial losses. Automation enables real-time fraud detection and prevention by leveraging AI-driven tools that monitor transaction patterns, identify anomalies, and flag potential risks before they escalate.

• Operational Fluidity

Automated systems minimise barriers for businesses trying to establish payment systems. From seamless integration to compliance support, these systems reduce friction, allowing merchants to focus on scaling their operations.

 

Smile ID provides a comprehensive suite of tools to support automated merchant onboarding, including:

• Business Verification: Instant validation of business registration details and ownership structures.
• AML Check Solution: Automated sanctions screening and real-time monitoring for compliance.
• Biometric Authentication: Advanced fraud prevention through facial recognition and liveness detection.

By adopting Smile ID’s solutions, your business can streamline its onboarding processes, enhance security, and foster trust while ensuring compliance with regional and global standards. 

Automated onboarding is a strategic enabler for growth and sustainability in today’s digital economy.

In Summary

Merchant onboarding is far more than just a procedural step—it is the gateway to secure and scalable business growth. By incorporating advanced tools and technologies, businesses can overcome challenges associated with fragmented markets, regulatory compliance, and fraud prevention, while also ensuring a seamless experience for merchants.

Throughout this guide, we’ve explored the intricacies of merchant onboarding—from understanding its purpose and key players to addressing essential documentation, KYC, AML, and fraud management. Automation has emerged as the cornerstone of effective merchant onboarding, enabling businesses to streamline operations, mitigate risks, and stay compliant across diverse markets, particularly in Africa’s unique landscape.

Smile ID’s comprehensive suite of solutions—including Business Verification, AML Check, and Biometric Authentication—positions businesses to lead in merchant onboarding. By leveraging these tools, companies can onboard merchants with speed and precision, foster trust, and ultimately drive long-term success in the digital economy.

Want to start onboarding merchants seamlessly in all 54 countries in Africa and beyond? Book a free demo to speak with one of our experts today. 

FAQs

Q: What factors make a merchant ‘high-risk’?

Merchants operating in industries with a high likelihood of chargebacks or fraud, such as online gambling or forex trading, are often deemed ‘high-risk’. These businesses require more rigorous vetting during onboarding, including enhanced due diligence and continuous monitoring, to mitigate potential risks.

Q: What is the purpose of merchant onboarding?

The primary goal of merchant onboarding is to thoroughly evaluate potential new merchants, verify their legitimacy, assess risks associated with offering them payment services, and ensure that all transactions comply with security and regulatory standards. It is a foundational process to build trust and safeguard financial ecosystems.

Q: How does merchant onboarding protect against fraudulent activities?

Merchant onboarding involves processes like pre-screening, KYC (Know Your Customer) procedures, and detailed history checks to verify the legitimacy of merchants and their operations. These steps are critical in identifying and mitigating potential fraudulent activities, protecting both the PSP and its clients.

Q: What happens when irregularities are detected during the merchant onboarding process?

Irregularities such as large discrepancies in reported sales, unusual cross-border activities, or unresolved debts flagged during onboarding will trigger a more thorough evaluation. This may include enhanced due diligence, additional documentation requests, or, in extreme cases, rejection of the application.

Q: How does the length of the merchant onboarding process vary?

The duration of onboarding depends on factors such as the accuracy and completeness of the information provided, the speed of identity verification and KYB (Know Your Business) checks, and the complexity of the merchant’s business model. With advancements in automation, Smile ID’s business verification solution completes checks in as little as two seconds, significantly expediting the process.

Q: Is merchant onboarding mandatory for all merchants?

Yes, merchant onboarding is a regulatory and legal requirement that payment service providers must follow. It ensures the legitimacy of businesses, adherence to compliance standards, and mitigation of fraud risks. 

Q: Is the merchant onboarding process standard for all businesses?

No, the onboarding process varies based on the merchant’s risk profile. For example, merchants in high-risk industries, such as iGaming or cryptocurrencies, may undergo stricter vetting procedures compared to lower-risk businesses. The process is tailored to the unique risks and compliance requirements of each merchant.

Q: What is merchant underwriting?

Merchant underwriting is the process where banks, payment processors, or facilitators assess a merchant’s application to determine if they meet risk requirements for accepting payments. This process ensures that the merchant will comply with rules and securely process transactions, providing peace of mind to all parties involved.

Q: What is information security compliance?

Information security compliance is an operational phase where merchants must demonstrate that their website content, payment systems, and transaction processing adhere to the latest network security requirements. This ensures a secure onboarding process and enables merchants to accept payments in various formats, including online, card, and contactless transactions.