One of the key pillars of success for any marketplace is the number and variety of goods and services it can offer to customers. The more goods and services there are, the higher its visibility on search engines. This, in turn, leads to better sales performance and makes the marketplace a more attractive option to new merchants. For this virtuous circle to keep expanding, however, the merchant onboarding process must be as clear and simple as possible.
Read on to find out why this is so, and what you do to make it happen. But first… what are the most common barriers to seamless onboarding?
Barriers to seamless onboarding PSD2
Not long ago, onboarding merchants was easy enough to do because the original 2007 Payment Service Directive (PSD) included the handy “commercial agent exemption”. Marketplaces were able to carry on as before and operate without having to register as regulated payment providers.
However, with the PSD2, which came into force 10 years later, the exclusion was removed for good. The goal was to provide a sturdier legal framework against criminal behaviour online. The revised directive also put a greater burden on business and led to much confusion due to differences between EU Member States in how it is applied in practice.
Complicated KYC requirements
As you may already know, KYC is a central aspect of compliance for marketplaces, as it helps prevent fraud, money laundering, bribery, and terrorism financing. In most cases, a KYC process will include extensive data collection and comparisons with a variety of government and law enforcement lists. Such lists are used to:
- Identify companies and individuals suspected of criminal activities
- Figure out the applicability of international sanctions based on jurisdiction
- Provide intelligence on entities suspected of bribery or money laundering;
- Identify Politically Exposed Persons (PEPs)
- And more.
What matters to us here is that it is very difficult and expensive for marketplaces to perform the required KYC procedures on their own. These require not only extensive knowledge of current international legislation, but also countless man-hours that you may not always be able to spare.
Benefits of seamless onboarding
A seamless onboarding process can seriously benefit your marketplace by:
- Helping merchants get up and running quickly, leading to faster revenue generation and a positive user experience
- Enabling your marketplace to scale faster and hassle-free
- Attract more customers and merchants, thereby increasing revenue and growth
- Reducing the risk of merchants abandoning the process due to frustration or complexity
Having an efficient, user-friendly KYC and onboarding process may seem like a small detail at first glance. But once you start dealing with merchants on a daily basis, the bottlenecks created by lacklustre onboarding become only too obvious.
Excel at onboarding by outsourcing
Before you can onboard merchants, you must first perform KYC and secure your compliance with PSD2. This can be done in 3 ways. The first is to apply for an exemption. The second is to seek a license from the Central Bank of any EU jurisdiction. And the third is to outsource these procedures to a Payment Service Provider (PSP).
The first option (applying for an exemption) is rarely possible because there are few exemptions – and even those apply to a small sliver of marketplaces out there. To even consider this option, your marketplace should deal with only a limited range of products and services or a limited number of people.
The second option (getting a license) is somewhat more realistic, as nearly all marketplaces can apply for a license. However, the extremely long duration and expense associated with the application process make it viable only for bigger companies with liquid funds to spare.
And finally, the third option (partnering with a PSP) is relatively simple and has, unsurprisingly, become the go-to for most online marketplaces. By outsourcing the onboarding process to a PSP, you get quick integration, simple cross-border transactions, and last, but not least – you don’t have to worry about regulatory compliance.
As we like to say, marketplaces that use our solution can relax about handling payments, because we won’t. At ConnectPay, we ensure that funds intended for trading parties (buyers and sellers) are never held in marketplace accounts, keeping them out of the money flow, but making sure they receive the agreed share from every transaction.
With solution for Marketplaces, we take the compliance issue off your shoulders and provide user onboarding in minutes, so you can focus on growing your business.