2Checkout Ditches ‘Archaic, Slow’ System for a Speedier Merchant-Approval Process

Patience is not an online virtue for consumers, and, it appears, for merchants waiting for online approval of their payment-processing account applications.

At least that’s the assessment of Tom Dailey, chief executive of 2Checkout, a Columbus, Ohio-based e-commerce payment-services company, which announced this week it has revised its underwriting process to render a quicker decision for merchants.

“We realize the payment industry is rather archaic and rather slow in how it processes merchant applications,” Dailey tells Digital Transactions News. “We realized if you take all of the steps necessary to set up a merchant and do them sequentially, you end up with a very long process. We deconstructed the process.”

A merchant’s online payment application could be approved in seconds, Dailey says, if it meets certain criteria. The process is accelerated because some of the application review happens after the initial approval, he says. Traditionally, many payment providers vet all elements of a merchant application, including any anti-money-laundering requirements, before approving a merchant account, a process that may take days.

The advent of companies like Square Inc., which can approve many merchants within minutes, brought about new pressure to accommodate impatient merchants. Square and other processors use a technique called merchant aggregation, in which it books large numbers of small merchants and lets them sell on its own merchant account until they reach a certain size. 2Checkout is similar, a spokesman says. It sets up larger merchants with their own account and merchant identification, while it may aggregate smaller ones.

2Checkout uses an automated merchant-validation process that examines the application to verify if the merchant’s products or services are on a card brand’s list of prohibited items, business tenure, which industry the merchant is in, and details of the merchant’s transaction volume, Dailey says.

If the application passes the automated step, the merchant gets an online OK. The merchant can begin accepting online payments, but 2Checkout continues to review the application by completing a series of other validations that don’t require immediate review, such as the anti-money-laundering steps and reviewing the applicant’s Web site and social-media presence.

It’s because there is good access to a number of different data sources, such as credit bureaus, that 2Checkout is able to offer this to U.S. merchants, Dailey says.

Companies like 2Checkout that offer an expedited merchant-approval process typically have a couple of tactics they can adopt, says Adil Moussa, principal at Omaha, Neb.-based Adil Consulting.

One is to make it more convenient to sign merchants, Moussa says. “In order to compete with other players such as Square, some companies have to be able to sell the account online and reduce the interaction to data entry instead of data entry plus a phone-call follow up,” Moussa says.

The other tactic is to approve all merchants ahead of time and submit them to the risk-analysis process after their transaction volume has surpassed a threshold, such as $2,000, Moussa says. “This allows independent sales organizations to not bottle-neck the approval process,” he says. “Some merchants are not in a hurry. Others don’t become active immediately, so some ISOs deal with the risk analysis after they start processing.”