The business has to expand its financial relations to boost operations, ranking, and growth in the market. For this purpose, merchant onboarding is a crucial process, but it can be risky simultaneously. The merchants involved in money laundering, corruption, bribery, and terrorism financing are threatful to hire. Therefore, business verification is necessary for onboarding companies to prevent fraud. The identity of the business, including its name, physical address, contact number, registration number, and tax reference numbers, are checked. The corporation must collect documents relevant to the industry—all the business verification protocols in merchant onboarding help to build secure financial relationships.
What is Merchant Onboarding?
Merchant onboarding is the process of making bonds with the investor, company, and other entities. An organization must evaluate the legal status of the merchants while hiring to establish healthy relations. The business information is collected, analyzed, and screened against registered databases. This process helps to filter out the red flags and associated risks with them. On-time risk assessment helps to prevent legal consequences, including penalties and sanctions.
Red Flags to the Business
The most common red flags regarding shell companies are mentioned below
- The first category comprises two businesses with the same address or registered agent.
- Money is recorded as being out of cash inflows and outflows of the entity. Depending on the circumstances, this is either exceptionally high or a strange peak.
- It is challenging to spot the structure of such transactions, which is a place where you can’t see exactly how it happens or who benefits from it.
- Lots of automatic flows between exchange companies are vast.
- Generally, there is black money in different types of work, as there are increasingly secluded jurisdictions and offshore centers.
- As a rule, a business transfers to different parts of its operating entities.
Merchant Onboarding Process
An organization must have a well-defined policy for the process of hiring the merchants. Only the companies’ compliance obligations are legitimate in building financial relations. The step-by-step process is explained below:
- Collect the information about business identity, including the name, physical address, mailing address, and contact number.
- The next step is gathering the documents relevant to the financial status of the compnay, including the balance sheet, cash flow statement and bank statement.
- All the collected documents are checked by cross-referencing official databases. This helps to clarify which companies are legitimate and which are not.
- A corporation must identify the ultimate beneficial owner, the UBO of the business in question. Must ask for UBO’s personal information and documents related to the specific industry.
- After collecting UBO information, the company must analyze it to verify its identity and risk management related to it.
- Perform anti-money laundering AML checks over the merchant to detect its involvement in financial crimes. A legitimate business complies with laws and regulations designed by legal authorities.
Challenges to Merchant Onboarding Solutions
In the merchant onboarding process, there are a few challenges present to the corporation. Let’s explore them:
● Money Laundering
In the current business world, influential people are involved in money laundering by hiding their identities. When the corporation hires a business partner who is involved in money laundering, it may lead to legal consequences. To tackle this financial crime, corporations must apply anti-money laundering AML checks over the business in question.
● Risk Management
Companies with a black money history or other criminal records are exposed to financial threats. The business verification process is essential while onboarding such companies. Real-time screening of these red flags helps to monitor risks while onboarding and after building relations as well.
● Shell Companies
Shell companies are used by criminals to record fake receipts in their accounts and launder their dirty money. It is hard for an investigator to track the money laundering record that breaches regulations by being involved in illegal activities. Shell companies act as the identity screen, helping the money launderers to hide their names and thus reducing the chance to investigate their performer name. While onboarding the shell company, an organization must go through rigid screening of the business information.
Onboard Reliable Merchants
Merchant onboarding involves verifying the business entity while forming financial relations. A complete inspection of the business is required to achieve transparency in the future and identify the potential risks. A corporation must define rigid policies to combat challenges to business onboarding. This helps to prevent businesses from fraud, sanctions, and hefty fines. Only legitimate businesses can provide the information that corporations ask for. The verification of all the collected information is necessary to build secure B2B relationships.
