Merchant onboarding is the initial process through which a business  whether a company or individual entrepreneur  is enabled to start accepting payments via a payment processor or aggregator. This step involves evaluating the merchant’s legitimacy, compliance standing, business model, and risk level before setting up a merchant account. Functionally, it's akin to opening a dedicated financial account for business transactions.

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During onboarding, the payment provider gathers key documentation such as business licenses, ownership details, and product information to verify that the merchant is operating lawfully and aligns with acceptable risk thresholds. For instance, an online retailer may need to provide company registration documents and explain its product catalog to rule out prohibited items or past fraudulent activity.

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A robust onboarding process is crucial to keeping bad actors out of the payments ecosystem. If ineffective, it can expose the provider to onboarding risk where a seemingly legitimate merchant turns out to engage in fraud, accumulate excessive chargebacks, or breach regulatory obligations. To manage this risk, providers typically apply a mix of identity verification, background screening, and risk scoring mechanisms at this early stage.