E-commerce payments processor 2Checkout is attempting to win over businesses by enabling the potential clients to accept transactions before it fully vets them.
"We live in a digital age of instant delivery," says Tom Dailey, CEO of 2Checkout. "A lot of merchants that we serve are focused on instant delivery."
The company relies on a workflow that divides merchant risk assessment tasks related to anti-money laundering and know your customer rules, enabling them to happen concurrently. The overall process can save weeks in merchant account underwriting time, allowing merchants to start accepting payments within minutes, he says.
"We perform all checks, but are doing it after the transactions instead of before," Dailey says.
2Checkout also uses its own technology and data management systems to vet payments for fraud and compliance risks. It charges 2.9% plus $0.30 for transactions.
The vendor is competing in a crowded market of processors that are targeting e-commerce merchants with services that emphasize speed, ease of use and interoperability. 2Checkout's approach exposes it to more risk, but Dailey says "bad" transactions that happen before the underwriting process is fully complete are caught by his company's fraud management engine, and as such never get routed to the card networks.
"We are still fully compliant with Visa and MasterCard's rules, as well as what banks' internal risk management policies require," he says.
2Checkout's new product launched March 11, though it has been on soft launch for several weeks. Its initial users include First Mate Yacht Care, a company that accepts payments online for boat cleaning and maintenance services in the Great Lakes area and Florida.
2Checkout enables online retailers to accept credit cards, debit cards, PayPal, and recurring payments in 26 currencies and 15 languages. 2Checkout also gives merchants options for hosted checkout, application programming interfaces for direct website integration, integration with more than 100 shopping carts, and free mobile and tablet apps for monitoring and managing sales.;
"We know from talking with merchants that when they are looking for a processor they do it by looking at two or three processors at the same time. The one that has the quickest answer on transactions has the advantage over the other processors," Dailey says.
The process of onboarding merchants has traditionally been arduous, involving a lot of manual work, says Rick Oglesby, a payments analyst and consultant.
But that is changing.
"Online auction websites such as eBay and Amazon empowered individual sellers to sell online and accept electronic payments, and individual sellers and micro merchants did not have a tolerance for such a long, drawn out process, so instant underwriting and boarding became a necessity," he says. "This need has increased over time and has become a competitive differentiator for acquirers who can provide it."
There are risks to merchant service providers that provide instant underwriting and onboarding, such as incurring losses if their risk mitigation isn't up to the task, Oglesby says.
"The more shortcuts one takes in terms of front-end underwriting, the higher the potential for downstream risk and/or customer servicing issues," he says. "The risk can be effectively managed, but it takes a careful and thoughtful approach to get it right."