This content is sponsored by Infinicept.
Todd Ablowitz, founder and CEO, Infinicept
It’s nearly here. The compliance deadline we’ve been talking about for months is next week.
I’m referring to the new beneficial ownership rule from the Financial Crimes Enforcement Network (FinCEN), which takes effect May 11.
This rule requires financial institutions to perform KYC on everyone who owns 25% or more of the business, as well as at least one person who is in control of the business. You can find some background on the rule – and its impact on payment facilitators – here and here.
The bottom line is that, while the rule applies to financial institutions, payment facilitators are typically going to be expected to conduct the appropriate KYC activities on their submerchants. Best practices dictate that PFs conduct the underwriting activities needed to protect the payments system from bad actors and in many cases, contractual relationships with banks will require it.
For PFs, who are laser-focused on merchant experience, new compliance activities can be somewhat daunting. How do you adhere to the new rules without making the onboarding process more unwieldy?
The road to implement a new process like this can seem scary and long, but thanks to the influence of the PF model, the technology supporting the payments system is not what it used to be. The ability to deal differently with different scenarios can be built into the PF platform so you can get the information you need without burdening people who aren’t affected.
Consider these examples: Sole proprietors have only one owner. Non-profits, public corporations and government entities all get special processing. In most of the businesses that are left, you don’t need more than one or two owners to satisfy the requirements.
So having a flexible onboarding application that can ask only the questions you need to ask depending on criteria you’ve built into it – while simultaneously conducting KYC checks on all of the owners collected – is a major improvement from what most payments providers do today.
Payments companies are also telling us that, in addition to the KYC they must do at account opening, they need a flexible way to investigate that merchant applicant as appropriate for the risk. So, depending on the individual situation, they may perform just basic KYC, OFAC and MATCH checks at merchant sign-up. Then they may perform more checks at first authorization or first transaction, and additional checks at certain volume thresholds.
The technology to accomplish all of this is available, enabling PFs to use smart logic to keep the merchant onboarding process as streamlined as possible.
The key is to combine that technology with expertise and best practices. Expertise in compliance without technology can lead to an overly burdensome system that puts everyone through the same process regardless of their individual requirements. But technology without expertise can get you in a lot of trouble.
If your provider doesn’t truly understand the payments business and the innovative ways you can safely achieve compliance while preventing friction, you may find your operation is hobbled or – worse – shut down for noncompliance.
But if your provider does have the deep understanding, you can use that technology to your advantage and actually improve the merchant experience.
Todd Ablowitz is founder and CEO of Infinicept, as well as CEO of consulting firm Double Diamond Group. He is also publisher of PaymentFacilitator.com.
Infinicept is a technology company focused on providing an innovative, turnkey payments platform for payment facilitators. The system, colloquially called Payment Facilitator in a Box™, is a fully integrated suite of components that make it possible for Payment Facilitators to get up and running in weeks, not years.
The platform includes frictionless merchant acceptance, underwriting, boarding and back office operations for the payment facilitator marketplace that is expected to top $4.4 billion by 2021. The platform is a series of automated modules that can be adapted to any vertical market. Its unique, agnostic framework allows payment facilitators to easily integrate their platform with any sponsor, processor, gateway and CRM without starting from scratch.