SPEAKER_02 0:00

Welcome to SenseChat, the podcast where payments meet personality. From tech trends to legal twists, compliance quirks to marketplace moves. Tiddies here to keep ISVs, PayPac, and marketplaces ahead of the curve. Get ready for insights, a few laughs, and the occasional compliance scare. Let's dive in and make payments make sense.

SPEAKER_03 0:23

Not that long ago, merchant onboarding started with a few pretty clean boxes. Done. Now a merchant can take a deposit through a payment link, finish the transaction in person, bill the balance later, store a token for future work, accept a bank payment, and issue a refund through a completely different channel. The old boxes are still on the application. The business just stopped fitting inside them. So what happens when a legitimate merchant looks confusing before anyone has even asked the right questions? Today we're talking about how to unpack the complicated before underwriting turns confusion into a no. Jason, I feel like the phrase card present versus card not present used to do a lot more work than it does today. It gave you a decent picture of how a merchant sold, how the customer paid, and what kind of risk might show up. Now it can describe one moment in a transaction, but not necessarily the business around it.

SPEAKER_01 1:21

Yeah, Kitty, exactly. Those labels still matter, but they're not the whole architecture anymore. A merchant might begin a sale on the phone, send a text message payment link, complete the transaction in person, tokenize a card for future use, and reconcile everything through some obscure invoicing workflow. From the customer's perspective, that can feel like one clean experience. From an underwriting perspective, it raises a stack of questions. Who's actually the seller? When was the service delivered? Who can initiate a future charge or chargeback? How long is the merchant exposed before fulfillment? Who handles refunds? And where does the money actually go after the authorization is complete?

SPEAKER_03 2:04

Which is why we take payments has become one of those technically correct answers that explains almost nothing. A merchant can be completely legitimate and still sound risky because the person reviewing the application can't see the operating model behind it.

SPEAKER_01 2:17

Yeah, Kitty, those 20-page underwriting forms are designed to compress a business into a manageable set of facts. That works when businesses are easy to categorize. When the merchant has multiple channels, unusual fulfillment, regulated activity, repayment and subscription workflows, delayed delivery, or several parties touching the money, the compression starts dropping important context. The missing context doesn't look neutral, it looks like risk.

SPEAKER_03 2:46

And fraud is making that harder too. Last week you wrote the Sunshine article AI fraud tools need governance before they need a sales deck. A big part of that article was synthetic identity fraud. AI is helping good teams review information faster while also helping bad actors create much more convincing information. How does that connect to merchant onboarding?

SPEAKER_01 3:05

Well, Kitty, it connects directly. Onboarding used to rely heavily on rather documents looked right, rather identity answers matched, and rather the application was internally consistent. Those controls still matter, but the cost of creating a polished fake has dropped. Fraudulent packages can now include credible websites, altered PDFs, convincing bank checks or bank letters, and enough stolen identity data to get through the basic fraud checks. At the same time, defensive tools can inspect file structure, compare data across documents, and flag inconsistencies that might not be visible to the naked eye. The problem is that the tool is not accountable for the decision. Somebody still has to understand the merchant, understand the evidence, and decide whether or not the story makes sense.

SPEAKER_03 3:54

So today's episode isn't really about making onboarding faster. It's about making the merchant understandable. Our guest spends a lot of time doing exactly that. Alan Kopelman runs Nationwide Payment Systems, a payments company that has worked with merchants across straightforward, regulated, high-risk, and just plain complicated environments for more than two decades. Ellen, welcome to Sunshot.

SPEAKER_00 4:15

Thank you for having me on today. Nationwide Payment Systems started in 2001. Prior to that, I was in the hospitality industry, owned a restaurant, worked for a big hotel company. So I had familiarity with merchant services and suffered sometimes at my restaurant with dealing with things like chargebacks, terminals broken, not understanding the statement. And by accident, I ended up in this in the business, worked for somebody for about a year, learned everything you should not do, because I believe that business business owners needed to be need to be treated fairly to and and and also to educate people on how this business actually works. What are the nuts and bolts behind that? People are getting very creative, like what Jason was talking about, where you have all these businesses with all different parts that now people sometimes refer to as omnichannel, where somebody's got business everywhere, a website, an ERP, invoicing, payment links, outside salespeople, you know, all different ways business is coming into an organization. And then beyond that, you know, we have people trying to create all these like marketplaces, right? And ISOs have to deal with that too and unbundle, like, okay, well, who are the merchants on these marketplaces? What are they selling? Are they selling legal products? Are they selling or are they not selling legal products? And and that's why it's important, not just after you underwrite the merchant, you also have to underwrite the transaction.

SPEAKER_01 5:53

Alan, I want to touch on something you said there that I think is key to this conversation. Obviously, today you're a payments professional. You said you accidentally got into payments. I want to know why you're not like the rest of us, and as a young child didn't dream about a future in payments, right? I I feel like that's where the rest of us in this industry fall, right? Lifelong goal be in payments.

SPEAKER_00 6:16

No, I wanted to be I wanted to be a chef, and that's what I did. I went to culinary school, I did an apprenticeship, and then I went, I did that in Atlanta, then I moved to Dallas. I mean, I got plenty of uh write-ups in newspapers from you know, named one of the 10 best chefs in Texas, moved back to Florida. My restaurant was named one of the 10 best restaurants in Palm Beach County, it's like 30 years ago. I'll challenge you in barbecue any day. And uh made plenty of barbecue when I was in Texas.

SPEAKER_03 6:49

Well, Alan, let's start with the biggest change. When a merchant comes to you today, what makes the onboarding conversation different from the conversation you might have had 10 or 15 years ago?

SPEAKER_00 6:58

Today, you have to ask them what's what does their flow of funds look like? What does their business look like? I can tell you, like people come up with businesses I've never heard of before. Like we had someone come to us recently in the cost recovery business. I'm like, what the heck is that? And so we had to get, you know, the guy had to write out, and we're like, you need to have a description, better description of what it is on your website. We need you to write up your background of why you're able to do this business, who are your customers gonna be, so that we can go, you know, we sent it to a few banks. They were like, that's cool, you know, they looked at it like it's a collection company, they didn't want to do it. Then we sent it to somebody else and we got them to actually listen and read because they don't a lot of times underwriters they don't read all the documents he sent over to them. So it's important to sit down, you know, be have access to the underwriters and being in the business 25 years, that helps that I know owners of ISO, I know who their underwriters are, and I can get them on the phone and I go, listen, I need to explain this business to you. And the other thing that merchants don't realize is they think they can just collect money and then like move it to other people, like Jason was talking about before, paying other people. Well, that gets into a whole bunch of AML anti-money laundering rules and regulations. And you can't just do that.

SPEAKER_03 8:25

I really like that distinction because the industry tends to use complicated and risky, like they mean the same thing. When you first look at a merchant that doesn't fit the obvious box, what are you trying to separate there?

SPEAKER_00 8:35

We try to separate what is the business, right? Like what is the core business. And the other thing is, is banks are gonna listen if you send them over bank statements or financials on people that have a lot of money. They're more apt to listen. Somebody sends over some bonehead idea and there's $500 in the bank account or $100. The bank is not gonna take that business seriously, you know, especially when you're talking about moving money around or something complicated.

SPEAKER_01 9:06

Yeah, it's a huge point, Alan. I mean, uh being well funded makes a big difference and getting obscure things approved. I think another important point that you touched on is how the business is being classified, right? We we tend to classify businesses via finite number of MCC codes, and and that provides a labeling to what that business is. Uh, but it's not always the full description of the business, right? If the label points the underwriter towards collection or money transmission or future delivery or some other sensitive or risky area, the rest of the file has to explain why that first impression is incomplete. Otherwise, the system is just going to evaluate that merchant against the wrong risk model.

SPEAKER_00 9:52

Yeah. And even today, when you talk about future delivery of service, you know, all of a sudden during COVID, everybody wanted to start all these businesses. Even before COVID, drop shipping became super popular. And drop shipping today is a big problem because we ask people, okay, drop shipper, no problem. Where's it coming from? The minute they tell me it's coming from like China or some other country, we don't have anything to do with, I don't want anything to do with that merchant.

SPEAKER_03 10:22

Now, Alan, let's get practical. A merchant says, We're a service business and customers pay us. That sounds simple. What do you need to know before you can decide whether it's actually simple?

SPEAKER_00 10:33

We're gonna look at their website. We're gonna ask what is the service, we're gonna ask them for sample invoices, and then we're gonna ask how they how are they gonna collect the money? You know, so a lot of like AC companies or garage door companies, or like we have a company that goes out and changes oil and tires on people's cars. So you kind of have to understand like what is the whole makeup of of what they're doing, how are they doing it, how are they collecting the money, you know, what kind of warranties are they offering? Or and then again, like service businesses, they're running it out of their house sometimes. Maybe they have a warehouse, do they have a business license, do they have insurance? You have to make sure these are legitimate businesses.

SPEAKER_01 11:21

Yeah, and one of the things you touched on that I always come back to is the flow of funds, right? The the flow of funds is the plot of the payment story. It tells you who owns the money, who accepts it, who controls it, where it settles, and what obligations exist after the transaction. And if there's missing characters in that plot, underwriting usually fills in the blanks with the most conservative interpretations.

SPEAKER_00 11:47

You have to just understand how their business how their business is working.

SPEAKER_03 11:51

So, Alan, you've worked with businesses that banks might misunderstand from the first sentence. Can you walk us through a general example where the business was legitimate, but the obvious label made it sound like something else?

SPEAKER_00 12:02

I've worked with a lot of startup companies. Like I had somebody once they called me up from their they heard a podcast that had this business, and it was uh basically a creator platform, and they couldn't get their account approved by anybody, and they couldn't understand why. And it just all came down to compliance. And then we were like, well, you know, we need to have a meeting with you, we need to talk about what's going to be required for you to have this platform, and you have to understand once you take in the money, you have creators, user-generated content is something that's listed by Visa MasterCard. It's a regulated industry. So we had to go through the whole process, you know. And the first thing the bank goes, well, we don't want this, it's adult. And we're like, they don't do adult. Okay. Now we had to go through the process of you know convincing the bank that it wasn't adult. Got lucky that that account does, you know, over a million dollars a month today. But we have had other ones that are a complete bust.

SPEAKER_01 13:02

Yeah, I think you know, a lot of merchants underestimate how important the underwriting package actually is, because there is no single document that tells the whole story. You've got the application, which is one view, what's on their website, contracts with fulfillment vendors, uh, flow of funds through their bank accounts. The underwriting decision gets stronger when all of those views describe the same business. When they conflict, even an innocent inconsistency can look like they're trying to conceal something.

SPEAKER_03 13:34

So the flow chart is an arts and crafts for compliance. It's a way to make sure the merchant, the payments partner, and the underwriter are all looking at the same movie.

SPEAKER_00 13:41

You go to somebody's website, and sometimes people think they're they're cute, and they go copy all the terms and conditions, privacy policy, return and refund policies off someone else's website, and they missed something. They didn't change the corporation names, they have the wrong name, the wrong address, the wrong information. Somebody else's company mentioned they have to have all this stuff on their website, they have to have all their ducks in a row.

SPEAKER_03 14:07

So let's talk about the fraud side of things because this is where the complexity gets uncomfortable. You have used the phrase synthetic signer. What does that mean? And how is it different from older fraud patterns you were used to seeing?

SPEAKER_00 14:19

I mean, there was a fraud pattern a few years ago. We called it the straw signer. That was an actual real person fronting, usually for either somebody with really bad credit, someone on the match list, or somebody usually outside of the US. Now we have this whole synthetic thing. The synthetic thing is basically these scammers. Some of them are really good, and some of them are just stupid. The really, really good ones, and I've seen a couple that were really good. They steal somebody's identity. So they get they go on the dark web, and they're not looking just for an identity of a name and an address. They're looking for a full file on somebody. They're getting the person's social security number, they're getting their whole credit report, they have everything on this person, right? So that they can pass through answering any questions that come from like Lexus Nexus or anything like that. These people are really sophisticated in stealing an identity.

SPEAKER_01 15:22

Yeah, this is really where AI cuts both ways, right? It can help the fraudsters produce a document package that looks consistent to the naked eye, but it can also help the reviewer compare failed, inspect the metadata, identify signs of alteration, and find contradictions across a larger application package. The trap is treating either side as automatic. A clean AI is not proof of legitimacy, and an AI flag is not proof of prop fraud.

SPEAKER_00 15:51

So I'll give you a really crazy thing that happened. I get an application one day, it's for a restaurant supply place. I Google the address, it's somewhere local in South Florida, and I see there's a dentist office there, and the name on the application matches the dentist. Now I know there's a dentist office, there's not some restaurant supply place with this website showing all these stoves and ovens and mixers and all this stuff. And it's not there, it's a dentist office in a freestanding building. I'm like, there's no way. So I called the dentist and I said, Is this your social the last four of your social? And the guy goes, Yeah, how did you get it? And I told him, and I go, You're about to get scammed. So if I was you, I would lock my credit, check your credit report. Calls me back about 10 days later. He got four clovers in the mail. Four from four different ISOs. Okay. That guy, I mean, I don't even know how that account got approved. Okay. But the guy got four clovers, and he says to me, What's the scam? I got the machines. I go, the scam is these guys are so smart. They know which products come with a virtual terminal.

SPEAKER_03 17:04

Now, let's turn this into a playbook. A legitimate merchant knows its business is unusual, regulated, or easy to misunderstand. Before that merchant submits an application, what should they have ready?

SPEAKER_00 17:16

First off, don't go run to the online companies because you could get approved. And then the next thing you know, they underwrite transactions. They don't underwrite the merchant. All of a sudden, they see a bunch of transactions coming in, they start investigating your business, and boom, you can either be shut off, have your money held, or worse, you're put on the match list because they say, Oh, this isn't a business that we support. And that's a huge problem that a lot of these business owners have that that get into a business like, oh, it's some AI product or something that they're doing, and they don't even understand that that could be a regulated product. It hasn't been underwritten. No one's ever looked at their website. So, you know, do your homework, check AI today. You know, you can go ask AI a question. Here's my website, or talk to a payment professional. So many people, especially the people that are younger, run right to the online companies.

SPEAKER_01 18:15

Yeah, Alan, that's good advice. And, you know, I would sum it up in this way for the merchant, right? They've got to take their application, their website, their contracts, flow charts, funds flow, and bank activity, and put it all next to each other. And before they submit it for a merchant account, they have to ask themselves does this really all describe the same business? If one looks like consulting, one looks like lending, one shows recurring memberships, and the other shows third-party payouts. The problem is not just documentation. The operating model hasn't been clearly explained, and that's only going to confuse an underwriting team in a bank.

SPEAKER_03 18:54

And there is a difference between giving context and trying to engineer the answer. The goal isn't to find a prettier label, it's to tell the truth clearly enough that the risk questions get asked. Alan, what is the biggest mistake a complicated merchant makes during onboarding?

SPEAKER_00 19:10

A lot of times merchants have multiple products, and sometimes it's better to separate them all versus trying to run it all through one business funnel.

SPEAKER_03 19:21

I couldn't agree more, Alan. I want to thank you so much for joining us, for helping us make the complicated a little easier to understand. Jason, thank you so much for bringing the technical reality without making us draw the entire payment stack on a whiteboard.

SPEAKER_01 19:35

I had the markers ready to go, but this was probably better for the audience.

SPEAKER_03 19:39

And for more payments conversations that get past the checkout button and into how the business actually works, follow SenseChat and visit SenseChat.com. I'm Kitty, and we'll see you next time. Thanks again, Alan and Jason. Thanks for tuning in to SenseChat. Got questions?

SPEAKER_02 19:54

Got ideas? Got payment problems keeping you up at night? We've got you covered. Head over to our website to take our quick survey. You might just land a guest spot on the pod. Don't forget to subscribe, share this episode with your favorite ISB, and follow us on all social for the latest trends, tips, and debates. We promise no boring slideshows. At SenseChat, we're here to make payments make sense and make it fun while we're at it. See you next time.