Merchant Onboarding and KYC/KYB in Platforms and Marketplaces: Who Should Be Responsible?

KYC (Know Your Customer) and KYB (Know Your Business) requirements are essential elements of financial regulation and are designed to ensure that financial service providers understand who they are doing business with. These processes help prevent fraud, money laundering, and other financial crimes. In a platform or marketplace environment, these obligations apply not only to the platform itself but also to the merchants or sellers who receive payments through the platform.

There are several ways in which responsibility for merchant onboarding and KYC/KYB can be structured in marketplace payments. The most common models include onboarding managed by the payment service provider (PSP), onboarding managed directly by the platform or marketplace, or a shared responsibility model where both the platform and the PSP contribute to the onboarding process.

PSP-Led Merchant Onboarding and KYC/KYB

In a PSP-led onboarding model, the payment service provider is responsible for collecting merchant data, performing KYC/KYB verification, and approving merchants before they are allowed to process payments on the platform. Payment providers such as Mangopay and Adyen offer marketplace payment solutions that include integrated merchant onboarding capabilities.

These providers typically offer hosted onboarding flows or embedded onboarding components that allow sellers to submit identity and business information directly to the PSP. The payment provider then performs the required verification checks, ensures regulatory compliance, and approves merchants for payment processing.

This model is widely used because it significantly reduces compliance complexity for the platform. The PSP manages identity verification, document collection, regulatory updates, and ongoing monitoring of merchants. As a result, the platform can focus on its core marketplace functionality rather than building and maintaining compliance infrastructure.

From a technical integration perspective, PSP-led onboarding typically provides standardized APIs and pre-built onboarding flows that simplify implementation. This makes it particularly attractive for startups and fast-growing platforms that want to launch quickly and scale without investing heavily in internal compliance capabilities.

However, this model also limits flexibility. The onboarding requirements, supported countries, and verification processes are largely defined by the PSP. This can influence the user experience for merchants, especially when onboarding flows redirect sellers away from the platform or when verification requirements vary across markets.

Platform-Led Merchant Onboarding and KYC/KYB

In platform-led onboarding models, the platform or marketplace takes responsibility for collecting merchant information and managing the onboarding process itself. Instead of relying on the payment service provider to verify merchants, the platform manages the onboarding workflows and submits merchant data to the payment infrastructure once onboarding requirements are fulfilled.

In practice, platforms often use specialized KYC/KYB verification providers to support these processes. Solutions such as sumsub and Trulioo can be integrated into the platform’s onboarding flows to perform identity verification, business checks, and document validation. In this model, the platform remains responsible for merchant onboarding but facilitates the verification process through dedicated compliance and identity verification providers rather than relying on the PSP.

This approach allows platforms to design fully customized onboarding journeys, tailor verification requirements for different merchant categories, and integrate onboarding with internal systems such as risk assessment, seller scoring, or product access management.

From a user experience perspective, platform-led onboarding can create a much more seamless and branded experience for merchants because the entire onboarding journey remains within the platform’s environment.

The trade-off is increased operational and regulatory responsibility. Platforms must ensure that their onboarding processes comply with applicable financial regulations, maintain up-to-date verification procedures across jurisdictions, and manage ongoing monitoring of merchants. This often requires dedicated compliance capabilities and careful coordination between verification providers and payment service providers.

Platform-led onboarding is therefore typically chosen by large marketplaces or platforms with complex seller ecosystems where merchant onboarding is considered a strategic capability rather than just a regulatory requirement.

Shared Responsibility Between the Platform and the Payment Service Provider

A third model involves shared responsibility between the platform and the payment service provider. In this setup, the platform collects merchant data during the onboarding process, while the PSP performs verification checks and approves merchants for payment processing.

This hybrid approach allows the platform to maintain control over the onboarding user experience while still leveraging the PSP’s compliance infrastructure and regulatory expertise.

Platforms can design their own onboarding flows and collect the necessary information directly within their user interface, creating a more cohesive experience for sellers. At the same time, the PSP remains responsible for verifying the provided data, performing regulatory checks, and ensuring that merchants meet the requirements for payment processing.

From a technical perspective, shared onboarding models require closer coordination between the platform and the PSP. Merchant data must be transferred securely between systems, and both parties must ensure that required information is collected and validated correctly.

While this model introduces slightly more integration complexity than purely PSP-led onboarding, it often offers a balanced solution that combines control, compliance support, and scalability.

Impact on User Experience, Scalability, and Geographic Expansion

The responsibility for merchant onboarding has a direct impact on how sellers experience the onboarding process when joining a platform or marketplace.

PSP-led onboarding can sometimes create fragmented user journeys if sellers are redirected to external verification flows or required to interact with multiple systems. Platform-led or shared onboarding models allow for more cohesive and consistent onboarding experiences that align with the platform’s branding and product design.

Scalability and geographic expansion are also strongly influenced by onboarding responsibility. PSP-led onboarding allows platforms to expand into new countries more easily because the payment provider typically manages regulatory coverage across multiple jurisdictions.

In contrast, platforms that manage onboarding themselves must ensure they understand and support regulatory requirements in each market they operate in. This can slow down expansion if compliance capabilities are not already in place.

Supported countries, merchant types, and business models should therefore always be considered when choosing the onboarding structure.

Cost Implications of Merchant Onboarding Models

Merchant onboarding responsibility can also affect cost structures within a marketplace payment architecture.

When onboarding is managed by the PSP, verification and compliance costs are typically embedded within the provider’s pricing model. This simplifies operational management but may increase transaction fees or platform service costs.

Platform-led onboarding shifts these costs internally. While this may offer long-term flexibility and cost optimization at scale, it requires investment in identity verification technology, operational processes, and compliance expertise.

Shared onboarding models often balance these cost dynamics by allowing the platform to control the user experience while relying on the PSP for regulatory verification infrastructure.

Best Practices for Designing Merchant Onboarding in Marketplaces

Choosing the right merchant onboarding and KYC/KYB model requires aligning compliance responsibilities with platform strategy, geographic expansion plans, and seller experience goals.

Early-stage marketplaces often benefit from PSP-led onboarding because it minimizes complexity and accelerates time to market. As platforms grow and their seller ecosystems become more diverse, shared or platform-led onboarding models can provide greater flexibility and improved control over the onboarding process.

Regardless of the chosen approach, platforms should ensure that merchant onboarding processes are closely aligned with their payment architecture, regulatory obligations, and long-term scalability goals. Treating merchant onboarding as a strategic design decision rather than simply a compliance requirement enables platforms and marketplaces to build more resilient and scalable payment ecosystems.