If you’ve ever wondered what’s powering your competitors’ lightning-fast application reviews and evaluation cycles, it just may be optical character recognition (OCR).
Also referred to as “text recognition,” OCR technology transforms scanned documents into clean, searchable data, ready for accurate decision-making in mere seconds.
More than a simple digitization tool, OCR is proving to be a powerful and popular business accelerator across the financial services sector, as it reduces errors, unlocks automation, and gives teams a serious speed advantage.
Below, we’ll explain exactly how OCR works, where it fits into MCA workflows, and why it’s a must-have in today’s digital-first merchant cash advance industry.
What Is OCR?
Imagine an SME owner applies for a merchant cash advance, submitting several months’ worth of financial statements in JPEG, PNG, and PDF files.
In this case, the funder’s underwriting team may have to open each file individually, scan line by line for monthly revenue and transaction trends, and then manually enter figures into a spreadsheet.
Every one of these tasks can create bottlenecks, costly errors, and delays in the approval process.
OCR technology solves these challenges by quickly converting those image files into usable, machine-readable text that can be easily indexed, edited, and searched for making funding decisions on-the-spot.
In fact, the OCR market is showing clear growth signs—which is explained by its usefulness.
How OCR Technology Works for MCA Funders
While OCR technology may sound complicated, the process is actually quite simple and straightforward.
Let’s say your MCA funding operation needs to verify an applicant SME is drawing in consistent debit and credit card sales, as well as making $100,000 in annual revenue.
The process would be as follows:
1. Image Acquisition
First, the merchant submits multiple pages of digital documents through a portal or email, including:
- Banking statements saved in PDF format, downloaded directly from their bank.
- Credit card processing reports, some with handwritten notes on them, saved as JPEGs and captured using a smartphone scanner app.
- Photos of their driver’s license and birth certificate, taken using the merchant’s smartphone’s camera.
These files are the raw materials that the OCR software will analyze.
2. Preprocessing
Issues like blurry scans, poor lighting, and even slightly tilted images can reduce the accuracy of the data OCR technology is trying to extract. When the software detects these types of issues, it goes into cleaning mode, doing things like:
- Digitally straightening a file so its rows and columns are better aligned and easier to read (also known as “deskewing”).
- Removing small dots and smudges, which can sometimes confuse OCR software into thinking they’re punctuation or letters.
- Converting the image to black and white, helping the text “pop” against the background.
- Sharpening faded or gray areas so the text is clearer.
- Identifying where lines, words, and individual characters begin and end.
Ultimately, preprocessing is all about ensuring that key information—including revenue, sales figures, dates of birth, addresses—can be clearly recognized.
3. Text Recognition
Once an image is cleaned and prepped, OCR technology “reads” the text.
Using pattern recognition and AI, the system matches shapes within each image to known characters, numbers, and symbols. For example, it may distinguish whether a curved shape is an “8” or a “B,” based on context and formatting.
Even if the statement includes handwritten notes or less common fonts, the OCR can make educated guesses using machine learning models trained on thousands of samples.
The result? Raw and (mostly) accurate digital text, extracted from the image.
4. Postprocessing
Once the text is extracted, OCR technology wraps things up by polishing and verifying the results, ensuring everything makes sense.
This may involve:
- Reassembling fragmented words that may have been distorted during the text recognition stage.
- Running logic checks to ensure proper formatting—such as verifying a date that looks like 03/25/25 and not 3/25/202.
- Validating extracted fields for inconsistencies, like confirming revenue totals match the sum of monthly deposits.
Overall, this final stage culminates in transforming cluttered, unstructured documents into clean digital records.
Now, your merchant cash advance funding business has the data it needs to quickly and accurately confirm whether the merchant meets key eligibility criteria.
Benefits and Applications of OCR in MCA Funding
Despite the huge impacts OCR technology can have on your MCA funding operation, it’s kind of a hidden technology. Even as you’re benefiting from it, you’re not going to see pop-ups or reminders that you’re using it.
Rather, OCR works quietly behind the scenes, enabling a range of game-changing business benefits including the following:
Faster Underwriting
Because of its ability to instantly extract critical data like monthly deposits, card sales, and transaction volumes, funders’ manual workloads are reduced, while increasing speed and accuracy in evaluating applications.
Even better, when paired with an all-in-one MCA funding platform like Onyx IQ, that data flows automatically into the system—eliminating error-inducing copy-paste tasks and enabling faster, more reliable funding decisions with minimal human intervention.
Cross-Team Collaboration
These digitized, searchable documents can be accessed by everyone across your business, from underwriting and sales to support and beyond.
With all employees working from the same reliable data, this helps reduce redundancies, eliminate miscommunication, and empower cross-functional teams to collaborate more effectively, quickly and confidently on merchant approvals to follow-ups and renewals.
Smarter Merchant Onboarding
Since OCR extracts application and financial data automatically, SME owners can move through onboarding faster, and with fewer headaches.
Indeed, OCR cuts down wait times by minimizing back-and-forth document requests, ultimately making the entire funding journey a smoother one.
Even better, a faster start can increase trust, enhance the customer experience, and set the stage for long-term loyalty.
Reliable Audit Trails and Regulatory Compliance
Because OCR technology converts documents into standardized, traceable formats, this simplifies recordkeeping for audits, helping support compliance requirements (like state-level disclosures and KYC/AML) so MCA funders can respond more quickly to regulatory requests.
Moreover, digital records are securely stored and easily retrievable, eliminating the need to sift through massive stacks of paper or unreadable image files.
Actionable Insights
Well beyond merely capturing data, OCR feeds key insights.
When paired with integrated platforms like Onyx IQ, this intelligence flows straight into all kinds of tools and dashboards, giving funders the ability to reveal trends, spot inconsistencies, and pinpoint patterns.
Equipped with cleaner data, merchant cash advance funders can make sharper, more confident forecasts and in-the-moment decisions—leading to stronger performance across your entire portfolio.
Tips To Make the Most Out of OCR Technology
OCR may be invisible behind the scenes, but understanding how it works can give your MCA funding operation a real edge.
After all, when you know what it can (and can’t) do, you can use it more effectively throughout the entire funding process.
Here are a few best practices to get the most out of optical character recognition technology:
- Set clear document submission standards: Provide merchants with guidelines for accepted formats, resolution, and contrast. Higher-quality input will lead to more reliable, actionable outcomes.
- Choose specialized, scalable solutions: Partner with an OCR technology provider that understands MCA workflows in-depth, and whose technology will scale with your business. Merchant cash industry–specific experience will ensure smoother performance as your document volume grows.
- Keep your OCR software current: Regular updates can improve recognition speed, broaden support for any new formats, and patch security gaps. Meanwhile, look for OCR tools that prioritize encryption, access control, and privacy to protect sensitive financial data.
- Share OCR’s value across all teams: OCR outputs benefit more than just underwriting. Digitized data can support all kinds of tasks including sales, renewals, fraud checks, and customer service. Clean data is most powerful when understood, so be sure to equip your staff to use and verify OCR results with confidence.
- Maintain a human touch: While OCR technology can achieve 99% character recognition accuracy, even the most intelligent software can benefit from an occasional review. A bit of human oversight will help catch those rare inconsistencies or gaps, helping maintain your reputation with merchants, investors and other stakeholders.
By applying these best practices, OCR becomes a much more strategic asset for boosting your operations, enhancing accuracy, and setting your MCA funding business up for long-term success.
From Chaos to Clarity, OCR-Powered Onyx IQ Streamlines MCA Funding
By now, it’s clear that OCR technology offers far more than speed.
Rather, it’s a foundational tool that transforms how MCA funders operate by improving accuracy, collaboration, and decision-making across the board.
But what’s even more powerful is when OCR isn’t working alone.
Onyx IQ seamlessly integrates the behind-the-scenes brilliance of OCR into our all-in-one MCA funding platform, meaning you gain the all benefits of automated data extraction plus a full suite of tools to optimize every single stage of your funding process.
Curious to know how Onyx IQ empowers MCA funders to compete smarter, not harder? Book your demo today.
