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Use cases

Merchant Underwriting

What Is Merchant Account Underwriting?

At its core, this process involves assessing a prospective merchant’s risk profile and determining whether it is a good fit for a payment facilitator. This involves analyzing key factors, such as the merchant’s credit history and business model. By evaluating these factors, facilitators can effectively assess the likelihood that a merchant will be able to make payments on time and the likelihood of defaulting on financial obligations.

Merchant onboarding and risk monitoring are also crucial components of merchant underwriting. Once a merchant receives approval for an account, facilitators often conduct ongoing reviews and assessments to determine risk over time.

How To Complete the Underwriting Process Before Merchant Onboarding

Companies all have different underwriting and onboarding processes. Nevertheless, they do share a few core steps in common:

  1. Collect all required documentation, including the merchant account application.
  2. Review all documentation submitted, which can take anywhere from a few days to several weeks.
  3. Follow up with additional questions or requests for additional documentation.
  4. Approve or deny the application.
  5. If approved, begin the process of implementation and onboarding.

5 Types of Underwriting Checks Completed for Merchant Accounts

Payment companies have internal processes that determine how they measure risk. These processes determine what checks to make, where, and how. Consider these five common examples:

  1. IRS TIN/Name Matching: The IRS TIN/Name Matching process involves comparing a merchant’s taxpayer identification number (TIN) and name against records submitted to the IRS by financial institutions.
  2. Business History Check: A business history check typically involves looking at a merchant’s processing history, including any significant changes in their processing volume, risk rating, or payment practices over time.
  3. Bank Account Verification: Bank account verification involves assessing the ability of a merchant to pay back their debt based on how much money it has in its bank account. It also verifies important information for coordinating finances, such as routing and account numbers.
  4. Credit Check: A credit check involves evaluating a merchant’s current and past financial situation, including outstanding debts, payment history, and income levels. It may also include looking at the merchant’s credit history and ensuring it has not recently filed for bankruptcy.
  5. AML Checks: Anti-money laundering checks, are designed to help payment facilitators detect and prevent fraud. They typically involve reviewing a merchant’s information against various public databases, including those maintained by the Treasury Department and other federal agencies, such as the Sanctions List.

5 Factors Affecting the Underwriting Process

While merchant account underwriting can be complex, it is vital to ensure that payment facilitators can mitigate risk effectively when extending credit to merchants. These five factors might also affect whether merchant accounts meet underwriting guidelines and under what terms:

  1. Types of Products and Services: Depending on the product or service a merchant sells, it may be considered higher risk. For example, a payment facilitator might be more likely to approve a merchant selling digital goods than one selling physical products, as chargebacks are typically much lower for digital goods.
  2. Merchant Location: Where a merchant does business can also impact its risk profile. For example, certain countries are more prone to high chargeback and fraud rates, which may increase the likelihood that a merchant will be considered high-risk.
  3. Merchant Size: Underwriters view small businesses and large corporations much differently. For example, smaller merchants with limited track records may be seen as higher risk than larger, more established businesses.
  4. Merchant Transaction Volume: The frequency and volume of a merchant’s transactions can also affect their overall risk profile. For example, high-volume merchants typically need to go through more stringent vetting processes to gain access to transaction processing services.
  5. Chargeback Volume: If you have a history of high chargebacks or frequent fraud, underwriters may be less likely to extend credit to you. Frequent incidents indicate inefficient checks and policies or a poor product.

How Gaviti Can Help With Merchant and Credit Card Underwriting

Even after completing the onboarding process, most payment companies continue to conduct merchant risk monitoring. Consequently, companies must maintain their accounts in good standing to ensure continued service. Strong cash flow helps merchants reduce risk levels and improve their chances of long, uninterrupted relationships with their payment processors.

Gaviti streamlines the process of securing strong cash flow by converting invoices to cash at a much more rapid rate. It leverages the power of AI to automate monotonous tasks and personalize communications. Speak to a Specialist to see how it works.


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