If you own a business, you most likely have or will require a merchant account to accept payments. However, before you can open a merchant account and obtain a Merchant ID, you must first go through the underwriting process.
The underwriting process involves a thorough review of merchant account applicants to ensure that businesses that seek to accept client payments are viable and capable of meeting some basic standards.
In this article, we will look at how a merchant account underwriter evaluates risks, how you can improve your merchant account eligibility, and the criteria that are taken into account during the underwriting process.
Processors and underwriters often believe that some companies are riskier to deal with than others. Risk assessment is determined by the needs of the bank or financial institution that will handle your transactions. Most of them consider the following factors when underwriting a business for a merchant account.:
There are various industry classifications, and each one is assessed for perceived risk by a merchant account underwriter. So, regardless of other factors on the application, an application can be denied during the underwriting process based on the industry in which the business operates. The following examples can help you determine which risk category your business might fall into:
Business longevity can influence the merchant account underwriting process. The best-case scenario is a business that has been in operation for at least five years. They often have a strong customer base and a continuous flow of income. This is vital to a merchant account underwriter because it shows that the business can effectively respond to unforeseen circumstances, such as chargeback fees. Hence, there is a good chance that such a business would be considered lower risk.
If you’ve previously had a merchant account, underwriters may want to review your chargeback history. A chargeback may be issued by the cardholder if they believe that a charge was made without their authorization or that the product or service was not delivered as promised. A business that has a high number of chargebacks on its previous merchant account will experience bigger challenges during the underwriting process.
Most merchant account underwriters will examine your billing process to evaluate the cash flow risk. If a business charges in advance before producing products or services, a merchant account underwriter will view it as a higher risk. This is because circumstances might have changed and the product or service was no longer used or required by the customer. For example, if you sell tickets for an event three months in advance and then cancel it due to unforeseen circumstances, you have to reimburse your customers. When situations like this occur frequently, chargeback rates will skyrocket, and a high chargeback history places you in a higher risk category.
A poor credit score affects the merchant account application process, just as it does with most loan transactions. If a merchant has bad credit, he should present financial statements instead of a credit score. If a business has a team with good credit scores, it is recommended that they apply for a merchant account.
When it comes to merchant account underwriting, one of the most crucial considerations is the requested volume. It is not unusual for brand new businesses to have a lower volume processing cap until their business strategy has proven effective. When their business stability is guaranteed, the cap will be raised.
When reviewing a merchant account application, an underwriter must consider some unique situations. These unique scenarios can sometimes be accepted for a merchant account if a few changes are made in how the payment is processed.
Instead of being worried about not being able to get a merchant account, look for strategies to improve your merchant account eligibility. To achieve this, follow these tips:
When looking for how to successfully open a merchant account, know what to expect. If you use the strategies outlined above, the process of obtaining a merchant account ought to go smoothly. Consequently, getting approved will put you on the path to generating more revenue for your company.
