merchant account underwriting

What is Merchant Account Underwriting?

Cash and checks are becoming increasingly unpopular among most customers, whereas online payments, as well as credit and debit card payments, are growing in popularity. Hence, every merchant who wishes to accept online payments must have a merchant account. A merchant account can help your business take advantage of these opportunities and bring value to your organization in a variety of ways.

Obtaining a merchant account, however, is not easy for every company. Before creating one, merchant acquirers and payment processors meticulously examine a company to guarantee that its financial operations are running smoothly. This method is known as merchant account underwriting. 

This article will walk you through what merchant account underwriting is, and how it works. 

Merchant Account Underwriting Explained

As previously stated, merchant account underwriting is a risk-assessment method whereby a payment processor or merchant acquirer determines if the merchant can conduct business operations safely and effectively. 

The underwriting process aids the underwriter in determining if the merchant is financially responsible and estimating the merchant’s liability to operate under the law and financial regulations. 

For a first-time applicant, the thoroughness of the underwriting procedure can be perplexing. Not many small and medium-sized business owners (SMBs) are acquainted with payments industry terminology, and several SMBs may be unaware of the necessary requirements they must achieve to make a good first impression. Thus, working with a professional processing partner will give you confidence in navigating the underwriting process.

What Are the Processes of Merchant Underwriting?

The merchant underwriting process is rather quick for many businesses. The underwriter swiftly evaluates them, and their merchant account is open within a few hours. However, for firms that require high-risk payment processing, this process takes longer. 

If an underwriting organization deems a merchant to be high-risk, the company must open a high-risk merchant account. Consequently, the underwriter must determine the following during the process of opening the account:

  1. The Business Type

The underwriter determines what type of business the merchant wishes to operate. Some sectors and specializations are inherently riskier than others. As a result, underwriters scrutinize specific business types more thoroughly.

Businesses rated high-risk must prove that they are stable financially to conduct business activities in their industry. Therefore, keeping a separate account for business expenses and finances shows that you’re serious about your venture. It lessens your liability in submitting financial reports that also include personal or other business expenses. Prevent low or overdrawn balances to avoid increasing your risk level. Bank statements that show a positive balance in your business account will help you rank higher with underwriters.

  1. Years of Entrepreneurial Experience

Being in business for a long period of time indicates to banks, merchant acquirers, and payment processors that you are a competent and reputable entrepreneur. Since they have more expertise and assets, such merchants are more likely to have developed a consistent cash flow and to respond better to chargeback requests.

  1. Financial Track Record

The underwriter will want a financial statement from your bank as well as other official documentation proving your financial capability. By doing so, the underwriter can see from a merchant’s financial track record that they process their accounts payable in a timely and secure manner. This is also why you need to have a good credit score, but we’ll discuss that later.

  1. Previous Chargebacks Records

Everyone is aware that when a customer is dissatisfied with a product or service, they request a refund or chargeback. Chargebacks are particularly concerning to the underwriter since they involve a formal legal procedure between the customer, the merchant, and the merchant acquirer. Documentation that matches your company’s regular transaction flow over the last couple of years will show underwriters how you handle chargebacks, the reversal of money to the customer after they have been paid to the merchant, and the procedures you take to minimize fraud.

A company with a high chargeback rate is deemed high-risk. If the underwriter determines that the company is likely to suffer an excessive number of chargebacks, they will refuse to approve the merchant account application. Furthermore, it is far more difficult to obtain a new merchant account if you previously had one that was closed due to chargebacks or payment fraud.

  1. Credit Score

The credit score represents the merchant’s reliability and capacity to satisfy all financial commitments on schedule. A merchant with a poor credit score is less likely to secure a merchant account.

  1. Payment Method

An underwriter must understand the payment types that the merchant wishes to use. They may reject the merchant account application if they do not support all of the payment types the merchant intends to accept.

  1. Sales/Transactions Volume

A high volume of sales or transactions poses the risk of excessive chargebacks. As a result, merchant acquirers and payment processors typically encourage small businesses to begin with lower volumes. The volume may increase as they become more acquainted with business operations. Larger companies with high sales volumes typically obtain a merchant account without difficulty since they have a demonstrated track record of successfully managing their finances and addressing chargebacks.

  1. Billing Policy

Is your company billing in advance or after the product or service is rendered? Companies that bill far in advance, in the opinion of the underwriter, are more likely to face a chargeback since circumstances can change. The merchant’s billing policy assists the underwriter in determining any cash flow risk. This is why billing methods such as upfront payments and recurring payments are considered high-risk by credit card associations. If a merchant intends to accept such payments, he or she is more likely to be assigned a high-risk category.

Requirements for Merchant Account Underwriting Application

Underwriters often request the following paperwork from merchant account applicants:


  • Two different means of identification (e.g., business license, driver’s license, ID card)
  • A copy of a voided check containing pertinent company information such as account name, account number, routing number, and a recent credit card processing statement.


  • Recent tax returns
  • Financial statements for a specific timeframe
  • Recent bank statements
  • Information about the type of business.


Every business that applies for a merchant account must go through the merchant underwriting process. Merchant account underwriting is tough, yet it is not as restrictive as it appears. Many businesses are accepted quickly, while others can generally find a method to gradually prove themselves to the processors.

The better your financial and company history, the more likely you will be approved for a merchant account.

Even though you are a high-risk merchant, you must follow the underwriter’s guidelines to keep your business running.

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