Written By:
Lauren Reams
Merchant Account and Compliancy Specialist
When acquiring merchant accounts, all merchants must go through a risk and underwriting review. This is just one step in getting your offer live, but it’s a critical part of getting your merchant account. The underwriting department looks at many different aspects of the potential merchant; financial stability, risk, pricing model, business model, and much more.
There are also different risk variables that are put into play when it comes to providing a merchant account. According to Braintree, there are three main risk variables that underwriters focus on: Company longevity and financial stability, Industry, and Billing method.
1. Company longevity and financial stability:
How stable your business is financially can really make a big difference in how these underwriters look at your application. If you are looking to run large monthly volumes but you don’t have a large amount of cash flow or processing then your risk will be elevated. This is why it is sometimes difficult to get merchant accounts for a complete startup because these merchants are just starting and have no processing experience to show to the underwriters to help lower the risk and show that they really are a good investment.
2. Industry:
Different types of industry create a higher risk. Most underwriters deem these merchant offers low, medium, or high risk. There are also others that are very difficult to underwrite or even prohibited by processors or ISOs. These different levels of risk are determined by whether or not the customer is present during the sale, a card is swiped, yearly memberships, lifetime warranties, and others.
3. Billing method:
When a merchant is accepting payments in advance or long period memberships it increases their risk. Sometimes underwriters see the billing method as a prediction to how many chargebacks these merchants will start to accrue, therefore they are deemed high risk.
The important thing to understand about underwriting is lay everything out on the table. Let the banks know where you stand and how you conduct your business. Let them know your plans for chargebacks and preventing fraud. This can quicken the process and increase the chances of the underwriter seeing your business as an investment if they see you are being transparent in your intensions for your business. It’s even important after you are processing with the provider to continue to keep your site compliant and chargebacks low in order to see a possible increase in cap and lowered rates. In the end, you will have more money going into your pocket.
“Merchant Account Risk – Braintree.” Online Payment Systems & Credit Card Payment Processing Services by Braintree. Web. 02 Dec. 2011..
