Improper Merchant Underwriting Directly Affects Your Business
To acquire a customary Merchant Account, your business must experience go through a wide analysis process called merchant underwriting. Sorry to say but some Merchant Account Provider doesn’t satisfactorily underwrite businesses, which can rapid issues down the line.
Merchant Account underwriting is clear by an individual or team of high-risk analysts and in general takes two days to a week to complete, depending on the provider. For businesses needing a quick fix, there are options that don’t require any underwriting — but those have their own drawbacks. More on that later.
First, let’s go over what underwriters usually review.
Representative Merchant Underwriting Process
The vital goal is to evaluate the business’s level of high risk for the provider. Why?
Because of a merchant account is fundamentally a line of credit. If a business is strike with a chargeback but doesn’t have enough funds in the bank to pay it, the provider fronts that expenditure right away.
Just before truthfully establish the High-Risk Business level, providers review the following:
Every business kind has its own level of risk. For example, a business that swipes cards is less likely to deception/fraud and chargebacks, and is, therefore, less dangerous, than a business that sells products on the web. The riskier the business, the more support documents and information required for review.
Business History and Policies
This incorporates years in industry, billing, shipping and returns policies (if applicable). Organizations that ship products are riskier because the product might not be delivered, which can result in a chargeback.
Merchant History and Card Acceptance Method(s)
Providers will need to know things like your business’s chargeback ratio (over 1 percent is a red flag), whether your business is or has been on the Merchant Terminated File and, if so, why. Most providers evaluate current merchant statements to get an idea of processing volume and methods of acceptance. Businesses accepting tips or phone and online orders are there for more features and security measures if approval is there.
Processing Limits Requested
Providers will take these into consideration in conjunction with the above information. Providers should set your limits on a happy medium — they should accommodate your regular processing without giving too much room in the event of a large fraudulent charge. If your business doesn’t need very high limits, your account needs a different setup.
This can include a look at the business’s bank statements, its financials and, usually, the owner’s credit. This is vital for high-risk businesses, as this information can make or break the merchant underwriting approval.
Some providers inadequately review businesses, resulting in issues after they’ve started processing.
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Poor Merchant Underwriting After effects
Without an in-depth analysis, your High Risk Business may suffer from one or all of the following:
Whether you have insufficient or excessive limits, it’s a problem. Limits that are too low will hinder your business from processing your regular transaction amounts, which may prevent customers from paying on time and constrict your cash flow. If limits are set too high, you can get hit with major fraud charges you do not cover.
Hidden Volume Fees
Some providers will give you a limit, but let you exceed it without warning. The penalty? You pay an additional fee on either the volume that passes over your limit or on the entire processing volume for that month.
If your account is set up without certain features and security measures, you’re susceptible to transaction downgrades, which mean you are unnecessarily paying higher transaction costs. Providers often fail to set up accounts with these features because it means more money in their pockets on the downgraded transactions.
Some businesses opt for an account with Payment Facilitators, such as PayPal, Stripe or Square, which bypass merchant underwriting altogether. While they may seem like a better option, these alternatives have their own pitfalls.