High Risk Merchant Handbook

What Underwriting Checks

Underwriting is the acquirer's chance to learn who you are before it signs you. Here is what it looks at and why it asks so much.

When you apply for a merchant account, someone has to decide whether to take you on. That review is underwriting. Merchant account underwriting is the set of questions the acquirer must answer about you. Only then can you take cards.

What underwriting is and why it exists

Underwriting is the review between when you apply and when your account goes live. The acquirer looks at who owns the business, what it sells, where it operates and what its history shows. Visa's standards say acquirers must build a way to check new merchants based on risk. The process should confirm a merchant works in allowed places and follows the rules.

The acquirer is not being nosy on its own behalf. Visa's guide says it holds acquirers, payment facilitators and marketplaces accountable for the illicit actions of the sellers they onboard. See why banks watch payment processor accounts.

Who sets the requirements

Three layers of rules shape what you get asked. Visa's guide says merchant onboarding must comply with the GARS, the Visa Rules, and the acquirer's own policy. So one acquirer can ask for more than another and still be within the rules. Visa's standards also say a policy should sort merchants into risk groups.

Mastercard has its own manual. Its rules say the acquirer must keep the records of your checks. It must give them to Mastercard when asked. What you hand over gets kept.

The identity checks

Visa's standards say underwriting must include verifying a seller's name, address, email, phone number, business registration and documents. They also get each owner's name, address, ID number, email, and phone.

Mastercard's manual says its registration data lists the main owners' names, addresses, and tax IDs. Expect to list the main owners.

KYC and KYB

Visa's standards say KYC stands for Know Your Customer and KYB stands for Know Your Business. The acquirer runs both: KYB checks that the business is real and registered, and KYC checks the people behind it.

Visa's standards say acquirers must run KYC and KYB checks under the laws that apply. The data they collect must also follow AML rules. Visa's standards also say acquirers use services that check your ID. These check what you gave them against other data. So give the same facts in every place.

The business checks

The acquirer checks that you are registered and where you may operate. FinCEN says banks should check that processors have the state licenses they need. If your industry needs a license, have it ready.

Visa's standards say the underwriting process may include a site visit to the business or other suitable alternatives. Mastercard's rules say investigation records may include a site inspection report with photographs of premises and inventory verification.

The e-commerce checks

Online sellers get extra checks. Visa's standards say acquirers collect and verify additional elements for e-Commerce merchants, including a listing of URLs the merchant uses. They also check that you are the listed owner of your domains and websites. If the site is registered to an old partner or a privacy service, fix that before you apply.

Visa's guide says the underwriting process should include checks of consumer complaint boards. A page full of unresolved complaints will be read.

History checks

Visa's standards say a merchant's history of terminations, excessive chargebacks, fraud or illegal activity can affect the underwriting decision. Mastercard also asks about the owners' past business ties.

Visa also warns that a business once turned down or dropped may lie on its form to get service. Tell the truth on your own form.

Background and fraud checks on the owners

Visa's standards say acquirers must check the background of each principal. They must also run fraud checks when they onboard a merchant. They check your data against other sources. They crawl the web, scan for bad news, and research who really owns the business. Visa's standards also say acquirers must keep running AML checks. These cover sanctions, politically exposed persons, and bad press.

Visa's standards say acquirers evaluating merchant creditworthiness should assess financial and credit reports with external vendors and use enhanced due diligence. Visa's guide says high-brand risk merchants require an enhanced level of due diligence.

How the decision is made

Visa's standards say an application decision can be approval, decline or conditional approval with exposure mitigation strategies such as reserves or holds.

A conditional yes is still a yes. It means the acquirer will take you but wants a buffer. Visa's guide says merchants should be underwritten on their merits, and reserves are not a reason to onboard unreasonably high-risk merchants. So a reserve does not mean the acquirer stopped thinking.

Visa's guide says an underwriting policy should include a clear framework of approval authority with a hierarchy of underwriters and cascading approval limits. A junior underwriter can say yes to an easy file. A hard one goes up the chain.

Automated underwriting and auto-boarding

A computer may read your file before a person does. Visa's guide says auto-boarding is an automated merchant underwriting and onboarding process that uses rule logic and machine learning. Visa's standards say automated underwriting often uses decision or risk models, which may include artificial intelligence.

The rules the model applies still come from the acquirer's policy. A clean, complete application helps you either way.

What happens after approval

The review does not stop once you are approved. Visa's guide says to use velocity checks to monitor newly onboarded sellers. Visa's standards put fraud and credit risk under both sign-up and the checks after it. So the checks go on after you sign up.

How to prepare without hurting your application

Give the same answers on your form, on your website, and in public records. Match your URLs to your registration. Disclose past terminations before they turn up on their own. Visa's risk standards say gaps in the checks are a risk at sign-up.

If you sell by phone, check your script. Get billing authorization right on phone sales before you apply.

Sources