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Underwriting Merchant Accounts

by | Jul 8, 2009

We’re all familiar with underwriting.  Arghh!  Mortgages, life insurance, health insurance – painful.  But what about merchant accounts?

The merchant and payment processor agreement is a financial contract.

The merchant application goes through a stringent underwriting process where the processor determines the merchants business credibility as well as the owners credit worthiness.  It’s a risk analysis.  Issues that can negatively impact the application are –

  • Merchant type – sometimes the business type alone can be determined to be high risk.  Clearly and typically, retail is considered less risky than online ventures.  Merchants who take payment today and deliver later are a risk (will they deliver?- consider travel services).  Adult entertainment, debt consolidation, pharmaceutical – are all challenging when it comes to merchant account approval (high rate of chargebacks, FDA involvement and myriad other issues to consider)
  • The business owners credit rating – big impact
  • Prior bankruptcies for the business owner – what’s the status of the filing?
  • A high percentage of chargebacks on a previous merchant account
  • Tenure of business ownership

As you can see – a great number of things are considered in the application.  A negative review can result in an outright decline of the account of course, but at times, the XBS underwriter and consultant work together with the payment processor to tweak the rules to make the account less risky and gain account approval –

  • Payment processors may request a reserve where the merchant is asked set aside funds should a “problem arise” (such as the inability to fund a chargeback or customer refund)
  • The processor may request that processing fees (discount rates) be paid daily so they can assure they will be paid (vs monthly which XBS recommends to smooth cash flow)
  • Payment processors may lower the high ticket amounts or processing volume allowed.

In the case of “underwriting tweaks” XBS provides our merchants with ongoing account monitoring to ensure smooth processing and a proactive revisit of the underwritten account in 6 months.  If the account has processed with few problems your XBS consultant can revisit the issue with underwriting and attempt to remove some of these restraints and limitations.

We advise our merchants to be proactive themselves with any issues – no different than if your credit card payment was going to be late.  Call the processor for example if you have a sale that is more than your average high ticket listed on your application.  Sending the processor a copy of an invoice for such a sale or a contact number for the customer can go a long way in ensuring quick receipt of your funds…and isn’t that the goal?