Credit & Underwriting
Each processor uses their own underwriting criteria when considering new merchant accounts. Underwriting guidelines are based on card brand restrictions, advanced knowledge of the industry, as well as sponsor bank and processor criteria. The parties underwriting the account are financially liable for the account so due diligence is required. Risk doesn’t end when an account has made it through a processor’s underwriting department, risk spans the life of the account, so while it starts with the initial credit underwriting decision, a processor monitors risk on a daily basis reviewing things like average ticket size, monthly volume and changes in a merchants processing.
There are a number of variables that go into determining the risk of a merchant account. The merchants industry & business model play a large factor in risk as history has shown which industries tend to be higher risk. Underwriting requires a careful review of a merchants business longevity and financial stability. A merchants processing history is also considered in the credit underwriting process.
The electronic payments industry has ample historical data to understand which processing habits and industry types tend to carry the highest amount of risk. We know that card present transactions that occur in a face to face environment are the least risky, while internet and e-commerce transactions are generally the most risky. Restaurants yield the lowest amount of financial liability per year across the industry, while travel related merchants tend to have high chargeback percentages and on-going risk concerns.