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Merchant underwriting helps ensure that customers feel secure when making payments and that companies can fulfill their obligations to their customers. Understanding the process can help you prepare for the merchant underwriting process and get approved quickly.

Even though this process is critical to the success of your business, it can be unclear and hard to understand. So, to break down what it is and how it works, let's start with an overview of the process and what you can expect.

What is merchant underwriting?

Merchant underwriting is the process of verifying that a business has sufficient funds and resources to fulfill its obligations to its customers. It involves evaluating the company's financial records, customer feedback, and other factors. The goal is to ensure that a merchant can accept payments safely and securely and be accountable to customers.

Before accepting payments online or through a payment processor, you'll need to go through this process. Merchant underwriting typically takes up to a week and involves collecting financial information, offering customer feedback surveys, and additional evaluation forms.

Merchant account underwriting aims to protect your customers and the payment processor or bank. It helps them ensure that you can fulfill your obligations if a customer makes a purchase and that the funds are secure.

Key merchant underwriting terms and definitions

Merchant underwriting can confuse business owners unfamiliar with the financial terminology involved. Here are some of the key terms and definitions you should understand before starting the process:

Financial facilitator: A financial facilitator is an organization that helps businesses process payments. They typically provide merchant services such as credit card processing, payment gateway setup, and fraud prevention tools.

Merchant: A merchant is a business that processes customer payments. This can include online stores, brick-and-mortar businesses, and service providers.

Merchant account: A merchant account is an account set up by the financial facilitator to enable businesses to accept customer credit card payments.

Merchant agreement: A merchant agreement is a document that outlines the terms and conditions of your relationship with the financial facilitator. In addition, it includes information such as fees, chargeback limits, and dispute resolution.

EDI payments: EDI (Electronic Data Interchange) payments are digital transactions that use a secure payment gateway to transfer funds between businesses.

Financial profile: A financial profile is an assessment of your business's financial health. It includes information such as credit history, cash flow, and current liabilities.

Chargeback fees: Chargeback fees are fees merchants must pay when a customer disputes a transaction. This is usually caused by credit card fraud or unauthorized card use but can also be due to customer dissatisfaction.

Operational history: An operational history includes information about how long you've been in business, the type of products or services you offer, and your past performance records.

Risk assessment: A risk assessment evaluates your business's potential risks, such as fraud or insolvency. It helps the financial facilitator determine if your business meets its standards for accepting payments.

How does merchant underwriting work?

Merchant underwriting is the process of assessing and evaluating a business's information to see if it meets specific standards. This is often called an approval process that companies must go through to accept customer payments.

The merchant underwriter will review a wide range of information about your business, from financial statements to past performance records. They'll also look at credit history, chargeback rates, and operational history.

The time it takes to complete the merchant underwriting process varies depending on the complexity of your business and the amount of information you provide. It can take up to a week to complete the process. However, some financial facilitators can complete the process more quickly if you give the necessary information upfront.

Sometimes, the process may take longer if additional information is needed or more review is required. This is why it's essential to be prepared and provide detailed information about your business in advance.

Once the merchant underwriter has reviewed your business's information, they'll decide whether to approve you for payment processing. If approved, the merchant will provide you with a merchant account, allowing you to accept customer payments.

The best way to prepare your business for merchant underwriting is to ensure you have all the necessary financial documents and evaluation information in advance. You should also have an excellent track record of customer satisfaction, low chargeback rates, and a solid operational history. Doing your due diligence ahead of time will help ensure the process runs smoothly and quickly.

The merchant underwriting process explained

Merchant underwriting involves assessing and evaluating a business's financial information to ensure it meets certain standards of legitimacy and credit worthiness. For example, the merchant underwriter will review a wide range of data that should prove a business's ability to be trusted with processing customer payments.

Factors considered

The merchant underwriter will review a wide variety of information, including:

  • Financial statements
  • Past performance records
  • Credit history
  • Chargeback rates
  • Business history
  • Business structure
  • Legal entity type

Depending on the type of business, the merchant underwriter may also consider other factors, such as the type of products or services offered, international business relationships, and customer reviews.

Required documents

The documents needed for merchant underwriting vary based on the type of business and the payment processor used. Generally, though, you'll need to provide the following:

  • Financial documentation. This includes bank statements, income statements, and balance sheets
  • Tax returns. Previous years' tax returns are typically required.
  • Identification documents. This could include proof of address, driver's license, or photo ID.
  • Business licenses or permits. Depending on your business type, you may need to provide documentation showing that it is legally registered with the state.
  • Business plan or other business documents. You may also need to provide a detailed business plan and other documents that demonstrate the stability and success of your business.
  • Additional documents. Your payment processor may also require additional documents, such as invoices or contracts to show your business's operational history.

Streamlining the merchant underwriting process

Undergoing the merchant underwriting process is essential for businesses wanting to accept customer payments. But it can be a complex and time-consuming process. It can seem like an impossible task with confusing lingo, complicated terms, and a lot of paperwork.

However, it doesn't have to be that way. To understand how merchant processing works, get familiar with the process and terms and have all your financial documentation ready. Preparation is the key to success when it comes to merchant underwriting.

The Ramp team is comprised of subject matter experts who are dedicated to helping businesses of all sizes work smarter and faster.

Ramp is dedicated to helping businesses of all sizes make informed decisions. We adhere to strict editorial guidelines to ensure that our content meets and maintains our high standards.


How do you get approved for a merchant account?

To boost your chances of being approved for a merchant account, prepare all the required documents, such as financial statements and tax returns, in advance. Also, if you have a business plan or other related documents that show the stability and success of your business, be sure to include those in the application process.

What is payment underwriting?

Payment underwriting assesses a business's financial information to determine if they are eligible for merchant account services. This process places a heavy emphasis on financial information to prove that the company is capable of handling credit card payments. The underwriting process protects the merchant and credit card processors from potential fraud or other risks.

Who pays the underwriting fee?

The merchant is typically responsible for paying the underwriting fee. The fee amount varies depending on the type of business and the payment processor used. For some companies, the cost may be waived or discounted if specific criteria are met.

How long does it take to get approved for a merchant account?

The merchant underwriting process can take anywhere from a few days to up to a week. The exact time frame will depend on the payment processor and the amount and complexity of the financial documents needed for approval. Preparing your documents ahead of time can speed up the application process.

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