Underwriting

Underwriting is the process that financial institutions and use to assess merchant applications and set terms for payment processing. It acts as the main gateway that determines which businesses can access payment services, balancing the goal of serving legitimate merchants with the need to manage risk and follow regulations.

The underwriting process involves evaluating multiple risk factors. Underwriters review the business model to understand revenue sources, operational complexity, and risk exposure. Financial stability checks include credit history, cash flow, capital , and, for existing merchants, transaction history and performance. Industry-specific factors, such as regulatory obligations, fraud exposure, and dispute rates, also shape the evaluation.

After risk assessment, underwriters verify the business and its compliance capacity. This includes background checks on owners and key personnel, confirmation of legal registration and licenses, and a review of the merchant’s risk management practices. These steps confirm that the business can operate securely within the payment ecosystem while meeting industry and requirements.

Underwriting outcomes define merchant terms and ongoing relationships. Low-risk merchants usually gain lower processing rates, fewer restrictions, and flexible contracts. High-risk merchants may face higher fees, rolling reserves, transaction limits, and closer monitoring. Industry classification strongly influences risk categories, with some sectors requiring specialized approaches due to higher chargeback rates, regulatory demands, or risk.