Applying for a high-risk merchant account: what underwriting checks

What underwriting is

Underwriting is the review a provider’s bank carries out before it agrees to process card payments for your business. In its guidance for bank examiners, the Office of the Comptroller of the Currency (OCC) says management should implement a formal merchant underwriting and approval policy to control credit risk.

That policy names the types of merchants the bank will work with and how it selects them, for example by time in business, location and sales volume. It also says what each application must contain, such as the type of business, its location, and the tax identification number of the business or its owners.

The OCC’s glossary describes a high-risk merchant account as one that poses increased risk to banks through fraud, high charge-back rates or poor credit history. Its examples include businesses with historically high refund and charge-back rates and businesses that sell products or services that are specially regulated in the United States, such as gambling.

What the checks cover

The OCC’s guidance lists the minimum a bank’s underwriting standards should require. The second column suggests what you can have ready. Your provider may ask for more, or for a different form of the same evidence.

Scroll the table to see all columns.

The guidance also says that in its initial review a bank should reject a merchant with a history of substantial charge-back volumes, weak financial condition or failure to operate a valid business, and that the depth of the review should match the risk the merchant poses.

Your website is part of the application

For internet merchants, the OCC’s guidance says underwriting standards should require certain information on the website. Check your site against this list before you apply:

• a customer service number (the guidance says toll-free is preferable);
• if the site or merchant uses another name, the actual name of the company that operates or controls it;
• an email address for contacting the company;
• a statement on security controls;
• delivery methods and timing;
• refund and return policies;
• privacy statements: how customer information may be used.

The guidance also suggests that, for internet merchants, credit analysts consider whether fraud and charge-back risks call for delayed settlement or a reserve. On Zolution, website review is its own stage of the application, after the documents.

Preparing your documents on Zolution

Zolution does not hold your files. You keep documents in your own storage and save a private link for each one, with a label, a type and the date you last updated it. The types are bank statements, processing statements, company registration, tax documents, identity of signer, website and compliance, and other.

At the application’s review step you choose which links to release to one named provider. Saving a link or receiving a proposal shares nothing. If you cannot provide a document or some of your history, add a missing-history note: the provider reviews the explanation, and can ask for more in the application’s conversation.

After you apply

Your application shows its current stage, the next action and who owns it: Application, Documents, Website, Approval, Setup, Testing and Live. The provider reviews your documents and website, can ask for changes, and records its decision, which may be conditional. If it approves, it publishes setup instructions and you test before the provider reports the account live.

Expect reserve terms to be part of the conversation. The OCC’s guidance notes that many banks use holdback or reserve accounts to mitigate credit risk on higher-risk merchants. On Zolution, every proposal shows its reserve percentage and holding period apart from its fees, so you know what is held before you continue.

Questions, answered