Underwriting

What is underwriting?

Underwriting is the process that financial institutions, insurance companies, or payment processors use to assess the risk of doing business with a person or business. In the context of payment processing, underwriting determines if a business is eligible to accept credit card payments based on factors like financial history, industry type, and expected transaction volume. It’s a critical step that protects the payment processor and the merchant from fraud and financial losses.

Key Points

Underwriting helps payment processors assess risk, prevent fraud, and protect both the business and the provider.
It can identify issues like mismatched tax information early and prevent delays in payment processing.
Approval speed varies by risk level. Low-risk businesses get faster onboarding than high-risk ones.

Why underwriting matters in payment processing

Most merchants never consider underwriting until their application gets flagged or delayed. But behind the scenes, it’s one of the most important safeguards in payment processing. When a business applies for a merchant account, the processor must assess how risky that business is. An online CBD retailer or a brand new eCommerce site may be considered high risk due to chargeback potential, regulatory hurdles, or lack of history.

The underwriting process ensures that processors don’t take on merchants who might end up with high chargeback rates, fraudulent activity, or cash flow issues. This keeps processing fees lower for everyone and prevents system abuse.

It also helps the business itself. Underwriting can surface potential issues early (like a mismatch between a legal business name and tax ID) that could delay or disrupt payment acceptance later on.

For example, EBizCharge, a B2B payment processor, uses underwriting not just to vet merchants but also to help them set up processing limits that align with their actual sales volume, avoiding unexpected holds or funding delays.

How long does underwriting take?

Underwriting time can vary depending on the type of business, the application’s completeness, and the payment processor’s policies.

For low-risk businesses with clean financials, getting approved can take as little as a few hours. Many modern fintech processors offer near-instant onboarding for these types of accounts.
For higher-risk industries or businesses with limited history, it can take a few days or even up to a week.

Factors that can slow things down include missing documents, unclear business models, or red flags in banking history.