High Risk Merchant Account Underwriting Process

Merchant account underwriting is a standard for all businesses to determine if the business is eligible for payment processing services.

High-risk merchant accounts represent a diverse range of businesses seeking tailored solutions and reliable partners in the payment processing industry to ensure reliability and compliance to transact business.

These accounts are essential for businesses operating within industries that banks deem risky due to various reasons such as increased chargebacks, potential legal issues, controlled substances or products, or a history of high fraud rates.

Guide to Getting Through the Underwriting Process

Going through the high-risk merchant account underwriting process is one of the steps you will need to take to securing payment processing for your business. The underwriting process for high-risk accounts is an in-depth evaluation carried out by banks and payment processors.

This assessment aims to determine whether providing merchant services to a particular business is a viable risk. It involves thorough checks, documentation review, and diligent analysis of various factors.

In this post, we will provide insights into what to expect, factors considered during underwriting, and tips on how to increase your chances of approval. Here is what you can expect when going through underwriting for high-risk account processing.

Pass through the high-risk payment processing underwriting process swiftly and successfully with Allegiance Service as your partner in payment processing.

Merchant Account Underwriting: What to Expect

Understanding the underwriting process is essential in securing a high-risk merchant account. Both low-risk and high-risk merchant accounts undergo underwriting, with the process varying slightly due to the risk factors involved.

Initial Assessment and Risk Profiling

The underwriting journey begins with an initial assessment. The payment processor evaluates the business model, financial standing, and potential risk levels associated with your business. High-risk businesses typically include those dealing with legal uncertainties or high chargeback rates. This stage sets the ground for what follows in the underwriting process.

Documentation Review

In this phase, you’ll be required to submit various documents.

These may include:

  • Articles of formation/organization/incorporation
  • Business licenses
  • IRS EIN document
  • Financial statements
  • Processing history
  • Bylaws or operating agreements
  • Compliance documentation specific to your industry

Thorough documentation helps paint a clearer picture of your business’s operations and credibility, proving that the business, ownership and bank accounts are connected.

Due Diligence Checks

Once the necessary documents are submitted, due diligence checks take place. The underwriter will verify the authenticity of your documents and assess any potential risks associated with your merchant account. This can involve checking business credit history, examining chargeback ratios, and scrutinizing company operations.

Underwriter’s Decision

After all checks are completed, the underwriter will either approve you for a merchant account, request other supporting documents if they need additional proof, or deny your application if it does not pass the risk assessment, contains fraudulent information, or does not meet industry-related compliance standards.

Once approved, terms and conditions for your high-risk merchant account will be set – which may include reserve requirements and the final rate, and processing fees if applicable.

Allegiance Service will provide white glove service and thorough guidance for you at every step of the underwriting process ensuring success and approval for your high-risk merchant account.

underwriting needs for payment processing

A Closer Look at High-Risk Merchant Account Underwriting

When underwriters assess high-risk merchant accounts, they carefully evaluate multiple factors to determine the level of risk associated with a business.

Here are some important factors they look at:

Transaction Volume
High transaction volumes can be both good and bad; they indicate a successful business but can also increase the chances of fraud. Underwriters examine the average size of each transaction and the total amount processed each month to estimate potential risk.

Chargeback Ratio
The chargeback ratio is a crucial measure. It shows the percentage of transactions that result in chargebacks. A high chargeback ratio suggests unhappy customers or possible fraudulent activity, which leads to closer examination.

Credit and Return Policies
Businesses that outline clear and customer-friendly credit policies and return or refund policies usually have fewer disputes and chargebacks. Underwriters will review your refund policies, terms of service, and procedures for resolving conflicts to ensure they follow industry standards according to your business type.

Industry Risk
Some industries naturally carry more risk due to regulations, reputation issues, or frequent changes in laws. Underwriters classify businesses based on their industry, taking into account factors like product legality and market stability. The underwriter may request additional compliance documentation if applicable to your business.

Credit Score
The personal and business credit scores of applicants provide insight into their financial reliability. A strong credit score can boost trustworthiness, while a low score might raise concerns about a business’s financial health.

Managing and Reducing Risk
Banks and payment processors try to manage risks by setting specific limits for the factors mentioned above. They may ask high-risk merchants to maintain a reserve account or impose restrictions on transaction volumes.

In some cases, the sponsoring financial institution may set a framework to further reduce risks; this could include something along the lines of:

– Additional monitoring to watch for suspicious transaction patterns
– Enforcing tighter security measures for high-risk accounts
– Negotiating specialized terms to safeguard against unexpected liabilities

Understanding these dynamic factors helps businesses prepare for the underwriting process. Clear documentation, transparent operations, and responsible financial practices can significantly influence the underwriter’s decision in favor of approval.

If you are getting ready to apply for a high risk merchant account, talk to Allegiance Service for proactive support and guidance.

Allegiance Service’s dedicated support team is here to help you pass through the underwriting process with confidence, knowing key risk concerns are addressed and ensuring your business is set up with the most economical rates.

business financial statements needed for underwriting

Preparing Your Business for Underwriting Success

You will need to show financial transparency when applying for processing. Whether you are a new business or established business, Allegiance Service can help prepare you with all the documentation needful for underwriting success.

Financial Documentation You Need

If you are an established business and have processing history you will need to provide detailed financial records to demonstrate the financial health of your business.

This may include:

Bank Statements – The most recent bank statements that show how much money is coming in and going out of your company.

Processing Statements – If you’ve already been processing payments, include these statements to highlight your transaction volumes and patterns.

Income Statements/Balance Sheets – These documents give an overview of your business’s financial performance over a specific period of time.

Verifications – You’ll also need to provide additional documents for identity and location verification purposes:

Voided Check/Bank Letter – This serves as confirmation of your bank account details.

Utility Bill/Lease Agreement if applicable – These documents serve as proof of your business’s physical location, if applicable. E-commerce businesses will need to provide their business domain address.

Gather Applicable Compliance Documentation

The underwriter will typically request the articles of formation, incorporation, or organization, bylaws and operating agreements, cap table, and any regulatory official certificates, licenses, or permits pertaining to your industry that may be required.

Make sure you have the following documents ready:

Website Requirements – Ensure that your website includes all necessary legal policies, terms of service, and contact information as required by law or payment processors.

Ownership Cap Tables – Provide information about who owns equity in your business to show clear legal structures.

IRS EIN Documents – SS4 EIN documentation for the business will be required during the application process.

Personal Information – Some times underwriters will also review the personal financial health of business owners, so be prepared to share.

Owners Personal Information – This includes personal ID, credit scores, financial statements, and any other relevant personal data that may be considered during the risk evaluation process.

Allegiance Service will provide full-service support to ensure you have all the needed documentation. During the application process, you will submit all your documentation through our secure documentation portal to provide underwriters with the information they need in a clear and organized manner.

This simplifies the application process, making it easy for you to go through the checklist and request support if you have trouble providing documents for the underwriting process.

get help call Allegiance Service for payment processing underwriting help

Common Challenges with High-Risk Merchant Account Underwriting

High-risk merchant account underwriting can be challenging for some businesses depending on their history, reputation, and old legal issues that may be flagged and require extra steps and attention.

With Allegiance Service on your side, you can proceed with confidence, knowing we have navigated these waters many times and have practical solutions to remedy potential issues that may come up.

Some Common Hurdles:

Frequent Processor Changes – Continually switching payment processors can raise concerns during underwriting. It might indicate instability or dissatisfaction with service providers, which could suggest deeper operational issues within your business.

Bad Reputation or Negative Press – Your reputation plays a crucial role in underwriting. If your business has been involved in any well-known legal disputes, received negative media coverage, or garnered poor reviews, it could hurt your chances of approval.

Bad/Low Credit Score – A low credit score can pose a significant barrier to getting a high-risk merchant account. Underwriters often use credit scores as an indicator of financial responsibility and stability.

TMF MATCH List – If your name or business shows up on the MATCH list and you have your payment processing privileges revoked in the past, we have strategies amd resources to help you overcome this roadblock.

Financial Instability/Earnings from Another Company – If your business shows signs of financial instability or heavily relies on earnings from another company, it may be seen as high risk by underwriters.

Sharing an Account with Another Retailer – Having a shared account with another retailer can complicate the underwriting process and potentially increase risk for the payment processor.

Overcoming These Hurdles

Although these challenges may appear daunting, there are effective ways to tackle them. Let us know what your challenges are; we are equipped to help you find a pathway forward.

The Role of Payment Service Providers in Underwriting High-Risk Accounts

Payment service providers, like Allegiance Service, play a crucial role in the ecosystem of high-risk merchant accounts. They act as intermediaries between merchants and banks, facilitating smoother transactions and expedited service, managing the expectations of both the business and the banks.

1. Direct to Processor Merchant Services

Allegiance Service offers direct-to-processor merchant services, which means they work closely with payment processors to ensure that merchants have a reliable and secure channel for their financial transactions. This relationship provides several benefits:

Reduced Costs: By eliminating middlemen, merchants can often enjoy lower transaction fees.

Improved Communication: Direct links with processors enhance clarity and quick response times for any issues or queries.

Tailored Solutions: Specific needs of high-risk businesses are better understood and met with actionable steps forward and alternative payment processing solutions if needed.

2. Mitigating Merchant Risk Level

Understanding and managing the merchant risk level is pivotal in underwriting high-risk accounts. Allegiance Service specializes in assessing these risks by:

Analyzing business models and industry types to gauge potential chargeback ratios and fraud rates.

Recommending appropriate fraud prevention tools tailored to the specific needs of the business.

Providing guidance on maintaining compliance with industry standards and regulations, which is vital for preserving merchant account status.

3. Expertise in low and high risk Merchant Merchant Underwriting

Our expertise in merchant underwriting helps us to streamline the approval process and help you find solutions to get your high-risk account approved:

– Evaluating financial statements and business history, and addressing ways to remedy potential issues to build a strong case for the merchant.
Working proactively with underwriters to address their questions and provide additional background information to streamline the approval process.

– Advising our clients on best practices to maintain a positive processing relationship post-approval, and providing resources for long-term sustainability.

Allegiance Service supports and collaborates with many ISOs (Independent Sales Organizations) as a direct to merchant payment service provider.

Our comprehensive industry knowledge, risk management proficiency, and personalized attention to detail are essential components that contribute to successful underwriting of high-risk merchant accounts.

Your Partner in High Risk Payment Processing

Now you are informed and equipped to prepare for the high risk payment processing underwriting process.

Should you seek further clarification or need personalized assistance, Allegiance Service is ready to answer your questions and offer expert guidance on high risk merchant account underwriting. Our team is committed to supporting high-risk businesses like yours in overcoming complexities associated with payment processing.


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