Merchant underwriting is the process of evaluating a business’s risk level before approving it for a merchant account or payment processing services. This step happens during onboarding and serves as a safeguard for payment providers, acquirers, and banks. The goal is to determine whether the merchant falls within the provider’s acceptable risk threshold and under what terms they can be approved.

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Underwriting involves a thorough review of the merchant’s background  this may include examining the industry category (such as whether it's high-risk, like CBD or adult content), financial health, credit history, chargeback patterns, and regulatory compliance. For example, a new e-commerce business selling nutraceuticals might be flagged for extra scrutiny due to industry risk, while a stable retailer with a clean history might be fast-tracked.

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If concerns arise, underwriters might still allow the merchant to onboard but apply conditions such as rolling reserves, processing limits, or enhanced monitoring. Strong merchant underwriting helps prevent fraud, chargebacks, and reputational damage by ensuring only trustworthy businesses enter the payment system. It balances the need for quick onboarding with the responsibility of protecting financial infrastructure.

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