Risk scoring is the practice of assigning a numerical value or rating to a merchant during onboarding or underwriting to indicate their level of risk. This score helps payment providers, acquirers, and compliance teams make data-driven decisions about whether to approve, reject, or monitor a merchant more closely.

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Risk scores are calculated using models that factor in variables such as business type, processing history, creditworthiness, geographic location, product category, and more. For instance, a brand-new merchant in a high-risk vertical  like dietary supplements or ticket resales  may receive a high risk score, while a long-established business with steady sales and low disputes would score much lower.

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By quantifying risk in a consistent way, providers can streamline onboarding, flag potentially problematic merchants early, and implement safeguards like reserves or tiered monitoring. In high-risk sectors, card networks often require enhanced risk scoring and fraud detection as part of compliance. Ultimately, merchant risk scoring is a core tool for balancing growth and security in the payments ecosystem.

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