Learn about payments and the payment facilitator model from our team of experts

What Is Underwriting?


Underwriting in the payments industry is the process of assessing and verifying potential customers, to protect consumers from entities that are wanting to engage in fraud or other illegal activities by accepting credit card transactions. This is essential to maintain a safe payments ecosystem to protect everyone’s money and well-being and also to meet the various requirements implemented by the card brands and all relevant regulatory bodies.

Before a payment facilitator or other payments company is able to onboard a new customer (referred to as a merchant) to allow them to begin accepting electronic payments, they need to first ensure that the merchant is a legitimate business that does not engage in any illegal, prohibited or unwanted activity.

This process begins with the collection of all necessary business information and demographics from the prospective customer and then subjecting this information to a variety of underwriting checks and screenings. New technology, such as Infinicept’s Underwriting Platform, allows payment facilitators and other payments companies to automate this underwriting process, creating a more seamless experience for their customers and speeding time to revenue.


Collecting Merchant Information

The process of underwriting a new merchant typically first involves collecting information from the merchant that is needed to run the required checks and screenings. This is typically done via an online form that is sent or accessible to the prospective merchant for them to fill out. A payment facilitator has the ability to, and typically does, tailor the requested information to their specific customer base, creating a truly customized experience.

The data requested includes personal information from the owner(s), business information, and info regarding the types of goods or services the business sells. Once the payment facilitator receives this information, they can then pass the data through the necessary underwriting checks. These screenings will vary depending on the vertical of the payment facilitators’ customers, how they operate their business, and what volumes of transactions are proposed.


Underwriting Checks

A term commonly used in underwriting is KYC which stands for, “Know Your Customer”. Knowing who your customer is, becomes the essence of underwriting. The goal for the payment facilitator is to understand who their customer is and what their business does before allowing them to accept payments using their infrastructure, all the while balancing the need for a smooth user experience.

Performing adequate underwriting checks allows the payment facilitator to verify the identity of each customer and ensure that they are bringing on a viable business, not engaged in illegal activities. These checks should seek to answer questions such as:

  • Is this merchant likely to be involved in fraudulent credit card transactions?
  • Is the merchant actually who they say they are?
  • Will the merchant be able to continue running as a business?
  • Is this merchant involved in illegal, prohibited, or other activities that may bring harm to the payments ecosystem?


Required Underwriting Checks

There are three basic underwriting checks required by the card brands for any merchant wanting to begin accepting credit card payments. The first check is an IRS TIN Match. This check ensures that the tax ID the merchant gave in their application exists and validates that the tax ID is associated with the business name they gave on the application.

The second is ensuring the merchant is not on Mastercard’s MATCH list. MATCH stands for Member Alert to Control High Risk Merchants. This list contains the information related to merchants and individuals that have been terminated by other banks for a list of reasons that Mastercard maintains (chargebacks, fraud, etc.). Therefore, if the merchant that is applying is found to be on this list, they should not get approved.

The third required underwriting check is to make sure that neither the owners nor the business itself are on the United States Treasury Department OFAC (Office of Foreign Asset Control) and other consolidated sanction lists. This list contains individuals, entities, countries and regions with whom a payment facilitator or other payments company may not conduct business. Typically, these may be organizations who are associated with criminal activity or are located in or controlled by sanction countries.

Best Practice Underwriting Checks

Aside from just the required underwriting checks, there are other screenings that are considered best practices to ensure that you truly know who your customer is before you enable their payment processing.

The first of these may be to perform an identity check on the business owner. Looking at the background and reputation of owners via various services that offer identity checks helps ensure that the owner’s application information and background is both valid and contains no indication of identity fraud or reputational concerns

In the same vein of ensuring that the owner’s information is legitimate, it is also recommended to verify some of the other pertinent data listed on the application. This typically includes the email address, the business address, and the business website (when applicable).

It is also recommended to verify the bank account that is listed on the application. The underwriter will want to ensure that the bank account listed is a legitimate bank account. Additionally, and in order to comply with card brand rules, it must be ensured that the funds are directed only to an account held by the legal entity that is the merchant, whether an individual or business organization.

Lastly, with social media becoming more and more prevalent for businesses all over the world, underwriters gain the ability to obtain additional information needed to verify the business’ legitimacy. Infinicept’s underwriting platform uses a proprietary social media check called InfiniScore Social. This check analyzes the business’ social media accounts and provides a score measuring how legitimate those social media accounts appear based on activity and history. This helps give the underwriter more confidence when determining whether to approve the application.


Time to Onboard the New Merchant

Once all the underwriting checks are complete and the information is validated, the payment facilitator or payments company can then onboard the new merchant and allow them to begin accepting electronic payments.

Performing all the underwriting checks helps the payment facilitator meet their regulatory requirements, maintain a safe payments ecosystem, and ensure they are doing business with legitimate entities.

To speak with a payments expert or to learn about how Infinicept’s underwriting platform can help you increase the quality of your underwriting process, while simultaneously providing a faster and cleaner merchant application process, contact us.

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