What is merchant underwriting?

Merchant underwriting is the process a payment provider uses to evaluate the risk of working with a business before, and while, it processes that business's card payments. Stripe's guide to merchant accounts describes underwriting as the process of evaluating the risk associated with your business, with the goal of confirming that you are a legitimate and trustworthy business.

In practice, underwriting is how a provider decides whether to work with a business, and on what terms.

What underwriting looks at

Stripe's resources describe several areas a provider may review:

• Identity. Who owns and controls the business. Stripe says its regulators require it to collect information about the person creating the account, the business, and the individuals who ultimately own or control it. See what is know-your-business (KYB).
• Finances. Stripe's guide says a provider may run a credit check and review processing history and sales volume. Its merchant risk guide says processors want to know whether a business is financially stable enough to handle refunds, disputes and operating costs.
• Industry and business model. Processors consider the kind of business and how its revenue model could create future liabilities, such as taking payment well before delivery.
• Disputes and fraud. Chargeback history and fraud patterns are key signals.
• Conduct. Stripe's merchant risk guide lists things such as deceptive marketing and customer complaints among the factors processors watch.

Documents you may be asked for

Stripe's guide lists business registration documents, bank statements and tax returns as typical examples, and says the provider may contact you for more information or clarification. It advises submitting complete documents with accurate and current information. Our guide to responding to a processor information request covers how to answer well.

Stripe's guide says underwriting can take several days to several weeks, depending on the provider and how complicated or high-risk the business is.

Underwriting does not stop at onboarding

Stripe's merchant risk guide describes risk assessment as continuing while a business operates. Processors keep watching disputes, fraud and business model risk. Stripe also says account holders must promptly update their information when something changes, and that Stripe may contact them periodically to confirm it is still accurate.

Depending on what they see, processors may decline to onboard a business or set conditions such as holding funds in reserve. See reserves and payout holds, explained.

How to approach it

The best preparation is an accurate, consistent picture of your business: what you sell, who you sell to, how you describe it on your site and how you handle orders, refunds and disputes. Our explainer on how payment processors review a merchant goes into more detail.

Underwriting decisions belong to the provider. Claddr is compliance software that connects to your own Stripe account. It does not take part in Stripe's underwriting and does not guarantee approval or continued service.