What is Underwriting?
June 17th, 2019

After filling out your Sonder Payments merchant application, your application will go through a process called underwriting. Unfortunately, the name of the process isn’t particularly helpful in understanding what happens to your application during that time, so we’re going to outline that here.

If you’ve ever applied for a loan or credit card, you’re likely familiar with the approval process that comes along with it. Creditors typically assess your trustworthiness as a borrower, whether you have the means to pay back the loan, etc. If you fit the creditor’s criteria, the loan is issued.

Merchant accounts operate in much the same way. Just like with a loan or credit card, the banks involved in the process of accepting payments have to evaluate your business and determine whether or not they can accept the risk of working with your company. There are numerous factors that play into this decision, but here are some of the more important ones:

Business Type

Underwriting’s primary concern is avoiding fraud. Your business type and method of accepting payments is the best indicator of potential fraud, so that’s often the very first thing they’ll check. Certain business models, such as subscription services and memberships, are considered more risky because they often face disputes from customers. Similarly, card-not-present transactions are considerably more risky than a card swipe.

If you’re accepting payments online, you’re a much higher risk to the processor than if you only operate a brick and mortar store. If your business operates on a subscription basis, you’re more risky than those that only complete individual sales.

Of course, if you operate a more risky model, that doesn’t mean you’ll get an outright rejection. In most cases, underwriting will have to see red flags on multiple considerations before they’ll drop the axe.

Product Type

Some products are more prone to chargebacks and disputes than others, so processors will always look at what kind of product you sell during the underwriting process. If your business deals in any of the following, you may face further scrutiny from underwriting:

  • Adult products or services
  • Drug paraphernalia
  • Copyrighted materials such as ebooks
  • Online courses and consulting
  • Replica products
  • Weapons
  • Online gambling or sports betting
  • Multi-level marketing

Financial History

During your Sonder Payments application process, you may have been asked to provide past processing statements. These are submitted to underwriting with your application as proof of your financial history. Basically, it helps the involved banks see what they should expect from your business should they approve the application. If your statements show few disputes or chargebacks, you should have no trouble getting approved.

Of course, if you are a brand new business, you may not be able to provide this information. If you are a sole proprietor of the business, underwriting may request your personal bank statements as proof of financial trustworthiness.

Processing Volumes

During the application process, you were asked to provide estimates for your average ticket size, average monthly volume, and maximum ticket. This information is required so underwriting can assess risk in relation to the volume of transactions you are expected to process. They’ll also make sure that the information you provided matches up with the financial history detailed above. Businesses that process smaller volumes tend to gain approval more easily despite risk, while those with large volumes pose greater threats of loss.

If you have any other questions about the underwriting process, please contact Sonder Payments support by calling 314-390-1467 or emailing support@sonderpayments.com.