Before your business can begin accepting credit card payments through a dedicated merchant account, you must go through the underwriting process. Underwriting is the risk evaluation procedure that payment processors and acquiring banks use to determine whether your business is eligible for a merchant account—and under what terms. While it might seem like a behind-the-scenes step, underwriting has real consequences for your payment infrastructure, including processing limits, rolling reserves, and the approval or denial of your application. For businesses in high-risk verticals or those offering complex payment models like subscriptions, underwriting is even more critical. Whether you’re planning to use a virtual POS, integrate recurring billing, or accept ACH payments, the underwriting team will need to evaluate how those processes function within your business model. This process is more thorough than most expect, and merchants who understand the documentation requirements, risk triggers, and evaluation criteria will be better positioned to secure favorable terms. In this guide, we’ll break down what happens during underwriting and how to prepare for it.
Why Merchant Account Underwriting Is Necessary
Merchant account underwriting exists to help banks and processors minimize financial risk[1]. When a business accepts a credit card transaction, the funds are settled before any disputes or chargebacks occur. If the customer files a dispute and the merchant is unable—or unwilling—to refund the transaction, the liability shifts to the payment processor. This is especially relevant in merchant account credit card processing systems where transactions occur at a high volume or involve large-ticket items. To protect against this, underwriting evaluates the merchant’s financial health, operational model, history of disputes, and compliance with card brand requirements. Industries with high fraud rates, like CBD, firearms, coaching, or collectibles, are subject to even greater scrutiny. Underwriting teams also review business documentation, like processing statements, tax records, refund policies, and delivery procedures, to determine if a merchant’s setup is likely to generate chargebacks[2]. By understanding these risks upfront, processors can price accordingly, assign reserves, or deny accounts that fall outside their risk tolerance.
Key Documents You’ll Need to Provide During Underwriting
Expect to submit a comprehensive business profile during underwriting. At a minimum, you’ll need to provide your business license, articles of incorporation, a voided business check or bank letter, and proof of identity for the principal owners. You’ll also need to offer product descriptions, refund policies, and fulfillment timelines. Merchants with a virtual POS or mobile setup may be asked to demonstrate how payment collection, fraud prevention, and transaction monitoring occur in nontraditional environments. If you’ve accepted payments elsewhere, prior processing statements will be required to evaluate monthly volume, average ticket size, and chargeback ratios. These statements help underwriters assess whether your expectations for future sales align with your actual performance history. If you plan to accept ACH or eCheck payments, you may be asked to submit separate verification documents since these payment methods operate on different timelines and risk frameworks. A clear understanding of what to expect and how to present your documentation will go a long way in accelerating the underwriting process.
High-Risk Industry Classification
Some businesses are automatically flagged based on industry type alone. Even if you’ve never had a chargeback, selling supplements, firearms, or offering coaching services can place you in a high-risk category. This affects approval odds, fees, and reserve requirements.
Payment Method Risk Profiles
Merchants offering ACH payments or who ask “how do I deposit an echeck” may face higher underwriting scrutiny. These transactions carry different risk factors and return windows, requiring additional fraud controls and verification procedures to be approved.
Customer Experience Red Flags
If your business uses vague product descriptions or has limited refund options, underwriters may classify your model as risky. Transparency in pricing, delivery timelines, and service terms improves your underwriting profile and overall compliance.
Card Testing and Fraud Exposure
Businesses with poor fraud prevention tools often experience a wave of card testing attempts, particularly those with open APIs or virtual POS setups. Underwriters will assess whether you’re using AVS, CVV, and other filters to protect transactions.
What Happens After You Submit Your Application
After your application and documentation are submitted, the underwriting team will begin a multi-layered review. This includes cross-referencing your business against internal and third-party fraud databases, analyzing your sales patterns, and verifying the legitimacy of your domain, product claims, and customer support systems. If your application includes unclear service terms or unverifiable billing practices, you may receive a request for more information. Some merchants, particularly those selling intangible services, will be asked to explain how fulfillment is documented in case of disputes. If you’ve ever had issues with online payments or been in a situation where you asked, “Why won’t my Venmo card work?” then you understand how unexplained denials can halt business operations. Merchant underwriting can have a similar effect if you’re unprepared. Once approved, you’ll receive your processing limits, settlement schedule, and reserve terms—if applicable. If denied, you may be advised to restructure your offering or apply with a different processor who accepts your risk profile.
How to Improve Your Underwriting Approval Odds
One of the best ways to get through underwriting quickly is to provide accurate, detailed, and professional documentation from the outset. Your website should have clear refund policies, privacy policies, and contact information. Your checkout process should be compliant with card brand expectations, especially if you’re working with a virtual POS system or recurring billing. Payment descriptors should be clear and consistent with your business name to avoid customer confusion and chargebacks. If you operate under a model that’s often misunderstood—like coaching services, dropshipping, or memberships—you’ll want to provide case studies or customer feedback that supports your legitimacy. Investing in fraud protection and PCI-compliant infrastructure shows underwriters that you take risk mitigation seriously[3]. And while many merchants are eager to avoid reserves or processing limits, proving low chargeback ratios, strong customer support, and transparent sales practices gives you more leverage during negotiation. The more prepared you are, the more control you have over your final processing terms.
What “Define MOTO” Means in Underwriting Conversations
During underwriting, you may be asked whether your business operates under a “MOTO” model. MOTO stands for “Mail Order / Telephone Order,” a term used in merchant account credit card processing to identify transactions where the card is not physically present. This is particularly relevant for beauty service providers, wellness coaches, or consultants who accept payment over the phone or via invoice. MOTO transactions carry a higher fraud risk, so underwriters will want to know how you collect and verify payment information in these cases[4]. For instance, do you store card data securely? Are you using tokenization? Do you offer email confirmations with service details? Merchants who can’t answer these questions risk being denied or placed into a more restrictive merchant account tier. Clarifying whether you use MOTO, virtual POS, or in-person processing helps underwriters assign the right risk rating to your account. The better you understand these terms, the better you can position your application for success.
Conclusion
Merchant account underwriting is not just a formality—it’s a gatekeeping process that determines your ability to collect payments, scale your business, and maintain financial stability[5]. Whether you’re using a virtual POS, exploring merchant account credit card processing, or handling ACH transactions, underwriting evaluates your entire business model through a lens of risk and compliance. Merchants who proactively gather documents, understand industry triggers, and align with best practices will be more likely to gain approval on favorable terms. At Payment Nerds, we help businesses prepare for underwriting by ensuring they have the right infrastructure, policies, and fraud tools in place. From navigating MOTO classifications to explaining how to deposit an echeck, we specialize in making the complex simple. Don’t leave your approval to chance—partner with experts who can guide you through every step of the process.
Sources
- Visa. “Risk Evaluation Guidelines for Merchant Accounts.” Accessed April 2025.
- Federal Trade Commission. “Best Practices for Transparent Billing and Refunds.” Accessed April 2025.
- PCI Security Standards Council. “MOTO and Virtual POS Security Requirements.” Accessed April 2025.
- McKinsey & Company. “Understanding Merchant Account Risk Profiles.” Accessed April 2025.
- Harvard Business Review. “The Role of Underwriting in Payment Infrastructure.” Accessed April 2025.
