Risk & Compliance
Underwriting
Definition
Underwriting the risk assessment process acquirers use to evaluate merchant applications. Examines business model, financials, processing history, chargeback rates, industry risk, and compliance status. Determines whether to approve the merchant and on what terms (rates, reserves, limits). High-risk merchants face enhanced due diligence. Strong applications include clean history, audited financials, and compliance documentation.
Related Terms
Merchant Account
A bank account that enables a business to accept card payments. The merchant account holds funds from card transactions before settlement to the merchant's business bank account. Obtaining a merchant account requires underwriting by an acquirer. High-risk merchants face more scrutiny and may require specialized acquirers. Terms include processing limits, reserve requirements, and fee structures.
High-Risk Merchant
A classification by acquirers for merchants perceived as having elevated risk of chargebacks, fraud, or regulatory issues. Common high-risk verticals: gambling, forex, adult, nutraceuticals, crypto, travel, and subscription billing. Consequences include higher rates (1-3% premium), rolling reserves, volume limits, and limited acquirer options. Classification is risk assessment, not legitimacy judgment.
KYC (Know Your Customer)
The process of verifying merchant identity and business legitimacy during onboarding. Required by anti-money laundering regulations. Includes identity verification, business registration checks, beneficial ownership disclosure, and sanctions screening. KYC intensity varies by merchant risk profile and jurisdiction. PayFacs and PSPs perform KYC on behalf of their acquirers.
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