In its simplest terms, underwriting describes a company taking on financial risk in exchange for a fee. It happens constantly in countless industries – underwriting is a part of every credit card application, car financing, new insurance policy, mortgage, and many other parts of daily life. It’s also a part of payment processing. 

Merchant underwriting describes the process by which payment processors and, in some cases, ISOs take on the financial risk associated with new merchants. Every new merchant represents an unknown. If that merchant engages in fraud or refuses rightful refunds to customers resulting in chargebacks, whoever performed the underwriting and approved the merchant is ultimately on the hook. Unsurprisingly, the payment processing industry takes underwriting and risk assessment very seriously. 

Underwriting is generally the responsibility of the payment processor and is one of the duties they perform as part of their partnership with the card companies. However, in some cases, payment processors pass on some of the underwriting responsibility to specially approved ISOs, known as wholesale ISOs. Doing so reduces the risk on the payment processor by sharing responsibility and also opens up a new revenue source for the ISO, which earns more in exchange for taking on part of the liability. 


How Do ISOs and Payment Processors Perform Underwriting?

Since underwriting is all about assessing risk and making a decision on each merchant, it all comes down to verification of as much information as possible. 

The underwriting department of a processor or wholesale ISO will generally have a predefined set of data points they reference to verify not only their new merchants, but also occasionally their existing merchants to make sure their risk assessments are still valid. 

Underwriting with the information in a merchant’s processing agreement, which provides details on the company’s vitals, the founders, business and financial history, and much more. But underwriting can go well beyond that. In a data-driven world, there is an enormous amount of information available on the web as well, and underwriters can go into great depth looking up new merchants in everything from fraud databases to government sanctions lists and more. The level of detail an underwriter chooses to go into often depends on things like the type of business or how long a merchant has been in business, but in some cases, it can also be unduly influenced by time pressure. 


How Automated Underwriting Helps Wholesale ISOs

If it sounds like underwriting takes a lot of time, it’s because it does. Thorough manual underwriting is an extremely involved process that can potentially take an underwriter hours upon hours for each merchant. As a result, one of two things often happens: either the underwriter does a thorough job but at a snail’s pace, slowing down the pipeline, or even more commonly, certain checks start to get dropped in the name of speed and the integrity of the underwriting process suffers. The potential consequences of rushed underwriting are obvious. 

Fortunately, there is a way wholesale ISOs can both reduce the time it takes to assess each merchant and ensure the process is complete and thorough – automated underwriting. Automated underwriting uses a combination of rules-based checks and, in many cases, artificial intelligence to perform a complete and wide-ranging risk assessment in a matter of minutes, providing the underwriter with a score and a recommendation that they can either accept immediately or use as a jumping-off point to go more in-depth. 

Save Time

There are certain things computers are better than humans at, and quickly finding data is one of them. Automated underwriting lets the system work to its strengths, performing dozens upon dozens of checks in an instant – far faster than any human user could. For example, pulling up a single merchant in a single database and assessing the information would take a human underwriter five minutes or more. An automated system can do the same check in as little as a fraction of a second. 

The time savings realized through automated underwriting can be hours for each merchant which, spread across hundreds or even thousands of merchants checked by large ISOs and processors each year, is an immense productivity booster. 

Ensure Completeness

Because a thorough look into each merchant takes so much time, it’s extremely common for human underwriters to drop checks in order to perform a faster, more generalized risk assessment. That might catch most problems most of the time, but in the cases where things do slip through the cracks, the resulting liability can be significant.

Automated underwriting never misses a check. If the system has been told to reference a data point, that check is done every time, no matter what. As a result, a wholesale ISO can rest assured that an automated underwriting system never pulls checks to meet time pressure, and that the risk assessment done on each merchant will be thorough and complete, every single time. Regardless of how many data points the system is told to reference, it’ll never rush, get tired, or forget. That kind of completeness is key to ensuring that risky merchants never slip through the cracks and, in turn, minimizing liability. 


Automated Underwriting with IRIS CRM

IRIS CRM, the payments industry’s top customer resource management platform, enables ISOs to perform fully automated underwriting without ever having to leave the CRM. Through IRIS CRM’s integration with Agreement Express, users can assign merchants in the CRM an underwriting status in a matter of a few clicks. IRIS CRM then passes all the key merchant data from the CRM to Agreement Express. Then, Agreement Express automatically performs checks against all the top third-party underwriting databases and sends a scored assessment back to IRIS CRM – all in a matter of minutes. The human underwriter can then make a decision with the information returned, or even set the system to accept Agreement Express’ recommendation automatically and move on to the next step in the boarding process on its own.   


To find out more about how automated underwriting can save your wholesale ISO time and money while reducing your risk, schedule a guided demonstration of IRIS CRM today.