Entries tagged with “Underwriting”.


“Why does it matter what I sell? You are just making money off each transaction? There is no risk to you.” This is a common conversation that we have while reviewing and underwriting new merchants. Many people we talk with have used the dispute process on their credit cards. However most don’t recognize that as the merchant they now shoulder that liability. It is often an eye opening conversation as they begin to understand why we want to know where they sell their goods or services, how they sell, etc.

Items reviewed in the underwriting process for a merchant account are different from underwriting for an auto loan or mortgage, but the principles are the same. What is the potential for loss and what factors are there to mitigate those issues? Are you processing in a face-to-face environment where you are swiping the card & have a signature? Are all of your transactions done online? If you process online, do you get delivery confirmation at the billing address? What is the average transaction amount? What is your return policy? Do you ship overseas?

There are many other questions and as we get answers to those questions we are better able to determine the risk of the account. Underwriting for a merchant account involves properly identifying the business that is applying, as well as the individual applicant. Confirmation of the entities existence is done through various means including through filings in the state where they are registered. Once the individual & business have been validated we can move on to what is being sold and the manner in which it is sold. The type of product or service that is being rendered plays a significant role in this process since some items pose a higher risk than others. We maintain a list on our website that shows products/services that we consider higher risk and those that we prohibit.

We strive to make the underwriting processing quick and easy, so you can focus on operating your business. We are here to help you succeed by making credit card acceptance, simple, secure & affordable. Should you have any questions before, during or after the underwriting process please don’t hesitate to contact ProPay.

Working in the Limits department here at ProPay puts me in an interesting dilemma: I often get the question, “If ProPay makes money when I’m processing payments, then why would there be limitations on my ability to process? Doesn’t ProPay want to make money?” The question is a valid one and deserves some consideration.

First, one must understand that the key point that plays into the role of the Limits department is that a customer can dispute a charge anywhere from 120 to 180 days after the date the card was originally processed. For a merchant, this means that you are open to liabilities for financial loss during that four to six month period on any given transaction. Essentially, the role of the Limits department is to do just that: limit your exposure to the liabilities of financial loss during that period of time, because, although what’s good for our merchants is good for ProPay, it is equally true that what’s bad for our merchants is also bad for ProPay. Our intent is never to limit your business’ growth or possibilities, but to limit the risks and problems that come along with accepting cards. The members of the Limits department team may go about limiting losses and liabilities to ensure that your business’ growth is safe and secure in several ways.

The main criteria for evaluating and limiting liabilities would be a review of your account history and information. We look for processing patterns that indicate steady growth or the need for increased processing limits. Some indicators for that need may be continuous growth in processing volumes and steadily reaching the current limitations, or it may be that you have needed to request temporary increases on a regular basis. Another point of criteria in this evaluation may be your business type, the types of products or services sold, history of previous disputes or merchant processing and additional financial or business information which is provided to ensure validity and stability.

Another way in which we reduce the risks for financial loss is to ask for additional information on particular transactions that have shown indicators for increasing the possibility of a customer dispute. This may mean sending in an invoice that shows an itemized list of what was sold and proof of customer authorization via a signature. We may also ask to verify the billing information that is associated with the card that is being charged.

Finally, in the event that a transaction or certain levels of processing pose increased risks for dispute or fraud and those risks cannot be otherwise reduced, we may ask to hold a portion of the funds in the account in what we call a reserve until the liabilities have been sufficiently mitigated. If a customer were to dispute a charge, you would be able to apply that reserve toward any loss of funds and reduce your liability to recover to full balance of the transaction from your own finances. Once a transaction passes out of the period where it can be disputed or your account has built enough history to no longer need a reserve, the reserve can be released back to you in full.

By employing these methods, ProPay looks forward to growing with you as you securely accept card payments. Please contact us at limits@propay.com to learn more about the limits process or to research your options on accepting larger transactions. 

One of my favorite childhood books was Where the Red Fern Grows, by Wilson Rawls.  In this book, Billy is a little boy who hunts raccoons.  At one point in the book, Billy and his grandfather manufacture a very clever raccoon trap.  The trap consists of a hole in a log with nails driven into it at an angle, with a shiny object placed at the bottom of the hole.  The raccoon comes across the log and sees the shiny object in the bottom of the hole and without any thought or thorough inspection; the raccoon reaches his hand down into the hole and grabs the shiny object.  With his paw clenched around the shiny object, the raccoon’s fist becomes too big to get past the nails driven into the log.  Once caught with a hand in the trap, the raccoon will not let go of the shiny object in order to free itself.  Eventually the raccoon’s need to have the shiny object leads to its capture.

All too often, while working with merchants, I come across people who, like excited raccoons, grab at a shiny object without further inspection.  It is easy for a merchant to get caught up in the excitement of a large sale and overlook the warning signs or dangers that may accompany a high risk or potentially fraudulent transaction.

On the other hand, I am told that a coyote is one of the most difficult animals to trap.  The reason a coyote is so difficult to trap is because a coyote uses all of its senses and intuition to avoid being trapped.  A coyote will not go near a baited trap if it catches any human scent, sees any human, or hears any human.  People attempting to trap a coyote will need to wear gloves when touching the trap and bait in order to mask their scent.  A coyote will notice if anything is awry with the location of the bait, such as if it sees parts of a metal trap coming up from the ground around the bait.    A coyote will take many factors into consideration before going after the bait.

Part of my job at ProPay is to help merchants become more like astute coyotes instead of raccoons when accepting payments.  Listed below are some tips for checking out a transaction before and after processing so that you can ensure you will not become trapped like the raccoon.

1.  Know your customer: You aren’t as likely to be defrauded by a long time customer as you are by someone you have never met.  Try to have phone conversations with your customers instead of email conversations.  Check if their phone number area code matches their billing address.  Don’t let the size of the transaction overpower your common sense.  If something seems out of place or doesn’t feel right, don’t hesitate to look further into the transaction and get more information that will help you determine the legitimacy of the transaction.

2. Check shipping and billing addresses: Pay attention to the addresses the customer gives you.  Often a fraudster will use a stolen card with one address, but will want the product shipped to a completely different address.  If the billing address and the shipping address are completely different, you may want to ask the customer why they are having the product shipped somewhere else.  When you process a transaction through ProPay, the confirmation screen will tell you if the address you entered at processing matches the address on the card you used.  This information will be found in the “AVS Code” line.  Please see this blog post for information on AVS codes.  These codes can help you determine if the customer gave you the correct address.

3.  Large transactions for high risk items: Generally, fraudsters want to find a way to use someone else’s money to get your product so they can either resell or use your product.  If you sell products that have a high resale value, then you may be more susceptible to fraud.  Pay attention to transactions that are higher than your average transaction, and transactions that are for large amounts of the same type of product.

4.  If you don’t feel comfortable with it, question it: A major factor that gives us an advantage over the raccoons (other than the opposable thumbs that we are so proud of) is our ability to reason and listen to our common sense.  If you feel that anything could be wrong with the transaction, get more information from the customer.  The more information you have, the better (or worse) you will start to feel about the transaction.  With more information, you can make a better educated decision.  Remember, if it seems too good to be true, it is too good to be true.

Square Inc. has recently informed the public they will soon be offering their card readers, which could result in a large increase in people accepting and initiating payment card transacions.  Believing demand will be sizeable; Square Inc. has discovered a problem needing to be addressed: risk and underwriting. 

Underwriting is the process merchant account providers use to assess the eligibility of a potential account holder.  This process involves several steps in the determination of the account status. Credit scores, business licenses, background searches via the web, and proof of identity are just a few items reviewed.  Checking these items will supply the merchant provider with information indicating how the merchant will operate with the account, or if the merchant is deemed “high risk”.

An account is conceived to be “high risk” when, for example, a credit score is low.  The Underwriting Officer may take this credit score and create outcomes of the account.  There is a possibility the account may have a significant number of chargebacks to the account, resulting in negative balances that cannot be recovered.  The officer might also find other types of businesses, that are prohibited, linked to the merchant, ending in the decline of the account.

ProPay, Inc. underwrites accounts daily having these, and other factors considered.  While ProPay’s exact underwriting process is proprietary, our new accounts are scrutinized through several associates and industry accepted standards, looking for anything  that could indicate an account would be considered “high risk” in a timely fashion.  ProPay takes a great deal of satisfaction knowing we are safe, fast, and affordable. 

Square Inc.’s approach, using “non-traditional fraud-prevention and underwriting tactics” (Digital Transactions News, http://digitaltransactions.net/newsstory.cfm?newsid=2589, July 22), will be using Facebook and Twitter in accepting new merchants.  How can social networking obtain or verify a merchant account?  For example, if a Facebook user has 250 friends, maintained the account for several years, rarely logs-in and hardly updates their status; does this make the Facebook holder reputable in attaining a merchant account?  Square Inc. negates the fact not all business men and women are avid social networkers.  How does having a certain number of “friends” or “followers” translate to being a savvy business owner?  If an older gentleman has never taken to the social networking mechanism, will this automatically bring an end to his underwriting review?

Underwriting should research backgrounds to discover if they will be good merchants with the least possible amount of risk.  Just because a merchant does not conform to the current craze of tweeting on Twitter or having friends on Facebook does not make them a “risky merchant” for underwriting purposes.  In fact, it’s quite possible it may have the opposite effect and make them less of a target for fraud.

Travis Allen: Risk Analyst