Automated Underwriting: How Does it Work?

Underwriting is a reasonably common term in the finance world, but it can mean slightly different things depending on which industry you’re in. In general, an underwriter will assess the risk involved in a financial transaction and agrees to cover this risk for a fee. Whilst in the banking world, an underwriter will assess the risk involved in things such as loans or credit cards, when it comes to merchant services, underwriting refers to a payment processor accepting liability for a payment should something prevent it following usual processing rules.

What Is Underwriting?

There are a variety of different areas that will be assessed in a merchant services underwriting process, including, but not limited to:

  • The type of business 
  • The business owner’s credit score
  • How long they have been in business
  • Their billing method (the shorter the better)

Merchants who have different products, billing cycles, industries and business stages all constitute different levels of risk which underwriters are then tasked with assigning to the appropriate offset fee. 

Automated underwriting is when the risk is assessed by a technology-driven process, with a computer generated decision on the amount of risk that can be accepted and the fee for covering this. Whilst this process may be more commonly known within the credit card industry, it’s now becoming more and more popular within the merchant services area as well.

What Are the Benefits of Automated Underwriting vs. Manual?

In the finance industry especially, customer expectations and requirements mean that decisions need to be made quickly and accurately. Using automated underwriting makes the first phase of the process much more efficient and means that providers can vastly increase the number of clients that they work with. 

In addition, this method provides the capability to give instant outputs to applicants which could otherwise take up to 60 days. This is a much better experience for potential clients and frees up additional time within the organisation to focus on other areas.

Automated underwriting also allows businesses the opportunity to flag and refer some applications into a manual process if there are certain areas that need additional verifications or checks. This provides equal opportunity for businesses to be accepted even if they have slightly less than ordinary setups or do not fall into the usual acceptance brackets.

How is Automated Underwriting Used in the Payments World?

The traditional merchant onboarding process can be quite lengthy and frustrating for both the provider and the merchant. Typically, it will include the following steps:

  • Lead generation and prospect profiling 
  • Sales pre-screening
  • Pricing and quotation systems
  • Merchant identity verification covering the business and its directors / significant shareholders
  • Merchant history check
  • Business and operational model analysis
  • Web content analysis
  • Information security compliance
  • Credit risk 

Once the merchant has gone through each of these stages and has been approved, it will issue a merchant ID. This needs to be configured to the correct terminal provider, payment gateway, logistics provider and potentially even a hardware finance company. The ISO, ISV or payment company will then provide the new merchant with the hardware and technology that’s needed to start taking payments.

With automated underwriting, this complex and time consuming process can be shaved down from weeks to minutes, providing an improved service for merchants, ISOs and other service providers alike. This can help to increase merchant acquisitions and create a more succinct and successful risk assessment process.

Bill Mooney, CEO of Datam, believes that automated underwriting can contribute to a 35% increase in sales efficiency due to the decrease in manual involvement. There’s also around a 22% improvement in conversion rates as the data is pre-verified and flows through the process quicker, in addition to a 90% reduction in key strokes, as there is no need to re-enter data from one system to another.

Automation is key to providing merchants and others within the value chain a streamlined and efficient sales experience, covering not just the merchant onboarding process, but the entire merchant journey, including:

  • Business profiling
  • Pricing and quotation systems
  • Complex product bundles
  • Fast, accurate data collection about the merchant business, shareholders and directors
  • Complex compliance and risk assessment processes

While some acquirers have built systems to speed up the onboarding processes, there’s limited capability when it comes to the wider payments value chain, and they often do not fulfil ISOs requirements to have one system that can be used for all of payment processors.

Datam’s Innovative Merchant Onboarding System

At Datam, we have created an automated underwriting process solution that can give a decision within 5 minutes.

We have automated each stage of the merchant journey, combining the entire value chain into one seamless experience and helping to drive operational efficiency and compliance into any business. As we are an independent provider, our software can also be configured for ISOs to use with multiple acquirers and value chain partners.

There are numerous data validation check points within the Datam system, meaning that the risk of rejection is much lower than with a non-automated process, so we are able to work with a much wider range of merchants than other providers.

Our onboarding process covers the following areas:

  • Collecting and validating profiling data on potential new merchants, including sophisticated email and phone number validation
  • System driven and automated quotes to maximise sales conversions while protecting your margins
  • Managing the compliance and checks to ensure every application is 100% aligned to acquirers’ needs, keeping everyone safe in the process
  • The various fulfilment services from setting up gateway accounts and terminal management systems to hardware finance and logistics operations


If you’d like to find out more about our automated merchant onboarding process, how it works and how it could benefit your business, please do not hesitate to get in touch. You can also book a demo to see the process in action for yourself.