6 Benefits that Revolutionize Risk Scoring for Underwriters

underwriter risk scorecard

December 23, 2021

There are many benefits you can access by achieving better risk-scoring merchant underwriting. The key to accessing these benefits lies in having an intelligent, automated risk scoring method.

To break it down, risk scoring relies on rich datasets to make determinations. Typically, more than one merchant dataset is used, as it’s very rare that a single dataset will have all the needed information to make a safe decision. Merchant risk scoring is essentially an attempt to predict the future, so it makes sense that these decisions would need as much information as possible.

And, to eliminate adding complexity to your current underwriting processes, you can integrate an automated solution to unlock stronger, faster merchant underwriting that replicates the decision-making process of a trained mind. This is what differentiates an automated risk-scoring solution from a more basic tool that doesn’t provide the full picture when it comes to considering merchant risk.


Automated Risk Scoring Explained

A basic risk-scoring merchant underwriting tool is something like a traffic light, with green, yellow, and red indicating different levels of risk. The color indicates whether they pass (green), fail (red), or should be monitored (yellow).

Say you’re using this tool to evaluate merchants you wish to onboard. The traffic light model broadly replicates the recommendations of human underwriters. The tool gives some merchants a green light, indicating that the risk is relatively low and you should definitely do business with them. A red light, however, indicates an extremely high risk merchant and should be avoided. Finally, we have the merchants that fall into the yellow zone. According to the model presented by this basic tool, they’re on the borderline and need more analyzing to make a decision.

This basic level of automated risk scoring can certainly help you onboard merchants faster than manual underwriting. However, continuing to grow your business beyond this point requires a more advanced risk-scoring solution that allows for greater complexity while maintaining an ease of use for your employees. The right scorecard, configured for your level and model of risk scoring, will move more merchants out of that yellow category and into the green or red zone, as appropriate. Not only do you onboard the right merchants faster, your underwriters have more time to concentrate on the remaining yellow cases, and either onboard or reject them with more confidence than before.


The Benefits to an Automated Risk-Scoring System

Below we’ve summarized six of the greatest benefits that you can access with better risk-scoring underwriting. 

  1. Increased clarity on goals across your organization Configuring your risk-scoring solution requires that your merchant acquisition plan has clear goals and benchmarks. This shows your sales and marketing teams exactly which merchants to target and why. In turn, this funnels applications to your underwriters that are more likely to fit within your designated risk profile.
  2. Enhanced and more defined merchant onboarding and underwriting systems A thorough review of how your organization currently handles documents and flow will show you which stages can be automated and which should be left to human intervention. By putting these in place where the review indicates, you will establish more consistent and thorough processes for both merchant onboarding and merchant underwriting.
  3. Leverage data to make better merchant underwriting decisions The basic labels of green (pass), yellow (monitor), and red (fail) are a good starting point, but they’re a very narrow way of looking at a complex situation. You can expand your view by codifying the elements used in these determinations and assigning appropriate values to each salient data point. This provides better risk-scoring underwriting by showing your staff a more complete picture of the situation.
  4. Align automated risk scores and manual evaluations Manual merchant underwriting is often slow and provides inconsistent results. As you introduce more automation into your underwriting process, it is essential that you evaluate the results against the evaluations made by experienced underwriters, and then use the results to further calibrate your automated risk-scoring solutions. Over time, this will give you greater results and higher confidence in the automated underwriting solution.
  5. Integrate visual representations of merchant data into processes You will directly benefit by having a visual representation that allows you to easily evaluate your merchants. We recommend constructing a histogram, with merchants placed into particular bins based on their risk scores. This gives you and your staff a visual guide for your risk threshold, and allows your merchant underwriting staff to see where any given merchant lands relative to that threshold. You can also use your histogram to see the volume of merchants being brought in that fall outside of your acceptable risk thresholds and adjust your onboarding tactics accordingly.
  6. Become expansion-ready by streamlining workflows Experienced merchant underwriters are in high demand because they have the knowledge to accurately assess risk and deliver better assessments. These assessments often look like hunches that one business is more of a risk than another, but they are based on knowledge accrued over many years. Better risk-scoring underwriting helps less experienced staff achieve the same results, assuming the system has the data to make those determinations. This allows even your junior underwriters to produce results faster and with much greater consistency.


Introducing the Revolutionary Merchant ScanXpress for Automated  merchant underwriting

Merchant ScanXpress from Agreement Express is a custom risk scorecard with powerful and easy-to-use configuration options that allow you to set exact levels of acceptable risk, while evaluating and onboarding clients at a much faster pace. Traditional risk-scoring methods are binary, with each data point either indicating 0 (fail) or 1 (pass). Merchant ScanXpress makes it possible for you to evolve beyond the binary method, and rate each data point from 0 to 100. This complexity, when combined with other data points treated in the same way, leads to a much richer and more complete data set. In turn, this gives you greater insight into your prospective merchants and allows you to expand at a rapid pace without increased risk.

Ready to take your underwriting processes to the next level? Connect with us and try it out for free.