Ultimate Guide to Digital Underwriting

merchant underwriting

November 25, 2021

As a payment facilitator, you’re assuming liability for your merchant accounts. Similarly, as the acquiring bank is underwriting your operation, you must also underwrite your merchants to suitably manage risk. Payfacs that depend on manual underwriting may find they’re simply not fast enough to grow their business, losing out to companies that have adopted digital processes.  

High NIGO Rates Are Costing You Business

Your NIGO rates can tell you if you’re offering a painless process. NIGO, or Not in Good Order, refers to any document with missing or incorrect information. A single error or missing signature can cause a document to be marked NIGO. This brings the entire process to a halt until it can be corrected and resubmitted.

A high NIGO rate has two major disadvantages. 

  1. It takes time and effort to correct those errors, and this will inevitably drive up costs. 
  2. Merchants may abandon the onboarding process between the time they applied and the time you contacted them to correct those errors. In fact, many merchants may even rescind their applications because of this inconvenience. 

The goal is a frictionless merchant onboarding experience. Your NIGO rate reflects how often your customers ran into barriers that could have been avoided.

Creating an Effortless Merchant Onboarding Experience 

Your merchant onboarding experience begins with underwriting. It is vital to foster the easiest process possible when onboarding merchants for both potential partners and underwriters as it correlates directly with how many applications can be processed and your company’s onboarding success rate.  An underwriting process that is conducive to creating speed bumps makes the experience unbearable for merchants and can lead to them abandoning their application, leading them straight into the hands of your competitors. The best case scenario from continuing to foster a difficult onboarding process is having a long time window before you can start processing that merchant’s payments and gaining revenue.

Whether you realize it or not, you are designing customer experience when you create your underwriting process. A bumpy, lengthy process isn’t easy or pleasant, and you’re potentially losing merchants because of that. Fixing it means taking a long, hard look at the information being gathered to fuel your underwriting, and taking actionable steps from it.


A Minimum Viable Underwriting Process Saves Time, Money, and Pain

In every case, you must decide if the information being collected is actually necessary, and whether it’s hard to gather or readily available. The exact determinations will depend heavily on your business, the verticals you serve, and the amount of risk you’re willing to take on.

If your goal is an easy, straightforward merchant onboarding experience, then you want to aim for minimum viable underwriting. Viable underwriting is collecting the minimum amount of information needed to satisfy any regulations and run an appropriate merchant risk assessment. Gathering information beyond this level serves only to introduce friction and slow down your merchant onboarding process.

As we mentioned earlier, your NIGO rate is a good proxy for how much friction is built into your underwriting process. To break it down, imagine if your underwriters had a rewind button in front of them for every merchant application. They press that button every time they come across a document with missing information, absent signatures, illegible text, errors, or all of the above. How often your underwriters are pressing that button is effectively your NIGO rate.

Across the payments industry, the average NIGO rate is between 40 and 45 percent, according to an article on PYMNTS.com. We estimate that customer abandonment is approximately half of this number. So, if your NIGO rate is at 40 percent, you’re potentially losing 20 percent of your business to customer abandonment. 

Agreement Express customers see a NIGO rate of 2 percent or less, driving customer abandonment down to 1 percent.

This is one of the many benefits of using Agreement Express to power your merchant onboarding and underwriting processes.

How to Design a Minimum Viable Underwriting Process

A minimum viable process for your organization is essential to driving down your NIGO rate. The design of the process rests on determining the amount and type of information you need to collect, which in turn relies on having a well-defined Statement of Intent, spelling out exactly who you’re planning to do business with and why you’re pursuing that market.

Your Statement of Intent acts as a base filter to indicate exactly what information you need to make accurate assessments. It also allows you to adjust your process to move your desired merchants through quickly, trimming down your time to revenue drastically.

Just as important, your Statement of Intent must define the businesses and industries you will not do business with. This lets you remove those applicants from the process at the earliest opportunity, saving you time and effort.

Defining the Statement of Intent often leads to internal conflict. The underwriters, naturally, want a very narrow field to help ensure maximum accuracy. Just as naturally, the sales team wants a broader scope of potential clients to pursue. The best results usually come about from striking a balance between the two.

You will need to revisit your Statement of Intent periodically to ensure your underwriting and underwriting processes evolve along with the market and your clients.

The next step is to improve process flow to remove friction from the process without increasing risk. This requires underwriting automation to create a consistent process that can be properly audited. By comparing the decisions to manual results, you can tune and adjust the automated score values using Merchant ScanXpress to continuously improve your process.

You will need to define a different minimum viable process for each of your target markets to ensure it provides both accuracy and a good merchant experience. The process designed to offer veterinary surgeons frictionless onboarding is likely to look very different from the equivalent process used to assess online electronics retailers/

Drive Down NIGO Rates With Merchant ScanXpress

Software such as Merchant ScanXpress will assist you with every step of the digital underwriting process, allowing you to increase your market share and offer your merchants a frictionless onboarding experience.

The software can also help you significantly drive down your NIGO rate through automated underwriting while improving every stage of the merchant onboarding process. Click here to learn more!