Billing: Underwriting Inconsistencies

Melody L

Do you ever wonder why your experience can be so different when working towards the same goal with two different financial partners?

When you are looking for banking or merchant services you might assume that you are going to be faced with nearly the same requirements from financial partner to financial partner. After all, the banks are heavily regulated and their exams are all based off of the same requirements.

The bank will have policies that cover credit risk, know your customer, anti-money laundering, suspicious activities, lending limits, reputation risk, etc.

But you and I know that consistency is not the case. As a merchant seeking processing, you will be asked for different underwriting documents, be given different reserve requirements, be charged different fees, be allowed different capabilities and be given different requirements for your offering to be “compliant”.

So what is it that makes bank requests and their outcomes so different for the same account?

There are a lot of factors that drive this diversity. The leading factor is that regardless of the uniformity of the rules, it is people that ultimately make the account decisions and those people are driven by many different factors.

The people who are at play in this decision are numerous. To name a few, they are your sales rep, the ISO underwriter, the bank underwriter, the bank’s regulators, the bank’s officers and the bank’s board of directors.

Each of these individuals have different risk tolerances, definitions of morality, perceptions of risk and personal gain at stake for either approving or denying your account. Honestly, it’s a wonder anything gets approved at a bank —ever.

You likely do not know that each bank has a unique bank charter and individual policies that support that its charter. For instance, some banks explicitly state that they will not support certain industries or that they support certain categories of clientele and will be granted permission to operate only so long as they adhere to their charter.

Banks have numerous policies in place to protect the bank and the banking system from identified and perceived risks. The bank will have policies that cover credit risk, know your customer, anti-money laundering, suspicious activities, lending limits, reputation risk, etc.

Banks have regulators that seem to always be arriving at the bank for various exams. These regulators have a set exam that they perform and they will ask the bank personnel for Know-Your-Customer files on anyone holding an account at that bank. In fact, regulators are known to pinpoint a particular transaction and ask for all of the information about it. Years ago at a bank I was asked by a regulator about a wire that was sent to Canada each month. I knew all about it so by quickly answering their questions, the regulator was happy that we knew what was flowing through our bank.

When it comes to bank regulators you have to realize that they are there to ensure that the banks in their jurisdiction are not posing a financial risk to the entire banking system and are not participating in anything that would pose a risk to the bank’s reputation. Regulators, in general, are very conservative people and will encourage their banks to be ultra conservative as well to ensure that a bank does not fail on their watch.

Outside of the people that make these decisions there are outside factors that are continually being introduced that are interpreted, discovered and otherwise reacted to differently by these individuals. These outside factors include recent regulatory opinion letters, proposed rule changes, new actions against other banks or companies or simply a new person in the chain of decision makers that look at your deal.

The good news is with these inconsistencies almost everyone is able to find a bank that will work with them. Because no matter how highly regulated each bank is and even by the same set of regulators so much compliance is still left to the interpretation and subjective opinions of everyone involved in the process starting with the examiner or regulator themselves. One thing that will be consistent is that the individuals involved in your account will need the information that they ask for to adhere to their organization’s policies. These policies are driven by keeping each player in the chain mentioned above comfortable that the business they are supporting is consistent with the laws and policies that are currently in place.

Melody L is chief operating officer for L3 Payments.


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