Moving Away from PayFacs: What You Need to Know About Underwriting
If you're a service business that started with platforms like Stripe, Square, QuickBooks, or PayPal, switching to a real merchant account might seem scary. These PayFac systems are attractive because they're so quick to set up. You get instant approval, no paperwork, and your money shows up in days. But as your business grows, that simplicity can hold you back. Higher fees, held deposits, and less flexibility are common reasons why businesses look for something better.
That's where underwriting comes in. Understanding it is important for getting approved without issues.
What Underwriting Really Means
When you leave a PayFac and apply for your own merchant account, you're going with a more standard payment setup. A processor checks out your business directly. They're taking on the risk for each transaction, so they need to understand your business before saying yes.
Underwriting isn't a bad thing; it's just a closer look. A processor will usually check:
Your business: What you sell, how you bill, and how long it takes customers to get what they paid for.
Average sale and monthly total: To make sure your payment activity makes sense for your business type.
Refunds and chargebacks: Past patterns show processors how risky you are.
Financial health: Including bank statements or tax documents for bigger accounts.
If your business has been around for years with happy customers, good records, and few disputes, underwriting will most likely work in your favor.
Why PayFacs Don't Need It, and Why That's Changing
PayFacs like Stripe or PayPal take on the risk themselves. That's why they can approve you instantly and put you under their main merchant ID. But that also means you have to play by their rules. They can freeze your account, delay payments, or stop your access if something seems risky to them.
When you get your own merchant account, you're in control. The trade-off is that you'll go through underwriting at the start. But it's worth it for better rates, more flexibility, and stability in the long run.
How to Make Underwriting Easy
For service businesses like law firms, marketing agencies, consultants, home service providers, and healthcare providers, the key is to be ready. Here's what helps your application go smoothly:
Be open: Clearly describe what your services are and how you bill clients.
Show a solid history: Include a few months of payment statements or invoices.
Keep chargebacks low: Ideally under 1%.
Have documents ready: Articles of incorporation, a blank check, business license, etc.
If you've ever had payment holds with a PayFac, say so upfront. Processors like it when you're honest from the start.
Choosing the Right Processor
Every processor does underwriting differently. Some focus on high volume service businesses, while others focus on recurring payments. A good partner can help you find a processor that understands your business and lets you grow without unnecessary red flags or reserves.
In Conclusion
Moving away from a PayFac means your business has grown. Underwriting isn't a bad thing, it's how you get lower costs, better control, and long-term stability. With the right setup, you'll be able to grow, manage your money better, and have a direct relationship with your processor instead of being just another account on a shared platform.
At PlutosPay, we help businesses move away from PayFacs the right way. We guide you through underwriting, handle the paperwork, and connect you with a processor that fits your growth.