Underwriters Shouldn't Be Reading Lab Reports
Underwriters Shouldn't Be Reading Lab Reports The Manual COA Problem Is Becoming One of the Biggest Compliance Gaps in Regulated Payment...
| "The greatest danger in times of turbulence is not the turbulence—it is to act with yesterday's logic." – Peter Drucker |
Introduction
Over the last twenty years, nearly every aspect of commerce has undergone a fundamental transformation.
Consumers now purchase products through social media platforms, live shopping experiences, mobile applications, subscription services, online marketplaces, and global eCommerce storefronts.
Businesses can launch internationally in a matter of days, while artificial intelligence is rapidly reshaping everything from customer service to fraud prevention.
Yet, despite these extraordinary advances, one of the most important functions within financial services has remained remarkably consistent:
Merchant underwriting.
In many respects, that consistency is something to celebrate. Merchant underwriting has played a critical role in protecting financial institutions, sponsor banks, payment processors, and card brands for decades. The frameworks developed by risk and compliance professionals have enabled the payments ecosystem to scale securely across millions of merchants worldwide.
The purpose of this article is not to criticize underwriting.
Rather, it is to ask an important question:
| Has commerce outgrown the underwriting model that was originally built to support it? |
I believe the answer is yes.
If you walked into a merchant underwriting department in 2005, you would likely find processes that looked something like this:
Fast forward to today, and surprisingly little has changed.
While many organizations have digitized these workflows and introduced automation, the underlying philosophy remains largely the same.
The industry still attempts to answer one fundamental question:
"Can we approve this merchant today?"
The problem is that the more important question may actually be:
"Will we understand this merchant tomorrow?"
Those are two very different questions.
Twenty years ago, merchants were relatively easy to understand.
A supplement company sold supplements.
A restaurant sold food.
A liquor store sold alcohol.
A retail merchant sold products through a storefront.
Today, that same merchant may operate:
More importantly, those merchants can change their business model virtually overnight.
Consider the following examples:
Example 1
A traditional coffee company launches:
Example 2
A beauty retailer begins selling:
Example 3
A restaurant begins offering:
All three businesses could remain fundamentally legitimate and compliant businesses.
Yet their compliance requirements, risk profiles, product requirements, and regulatory obligations changed significantly.
The merchant changed.
The intelligence surrounding that merchant should change as well.
Traditional underwriting is event-based.
The workflow looks something like this:
Application Submitted
↓
Documents Collected
↓
Review Completed
↓
Decision Made
↓
Merchant Approved
↓
Periodic Monitoring
↓
Re-Review When Necessary
This process assumes that merchant risk is relatively static between events.
Modern commerce operates very differently.
Commerce is continuous.
Products are continuous.
Marketing is continuous.
Regulations are continuous.
Consumer behavior is continuous.
Merchant intelligence should be continuous as well.
One misconception that I believe deserves to be challenged is the assumption that underwriting problems exist because underwriters are somehow failing.
Nothing could be further from the truth.
Underwriters make decisions based upon the information available to them.
The challenge is that the information available today is often:
The merchant intelligence problem is not a people problem.
It is an information problem.
The industry has largely asked underwriters to solve 2026 problems using tools designed for 2006 commerce.
One of the clearest examples of this challenge can be seen through Merchant Category Codes.
MCCs have served the industry incredibly well for decades. They remain an essential component of payments infrastructure and provide meaningful categorization for countless use cases.
The challenge is that modern businesses rarely fit neatly into a single category.
A wellness merchant may simultaneously sell:
What MCC adequately describes that business?
More importantly:
Which of those products creates the greatest regulatory or compliance obligation?
The answer is rarely found within the MCC itself.
Understanding products is becoming just as important as understanding businesses.
Financial institutions are becoming increasingly sophisticated in nearly every aspect of their operations.
They leverage:
Yet when it comes to understanding merchants themselves, many organizations still rely upon:
There is a growing disconnect between the sophistication of transaction intelligence and merchant intelligence.
The industry has invested billions of dollars understanding transactions.
Very little has been invested in continuously understanding merchants.
Regulators have increasingly emphasized risk-based approaches to compliance and customer due diligence.
The Federal Financial Institutions Examination Council has consistently reinforced the importance of ongoing risk management practices that evolve alongside changing customer risk profiles.
Similarly, the Financial Crimes Enforcement Network has long supported continuous, risk-based customer due diligence practices that extend beyond account opening.
The World Economic Forum has repeatedly highlighted that digital trust is rapidly becoming one of the defining economic issues of the coming decade.
At the same time, leading financial institutions continue investing heavily in real-time intelligence capabilities across fraud, cybersecurity, and financial crime prevention.
The broader trend is clear:
Intelligence is becoming continuous.
Merchant intelligence is simply the next logical evolution.
I do not believe merchant underwriting is going away.
In fact, I believe underwriters will become more valuable than ever before.
What will change is the quality and depth of intelligence available to them.
The future of merchant underwriting will likely include:
Human expertise will remain essential.
Technology should empower better decisions—not replace the professionals responsible for making them.
When we began building Qredible, one of the questions we continually asked ourselves was:
Why are we spending so much time improving legacy workflows instead of questioning whether the workflow itself still makes sense?
What if merchant intelligence wasn't something collected once?
What if it was continuously evolving?
What if underwriters had access to meaningful evidence rather than simply more documents?
What if products could be understood at the same level of sophistication as transactions?
Those questions ultimately became the design principles behind Qredible.
We did not set out to build better underwriting software.
We set out to help the industry rethink how merchant intelligence should work in an increasingly complex world of commerce.
Merchant underwriting hasn't failed.
It simply hasn't needed to evolve at the same pace as commerce—until now.
The payments industry has done an extraordinary job protecting the ecosystem through decades of innovation and growth.
The next chapter isn't about replacing underwriting.
It's about augmenting it with something it has never truly had before:
Continuous Merchant Intelligence™.
Because perhaps the future of merchant underwriting isn't less underwriting at all.
Perhaps it's simply better intelligence.
As you think about your own merchant risk programs, consider the following:
How much of your merchant intelligence is outdated within thirty days of onboarding?
Are your teams underwriting businesses or truly understanding what merchants sell and how they operate?
What percentage of your merchant reviews remain manual today?
If you designed merchant underwriting from scratch in 2026, would it look like the process you currently use?
Are you investing as much in understanding merchants as you are in understanding transactions?
The organizations that answer those questions first may very well define the future of commerce.
Qredible is redefining merchant underwriting through Merchant Risk Intelligence (MRI)—a product-first approach that continuously analyzes what businesses sell, how they market those products, and the evidence required to support compliant payment acceptance. By moving beyond static industry classifications, Qredible helps banks, payment processors, ISOs, and sponsor banks make faster, more informed, and more defensible underwriting decisions while reducing manual effort and strengthening ongoing portfolio oversight. Learn more about Qredible's product-first automated compliance management platform for regulated industries →
