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Self-Assessment Questions

Answer these questions to validate your understanding of merchant onboarding and underwriting. Detailed answers are provided in the relevant section documentation.

KYC/KYB​

  1. What is the difference between KYC and KYB? When does each apply?

  2. A merchant is a sole proprietorship. What documentation is needed versus an LLC?

  3. Why is business address verification important? What risks does a fake address indicate?

  4. What is a Politically Exposed Person (PEP), and why does this matter for merchant onboarding?

  5. A business was incorporated last month but claims 5 years of processing history. What verification steps would catch this discrepancy?

Related Section: KYC & KYB Verification

Beneficial Ownership​

  1. What is the typical ownership threshold that triggers UBO identification requirements?

  2. A company is 20% owned by four different individuals and 20% owned by another company. Who needs to be identified as beneficial owners?

  3. Why do regulators care about beneficial ownership? What risks does opaque ownership create?

  4. How often should beneficial ownership information be re-verified?

Related Section: Beneficial Ownership

Sanctions Screening​

  1. What happens if a merchant or principal appears on the OFAC SDN list?

  2. What is the difference between a true match and a false positive in sanctions screening? How should each be handled?

  3. A merchant's name closely matches an SDN entry but isn't an exact match. What's the process?

  4. Why is ongoing sanctions screening necessary, not just at onboarding?

Related Section: Sanctions Screening

Underwriting​

  1. What makes a "nutraceuticals" merchant higher risk than a "coffee shop" merchant?

  2. How does delivery timeframe affect chargeback risk? Give examples.

  3. A merchant has never processed cards before. What additional risk factors should be considered?

  4. What is the purpose of a reserve, and when should one be required?

  5. What is the MATCH list, and why is being added to it devastating for a merchant?

Related Sections:

MCC Codes​

  1. What is an MCC code, and who assigns it?

  2. Why would a merchant want to be classified under a different MCC than their actual business? Why is this problematic?

  3. Name three high-risk MCC categories and explain why each is considered high-risk.

  4. How do MCC codes affect interchange rates?

Related Section: MCC Codes

Scenario Questions​

Scenario 1: High-Risk Application​

Question 23: A new merchant applies. The business is 2 months old, sells dietary supplements online, ships internationally, and the owner has a personal bankruptcy from 3 years ago. Walk through the underwriting considerations.

Topics to Address:

  • Time in business risk
  • MCC classification (nutraceuticals = high-risk)
  • Delivery timeframe and international shipping risk
  • Credit history concerns
  • Appropriate decision (approve with restrictions, decline, enhanced due diligence)

Related Sections:

Scenario 2: Volume and Chargeback Spike​

Question 24: A merchant was approved 6 months ago with $50K/month projected volume. They're now processing $500K/month with a 2% chargeback rate. What actions should be taken?

Topics to Address:

  • Volume variance from projections
  • Chargeback ratio thresholds (exceeds 1.8% excessive threshold)
  • Re-underwriting triggers
  • Enhanced due diligence requirements
  • Potential MATCH reporting
  • Reserve adjustments

Related Sections:

Scenario 3: Address Discrepancy​

Question 25: During onboarding, a merchant provides a business license, but the address doesn't match their stated business address. What are the possible explanations and next steps?

Topics to Address:

  • Legitimate reasons (recent move, multiple locations, home business)
  • Red flags (fake documents, address fraud)
  • Verification steps to resolve
  • When to approve vs. decline

Related Section: KYB Requirements

Scenario 4: Tiered Onboarding Design​

Question 26: Design a tiered onboarding process that allows instant approval for low-risk merchants while flagging high-risk merchants for manual review. What criteria would define each tier?

Topics to Address:

  • Low-risk criteria (established business, low-risk MCC, good credit, small volume)
  • Medium-risk criteria (conditional approval factors)
  • High-risk criteria (manual review required)
  • Prohibited criteria (auto-decline)
  • Score thresholds

Related Sections:

Scenario 5: Sanctions Complexity​

Question 27: A merchant's beneficial owner is a citizen of a country under U.S. sanctions, but the business is U.S.-based and the owner is a U.S. permanent resident. Can they be onboarded?

Topics to Address:

  • Person vs. country sanctions
  • SDN list checking
  • U.S. person definition
  • When citizenship alone isn't disqualifying
  • Documentation requirements

Related Section: Sanctions Screening

Ongoing Monitoring & Re-verification​

  1. How often should KYC/KYB information be re-verified? What triggers a re-verification?

  2. A merchant changes their business address. What steps should be taken?

  3. A merchant's chargeback ratio increases significantly. Should they be re-underwritten? What's the process?

  4. What is Enhanced Due Diligence (EDD), and when is it triggered?

Related Section: Ongoing Monitoring

Scenario 6: Business Model Change​

Question 32: A merchant was approved 2 years ago. Their business model has changed (from retail to online services), and their processing volume has increased 10x. What monitoring and re-verification steps should be taken?

Topics to Address:

  • Business change detection
  • MCC reassignment
  • Volume variance triggers
  • Re-underwriting process
  • Risk scoring update
  • Agreement amendments

Related Sections:

PayFac-Specific Questions​

  1. What responsibilities does a sponsor bank delegate to a PayFac regarding sub-merchant onboarding?

  2. How does PayFac portfolio risk management differ from individual merchant risk assessment?

  3. What happens when a sub-merchant exceeds the PayFac program volume limits?

  4. Why must a PayFac maintain reserves beyond individual sub-merchant reserves?

Related Sections:

Answer Approach​

For each question:

  1. Define key terms - Ensure you understand terminology
  2. Identify relevant regulations - Know which rules apply
  3. Assess risk factors - What makes this situation risky?
  4. Determine appropriate action - What's the correct decision?
  5. Document rationale - Why is this the right approach?

Quiz Completion Checklist​

  • Completed all KYC/KYB questions
  • Completed beneficial ownership questions
  • Completed sanctions screening questions
  • Completed underwriting questions
  • Completed MCC code questions
  • Worked through all scenario questions
  • Completed ongoing monitoring questions
  • Completed PayFac-specific questions
  • Reviewed answers against documentation
  • Researched any unclear concepts

Next: Explore additional Resources & Reading Materials to deepen your knowledge.

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