Topics to Research
This guide outlines the key research areas for Week 3-4 of the merchant onboarding module. Use these topics to deepen your understanding beyond the provided documentation.
Week 3: KYC/KYB & Data Collection
3.1 KYC Requirements
Research Focus:
- What "Know Your Customer" legally requires
- Identity verification methods (document verification, database checks)
- Acceptable identification documents by country
- Biometric verification and liveness checks
- Politically Exposed Persons (PEP) screening
- Adverse media screening
Key Terms to Define:
- KYC (Know Your Customer)
- CIP (Customer Identification Program)
- PEP (Politically Exposed Person)
- Identity verification vs. identity authentication
- Documentary vs. non-documentary verification
Related Section: KYC Requirements
3.2 KYB Requirements
Research Focus:
- Business entity verification methods
- Required business documentation (articles of incorporation, business licenses)
- EIN/Tax ID verification
- Business address verification
- Operating history validation
- Website and online presence verification
Key Terms to Define:
- KYB (Know Your Business)
- Articles of Incorporation / Certificate of Formation
- Good Standing Certificate
- DBA (Doing Business As)
- Business license requirements by industry
Related Section: KYB Requirements
3.3 Ultimate Beneficial Ownership (UBO)
Research Focus:
- What constitutes a beneficial owner (ownership thresholds)
- FinCEN beneficial ownership requirements
- Ownership structure documentation
- Control person identification
- Layered ownership and shell company detection
- International UBO requirements differences
Key Terms to Define:
- UBO (Ultimate Beneficial Owner)
- Control person
- Ownership threshold (typically 25%)
- FinCEN BOI (Beneficial Ownership Information)
- Corporate transparency requirements
Related Section: Beneficial Ownership
3.4 Sanctions & Watchlist Screening
Research Focus:
- OFAC (Office of Foreign Assets Control) requirements
- SDN (Specially Designated Nationals) list screening
- Other sanctions lists (UN, EU, UK)
- Screening frequency (onboarding vs. ongoing)
- Fuzzy matching and false positive handling
- Documentation requirements for screening
Key Terms to Define:
- OFAC
- SDN List
- Sanctions screening
- Match vs. potential match vs. false positive
- Ongoing monitoring requirements
Related Section: Sanctions Screening
Week 4: Underwriting & Risk Assessment
4.1 Underwriting Fundamentals
Research Focus:
- What underwriting means in payment processing
- Risk vs. reward balance in merchant acceptance
- Automated vs. manual underwriting
- Tiered underwriting approaches (instant approval vs. enhanced review)
- Underwriting SLAs and merchant experience
Key Terms to Define:
- Underwriting
- Risk appetite
- Automated decisioning
- Manual review queue
- Conditional approval
Related Section: Underwriting Fundamentals
4.2 Risk Factors in Underwriting
Research Focus:
- Business type and inherent risk levels
- Processing history and chargeback history
- Time in business as a risk indicator
- Credit history of principals
- Delivery timeframes and risk correlation
- Average ticket size and monthly volume projections
- Refund policy analysis
Create a Risk Factor Matrix:
| Risk Factor | Low Risk | Medium Risk | High Risk |
|---|---|---|---|
| Time in business | 2+ years | 6mo-2yr | <6 months |
| Chargeback history | <0.5% | 0.5%-1.0% | >1.0% |
| Delivery timeframe | Immediate | 7-30 days | 30+ days |
| Business model | Retail, CP | E-commerce | Subscriptions, Future Delivery |
Related Section: Risk Factors
4.3 MCC Codes (Merchant Category Codes)
Research Focus:
- What MCC codes are and who assigns them
- High-risk MCC categories and why
- Prohibited MCC categories by card networks
- MCC impact on interchange rates
- MCC misclassification risks and penalties
- Common MCC codes to memorize
Key MCC Categories to Study:
- Retail (5411, 5311, etc.)
- Restaurants (5812, 5814)
- Professional services (8111, 8999)
- High-risk categories (5962, 5966, 5967)
- Prohibited categories (7995, 5933)
Related Section: MCC Codes
4.4 Risk Scoring Models
Research Focus:
- Building risk scoring algorithms
- Weighted risk factors
- Score thresholds for auto-approval vs. review
- Machine learning in underwriting
- Model validation and bias detection
- Regulatory requirements for automated decisioning
Key Terms to Define:
- Risk score
- Underwriting model
- Decision engine
- Risk tier
- Exception handling
Related Section: Risk Scoring
4.5 Ongoing Due Diligence
Research Focus:
- Why onboarding isn't enough
- Transaction monitoring triggers for re-underwriting
- Periodic review requirements
- Business change monitoring
- Enhanced due diligence triggers
- Documentation refresh requirements
Related Section: Ongoing Monitoring
4.6 Merchant Agreements
Research Focus:
- Key terms in merchant processing agreements
- Reserve requirements and types (rolling, fixed, capped)
- Fee structures and disclosure requirements
- Termination clauses and MATCH list implications
- Liability allocation between PayFac and sub-merchant
Key Terms to Define:
- Merchant Processing Agreement (MPA)
- Reserve account
- Rolling reserve vs. fixed reserve
- MATCH list (Member Alert to Control High-risk Merchants)
- TMF (Terminated Merchant File)
Related Section: Merchant Agreements
4.7 Ongoing Monitoring & Re-verification
Research Focus:
- Periodic KYC/KYB refresh requirements and schedules
- Business change detection (address, ownership, MCC changes)
- Transaction pattern monitoring for onboarding validation
- Enhanced due diligence (EDD) triggers
- Re-underwriting criteria and processes
- Merchant lifecycle management (status changes)
- Automated vs manual re-verification workflows
- Regulatory requirements for ongoing monitoring
Key Terms to Define:
- Periodic review
- Enhanced due diligence (EDD)
- Re-underwriting
- Business change monitoring
- Merchant lifecycle
- Ongoing monitoring
Related Section: Ongoing Monitoring
Additional Research Areas
PayFac-Specific Considerations
- Sub-merchant vs. traditional merchant onboarding differences
- Sponsor bank delegation of underwriting responsibilities
- PayFac portfolio risk management
- Sub-merchant volume limits and graduation paths
Related Sections:
Verification Vendors
Research capabilities and approaches of:
Identity Verification:
- Jumio, Persona, Onfido, Alloy, IDology, Socure
Business Verification:
- Middesk, Enigma, LexisNexis Business
Sanctions Screening:
- ComplyAdvantage, Dow Jones Risk & Compliance, Chainalysis
Study Approach
- Start with Fundamentals - Complete KYC/KYB sections before underwriting
- Build Reference Materials - Create personal notes for MCC codes, risk factors
- Practice Scenarios - Work through the quiz questions in each section
- Research Current Data - Verify regulatory requirements and network rules
- Map to Platform - Understand how these concepts translate to system design
Next: Test your knowledge with Self-Assessment Questions