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Risk & Compliance

Last Updated: 2025-02-17 Status: Complete

This is where payment companies succeed or fail. A single merchant with uncontrolled chargebacks can cost hundreds of thousands of dollars. A PCI breach can end a business. This module covers the critical risk and compliance frameworks that protect PayFac platforms.

Quick Reference​

AreaKey ThresholdConsequence
Chargebacks1% ratioNetwork monitoring programs, fines
Fraud1% fraud rateVFMP/EFM entry, potential termination
PCI-DSSLevel 1 SPAnnual ROC, quarterly scans
AML/BSA$5K SAR thresholdFinCEN reporting required
Breach72 hoursNotification deadline

Module Structure​

Learning Objectives​

After completing this module, you will be able to:

Chargeback Management​

  • Navigate a chargeback from receipt through arbitration
  • Identify reason codes and evidence requirements for representment
  • Calculate and manage chargeback ratios to avoid monitoring programs

Fraud Prevention​

  • Recognize common fraud patterns (card testing, friendly fraud, ATO)
  • Implement fraud detection tools (AVS, CVV, 3D Secure, ML scoring)
  • Understand liability shift with 3D Secure authentication

Network Monitoring​

  • Explain VDMP, VFMP, ECP, EFM program thresholds and consequences
  • Design merchant monitoring systems with appropriate alerts
  • Manage reserves as a risk mitigation tool

PCI-DSS Compliance​

  • Describe all 12 PCI-DSS requirements at a high level
  • Reduce PCI scope through tokenization and segmentation
  • Understand compliance levels and validation requirements

AML/BSA Compliance​

  • Identify the three stages of money laundering
  • Recognize SAR-triggering transaction patterns
  • Implement transaction monitoring for suspicious activity

Incident Response​

  • Execute breach notification within required timelines
  • Structure an incident response team for payment platforms
  • Conduct post-incident remediation

Sections​

1. Chargeback Management​

The complete guide to dispute management, from initiation through arbitration:

2. Fraud Prevention​

Detection and prevention strategies for payment fraud:

3. Network Monitoring​

Card network compliance programs and merchant health:

4. PCI-DSS Compliance​

Payment Card Industry Data Security Standard requirements:

5. AML & BSA​

Anti-Money Laundering and Bank Secrecy Act compliance:

6. Incident Response​

Security incident and data breach management:

7. ISO & ISV Perspectives​

Risk and compliance responsibilities for ISOs and ISVs compared to PayFacs:

8. Study Guide​

Learning resources and self-assessment:

  • Topics - Topics covered in this module
  • Questions - 41 self-assessment questions
  • Resources - Reading materials and references

Key Metrics to Track​

MetricTargetCritical Threshold
Chargeback Ratio< 0.5%1.0% (program entry)
Fraud Rate< 0.5%1.0% (program entry)
Dispute Response Time< 24 hoursBefore deadline
PCI Compliance100%Any gap = non-compliant
SAR Filing Time< 30 daysRegulatory requirement

PayFac-Specific Considerations​

As a Payment Facilitator, you face unique risk challenges:

  1. First-Line Liability - PayFac absorbs sub-merchant chargebacks before the sponsor bank
  2. Aggregated Reporting - Your chargeback ratio includes all sub-merchants
  3. Reserve Management - You hold reserves against sub-merchant risk
  4. Sub-Merchant Termination - You must terminate merchants who exceed thresholds
  5. Sponsor Bank Escalation - Excessive risk triggers sponsor bank intervention
  • Payment Ecosystem - Foundation for understanding transaction flows
  • Merchant Onboarding - Underwriting that prevents risk, ongoing monitoring
  • Transaction Processing (coming soon) - Transaction data that enables monitoring
  • Platform Architecture (coming soon) - Architecture supporting compliance

References​

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