Intro to Risk
Risk, with regard to financial products, typically falls into two primary categories: Financial Risk and Regulatory Risk. While Financial Risk leads to direct losses to your operating capital, Regulatory Risk can lead to regulatory fines or other penalties. Ultimately both categories of risk have the potential to impact your operating capital, can impact your reputation, and in extreme cases may lead to the suspension of your program altogether.
Since both categories can cause disruptive events for your business, we recommend building Financial and Regulatory risk reduction strategies. In this resource, we will break down both types of risk and provide guidance to help you address them.

Financial Risk

Financial Risk exists when a user spends funds in their account without intending to repay them or uses the "float" (the time it takes for transactions to process and settle) to overspend. In the case of Credit Hub, this can occur by taking credit from you, but then defaulting on the repayment obligation. While in the case of Deposit and Crypto Hub, it can occur by funding their account via one of the Payment Accounts and spending the funds knowing that that original transaction will return, thus overdrawing their balance and leaving the platform with limited options to recoup funds. Other than Provisional Credit and Credit Extensions, financial risk is primarily created by providing customers access to Payment Accounts. Since payments can return up to 60 days after a credit has been applied to a customer's account, payment processing exposes you to financial loss risk.
Based on the above statement, a valid conclusion is that most of your financial risk can be adjusted by adjusting access to Payment Accounts. With that in mind, here are some examples of how you might choose to design your Financial Risk Policy, based on your overall risk appetite:
Risk Appetite
Policy
Conservative
We will not provide payment origination products to any customers. All customers will be required to fund their accounts with us via direct deposit or cash deposits that do not pose return risk.
Moderate
Before the policy, here are some definitions: ID Score A probabilistic score (0-1) assigned to all users at the time of onboarding that predicts the likelihood that the identity supplied belongs to the person who is creating the account. 1 meaning we are 100% certain that the user is who they say they are. 0% means with 100% certainty we can say that the user is not who they say they are.
Risk Score A probabilistic score (0-1) assigned to all users who are utilizing their accounts which predicts the likelihood that their subsequent transactions will lead to a financial loss.
Policy Reducing Onboarding Risk
We will be utilizing ID Score to reduce stolen profiles in our system, the idea being that a user is less likely to fraud us with their real identity. If a user's ID Score is below 0.8, we will be collecting additional documentation and performing enhanced due diligence before onboarding them to the platform.
Reducing Ongoing Risk
On top of that, we will be utilizing Risk Score to put people in green (over 0.9), yellow (0.5-0.89), and red (below 0.5) paths. Where the green path will give users uninterrupted access to all payment products, yellow will reduce all payment limits by 50% and red will reduce limits by 90%.
Aggressive
We will provide all payment products to customers and assume that financial fraud is an acceptable risk to the business.
We currently provide a solution for ID Score. Go to ID Score Product Guide to learn more.
Following are more details on Financial Risk by types:

ACH

ACH is a one-way messaging system for payment processing. Meaning, that a transaction in ACH is assumed to have succeeded unless the receiving bank sends a failure notice.
Based on the reason for failure, the receiving bank can have up to 60 days to return a transaction, assuming they have return rights. In practice this means if you released an ACH credit in 3 business days to your user, you might still receive a return up to 57 days later. Here are the most common return reasons:

Returns Codes

Code
Description
Locks Node
Locks User
R01
Insufficient Funds
R02
Account Closed
R03
No Account/Unable to Locate Account
R04
Invalid Account Number
R06
Returned Per ODFI's Request
R07
Authorization Revoked by Customer
R08
Payment Stopped
R09
Uncollected Funds
R10
Customer Advises Not Authorized
R11
Check Safekeeping Entry Return
R12
Branch Sold To Another DFI
R13
RDFI Not Qualified to Participate
R14
Account Holder Deceased
R16
Account Frozen
R17
File Record Edit Criteria
R20
Non-Transaction Account
R21
Invalid Company Identification
R22
Invalid Individual ID Number
R23
Credit Refused by Receiver
R24
Duplicate Entry
R29
Corporate Customer Advises Not Authorized
R31
Permissible Return Entry
R33
Return of XCK Entry
R34
Limited participation DFI
These returns are broken into three categories:

Unauthorized

These returns occur when the account holder of the ACH account informs their bank (receiving bank) that the transaction was not authorized by them. NACHA guidelines allow account holders to take up to 60 days to dispute these kinds of transactions. Return codes R07, R10, and R29 signify unauthorized returns.

Administrative

Administrative returns indicate that a transaction was returned due to administrative or account data errors. They occur within 3 business days of settlement. Return codes R02, R03, and R04 signify administrative returns.

Others

The rest of the returns are just other types of returns allowed by the ACH network. Like Administrative, these returns also occur within 3 business days of settlement.

Dishonoring a Return

Dishonoring a return is only allowed in circumstances where the return notice is late. This means, if Administrative and Other returns are coming to us after 3 business days or Unauthorized are coming after 60 days, then they can be dishonored. Otherwise, all other ACH Returns must be honored in compliance with the NACHA consumer protection guidelines.

Interchange

Unlike ACH, Interchange (more popularly know as acquiring) is capable of giving you failure notices in realtime in almost all circumstances. However, there are some scenarios, known as chargebacks that can take up to 90 days.
Based on the reason for failure, the receiving bank can have up to 90 days to fail a transaction. This means, if you released an Interchange credit instantly to your user, you might still receive a failure notice (also known as a Chargeback) up to 90 days later. Here are the most common failure reasons:

Failure Codes

Code
Description
Locks Node
Locks User
IR01
More information is needed from the card issuer
IR02
Refer to card issuer's unique transaction rules
IR03
Not recognized as a valid merchant
IR04
Card not activated for transaction use
IR05
Suspicious activity; do not honor this card's transactions
IR06
Error during transaction process
IR07
Card has unique conditions; currently not activated for transaction use
IR08
Needs more identification to process the transaction
IR09
Transaction requested; currently in progress
IR10
Transaction amount partially approved
IR11
Approved but not processed
IR12
Transaction invalid
IR13
Transaction amount invalid
IR14
Card number does not exist
IR15
Card issuer does not exist
IR17
Customer canceled/reversed payment
IR18
The customer reversed the transaction: chargeback
IR19
Please retry the transaction
IR20
Response from the card processor was invalid
IR21
Transaction formatted incorrectly (Potential reversal detected)
IR22
Suspected malfunction, reversal
IR23
Transaction fee was unacceptable
IR24
File update not supported by receiver
IR25
Unable to locate record on file
IR26
Duplicate file update record, no action taken
IR27
File update field edit error
IR28
Field update record locked out
IR29
File update not successful, contact the acquirer
IR30
Transaction formatted incorrectly (Potential reversal detected)
IR31
Transaction must be initiated in person, bank not supported by "switch"
IR32
Completed partially, reversal
IR33
Expired card, pick-up
IR34
Suspected fraud, pick-up
IR35
Card acceptor must contact acquirer, pick-up
IR36
Restricted card, pick-up
IR37
Merchant must contact the card security
IR38
PIN tried too many times; request a new card or try again later
IR39
No credit account tied to credit card
IR40
Function requested can not be carried out
IR41
Lost card: request a new card
IR42
Account tied to card is not universal
IR43
Stolen card: request a new card
IR44
Investment account not on required
IR45 - IR50
Reserved for ISO use
IR51
Insufficient funds (NSF)
IR52
Checking account not associated with the card
IR53
Savings account not associated with the card
IR54
Card Expired: request a new card
IR55
Pin tried is incorrect
IR56
No record of the validity of the card
IR57
Transaction not permitted to cardholder
IR58
Transaction denied by acceptor (Potential chargeback detected)
IR59
Fraud suspected
IR60
Merchant must contact the card acquirer
IR61
Transaction exceeds card limits
IR62
Card restricted
IR63
Card information compromised (Potential chargeback detected)
IR64
Original amount incorrect, reversal
IR65
Current transactions exceeds withdrawal frequency limit
IR66
Merchant must contact the card acquirer
IR67
Hard capture
IR68
Response received too late, reversal
IR69 - IR74
Reserved for ISO use
IR75
Allowable number of PIN tries exceeded
IR76
Key synchronization error
IR77
Reserved for private use
IR78
Customer not eligible for POS
IR79
Invalid digital signature
IR80
Stale date transaction
IR81
Issuer requested standin
IR82
Count exceeds limit
IR83
Reserved for private use
IR84
Time limit for pre-authorization reached
IR85
Issuer has no reason to decline the transaction (Account Verification)
IR86
Cannot verify PIN
IR87
Check already posted
IR88
Card information not on file
IR89
Security code verification failed
IR90
Card cutoff is in progress
IR91
Card change in progress or not taking effect
IR92
Intermediate network/financial institution is unknown
IR93
Transaction is in violation of the law and will not be completed
IR94
Duplicate transaction
IR95
Error with transaction reconciliation
IR96
System error during transaction
IR97 - IR98
Reserved for national use
IR99
Card network error during transaction
IR100 - IR126
Reserved for ISO use
IR127
SEC is invalid
IR128
Address and verification check data is required for this transaction
IR129
Security code date is required for the transaction
IR130 - IR131
Transaction not permitted to cardholder
IR132
Country of the card issuer is blocked by this merchant
IR133
Incorrect MAC was sent
IR134
Standard Entry Class requirements were not met
IR135
System error during transaction
IR136
Account length error
IR137
Card information error
IR138
Security code format error
IR139
Internal authorization error
IR140
Card product code is blocked
IR141
Attempt to process a BRIC transaction on a prior PIN based transaction
IR142
CyberSource Time Out Connection to CyberSource timed out
IR143
CARD_ENT_METH supplied is not valid or required additional data not provided as defined
IR144
CARD_ID is not valid
IR145
Required PIN block not present
IR146
Card Bin is not valid for pin-less routing
IR147
Signature store did not complete
IR148
Debit PIN transactions must be swiped
IR149
DB proxy response was not processed within the time out period
IR150
Transaction declined by merchant to security code mismatch
IR151
Transaction not allowed as per a validation rule
IR152
Processing gateway full: poll again later
IR153
Authorization life cycle unacceptable
IR154
Authorization life cycled expired
IR155
Card authentication failed
IR156
Fraudulent transaction prior to embossed valid date
IR157
Credit not received
IR158
Allowable PAN entries warning -- approved
IR159
Transaction approved with card overdraft protection
IR160
Security code is invalid
IR161
Internal transaction processing error
IR162
Check not acceptable for cash
IR163
Check not acceptable
IR164
Check deposit limit exceeded
IR165
Cash back limit exceeded
IR166
Check amount does not match courtesy amount
IR167
PIN not selected for card
IR168
PIN already selected for card
IR169
Unmatched voucher information
IR170
Card number entered too many times
IR171
Expiration date not valid for card
IR172
Card status is set to inactive
IR173
Expiration date mismatch: request a new card
IR174
Item suspected for stop pay
IR175
Account associated with card was closed
IR176
Account associated with card is ineligible for the transaction
IR177
Duplicate transaction
IR178
No account associated with card on file
IR179
Unable to locate card
IR180
Transaction denied
IR181
Transaction settled via ACH
IR182
Cross-reference card not found
IR183
Category limit exceeded
IR184
Transaction limit exceeded
IR185
Daily limit exceeded
IR186
Monthly limit exceeded
IR187
Invalid secret code
IR188
Pin key sync error
IR189
Bad security code
IR190
Transaction ordered to be stopped
IR191
Transaction authorization revoked
IR192
Stop reoccurring payments
IR193
Card lost: do not honor
IR194
Account associated with the card is closed
IR195
Account associated with the card is inactive
IR196
Card has unique conditions: do not honor
IR197
Purchase only approval for purchase with cash back transaction
IR198
Card does not have sufficient funds for the transaction fees (NSF Card)
IR199
Card chip failed during transaction
IR200
PIN compromised
IR201
MasterCard MoneySend Error: Incorrect Expiration date
IR202
MasterCard MoneySend Error: Card declined due to an unknown reason
IR203
MasterCard MoneySend Error: Card declined due to unsupported card type
IR204
MasterCard MoneySend Error: Card declined due to an unknown reason
IR205
MasterCard MoneySend Error: Card declined due to an unknown Reason
IR206
MasterCard MoneySend Error: Card transaction request has an unknown status
IR999
Unauthorized Chargeback return
Card processing presents both return and chargeback risk, which are different types of returns. An interchange return refers to a transaction being rejected by the network when it is unable to be processed for a variety of reasons. Meanwhile, chargebacks take place when a transaction occurs and settles, but a user disputes the transaction with the card issuer.
Card returns don’t create direct financial risk to platforms because transactions are immediately rejected and funds are sent back to the user in real time. Nevertheless, it's good practice for you to build logic to keep track of card returns, we have found that successive returns can be a red flag for future chargebacks and/or fraudulent activity. TRAN|PATCH webhooks will notify when returns occur.
All IR failure codes are instant, except IR999. IR999 is considered an unauthorized chargeback. This means that the customer claims that they did not authorize this transaction and the user has up to 60 days to dispute interchange transactions with this failure code.
High chargeback rates can potentially lead to substantial fines by card networks, inclusion on the Terminated Merchant File for up to 5 years (a list of merchants deemed high-risk by card networks), and/or suspension from the card networks.
Chargebacks also present financial loss risk as any negative balance, resulting from chargebacks will be reconciled from the platform’s reserve account.

Disputing a Chargeback

Regulation E sets forth time limitations for disputed transaction investigations. Financial institutions may take up to 90 days to investigate the reported dispute/error. During the beginning of this period, you have the option to submit evidence against the dispute via the Dispute Chargeback API call. Common examples of evidence are email communication & interactions, shipping verification, phone call transcripts, live chat transcripts, social media interactions, and similar. We will submit all evidence to the network for investigation.
Due to the zero-liability policies of card networks (e.g. Visa, Mastercard), if the transaction is proven to be unauthorized you will have to pay the amount of the chargeback (i.e. the funds the platform received plus the interchange fee of the original transaction), regardless of whether they believe the transaction is fraudulent or not. The end user will receive credit for the transaction.
An exception to the zero-liability policies would occur if there is evidence that the user was grossly negligent or if there was a substantial delay by the user in reporting the unauthorized transaction to its card issuance institution. Evaluating when this exception applies will be at the discretion of the card networks, platforms can submit evidence prior to evaluation of their case.

FedWire

Unlike ACH and Interchange, FedWires do not pose a financial risk to you as they are only outgoing, so there is no risk of returns and financial losses. However, it's important to note that FedWires are irreversible. So it is important to ensure that they were indeed originated by the sender and all the details submitted are accurate before originating them with us.

Originating Wires Safely

This can be done by features like enabling MFA right before originating a FedWire and showing the customer a summary page and urging them to check all the details before origination.

Failures

Though FedWires do not fail for lack of funds, they can still fail for the following reasons:
Code
Description
WR01
Return Per Customer Request - Returned per customer request.
WR02
Return Per Platform Request - Returned per platform request.
WR03
Account Closed/Frozen - The receiving account is closed/restricted/frozen, therefore the wire cannot be credited.
WR04
Compliance Concerns (Additional Documents Required) - We have identified red flags which require further investigation. The wire has been returned and we have requested additional documentation.
WR05
Country Not Allowed - The specified country is not allowed per the platform's controls and the wire has been returned.
WR06
Exceeds User's Limits - The transaction exceeds the user's daily, monthly, and/or annual limits.
WR07
Exceeds Platform's Limits - The transaction exceeds the platforms' daily, monthly, and/or annual limits.
WR08
Name Mismatch - The recipient's name in the wire instructions does not match the name on file with us.
WR09
Inactive Account - The receiving account is inactive, or unverified therefore the wire cannot be credited.
WR10
Invalid Account Number - The account number in the wire instructions does not match the account number on file with us.
WR11
Duplicate Transaction - Duplicate transaction, the duplicate has been returned.
WR12
Outside of Allowed Flow of Funds - The account number in the wire instructions is not a valid account number on file with us.

Recalling a Wire

Recalling a wire is a process that requires us to contact the receiving bank and requesting them to reverse the wire back to us. This process is manual and the likelihood of success is low. It is also important to understand that financial institutions have no requirement to respond to our recalls. For that reason, we recommend Originating Wires Safely. But in rare situations that wires still need to be recalled, please create a ticket requesting a wire recall by emailing [email protected].

SWIFT

SWIFT behaves similarly to FedWires. They do not pose a financial risk to you as they are only outgoing, so there is no risk of returns and financial losses. However, it's important to note that SWIFT Wires are irreversible. So it is important to ensure that they were indeed originated by the sender and all the details submitted are accurate before originating them with us.

Originating Wires Safely

This can be done by features like enabling MFA right before originating a SWIFT Wire and showing the customer a summary page and urging them to check all the details before origination.

Failures

Though SWIFT Wires do not fail for lack of funds, they can still fail for the following reasons:
Code
Description
WR01
Return Per Customer Request - Returned per customer request.
WR02
Return Per Platform Request - Returned per platform request.
WR03
Account Closed/Frozen - The receiving account is closed/restricted/frozen, therefore the wire cannot be credited.
WR04
Compliance Concerns (Additional Documents Required) - Synapse has identified red flags which require further investigation. The wire has been returned and we have requested additional documentation.
WR05
Country Not Allowed - The specified country is not allowed per the platform's controls and the wire has been returned.
WR06
Exceeds User's Limits - The transaction exceeds the user's daily, monthly, and/or annual limits.
WR07
Exceeds Platform's Limits - The transaction exceeds the platforms' daily, monthly, and/or annual limits.
WR08
Name Mismatch - The recipient's name in the wire instructions does not match the name on file with Synapse for the account.
WR09
Inactive Account - The receiving account is inactive, or unverified therefore the wire cannot be credited.
WR10
Invalid Account Number - The account number in the wire instructions does not match the account number on file with Synapse.
WR11
Duplicate Transaction - Duplicate transaction, the duplicate has been returned.
WR12
Outside of Allowed Flow of Funds - The account number in the wire instructions is not a valid account number on file with Synapse.
WR13
Return per ODFI Request (Recall Received) - Returned per sending FI's request, a recall was received.
WR14
Detailed transaction reason not sufficient - The transaction details are not sufficient for Synapse to understand the purpose of the wire.
WR15
Beneficiary address invalid - The beneficiary’s address is either incomplete or invalid.
WR16
Beneficiary name invalid - The beneficiary’s name is either incomplete or invalid.
WR17
Below $1,000 USD minimum - Wire amount must equal at least $1,000 USD.
WR18
Verbal verification form required - The verbal verification form is missing from the transaction.
WR19
Verbal verification form invalid - The verbal verification form has at least one error that renders it invalid.
WR20
Correspondent bank details invalid - The name, address or ABA/SWIFT of the correspondent bank is invalid.

Recalling a Wire

Recalling a wire is a process that requires us to contact the receiving bank and requesting them to reverse the wire back to us. This process is manual and the likelihood of success is low. It is also important to understand that financial institutions have no requirement to respond to our recalls. For that reason, we recommend Originating Wires Safely. But in rare situations that wires still need to be recalled, please create a ticket requesting a wire recall by emailing [email protected].

RPPS

Under the hood, RPPS is just a private ACH rail. Since all RPPS transactions are push transactions, they do not pose a financial risk. Even though RPPS do not fail for lack of funds, they can still fail for the following reasons:
Code
Description
R02
Account Closed
R03
Account Number Invalid
R04
Wrong Account Number
R05
Pre-Notification Error
R06
Originator Requested Return
R07
Authorization Revoked
R08
Payment Stopped Settlement
R09
Uncollected Funds
R10
Advised Unauthorized
R12
Branch Sold
R14
Payee Deceased
R15
Beneficiary Deceased
R16
Account Frozen
R17
File Edit -Record Criteria
R18
Wrong Entry Date
R19
Account Error
R20
Non Transaction Account
R21
Wrong BillerId
R22
Account Number Mistake
R23
Payment refused by Biller
R24
Duplicate Entry
R25
Fair share Amount
R29
Advised Unauthorized
R31
Permissible Return Entry
R42
Routing Number Error / Check Digit Error
R43
DFI account Number
R61
Misrouted Return
R62
Trace Number Error
R63
Dollar Amount Mismatch
R64
Individual Identification
R65
Invalid Transaction Code
R66
Invalid Company Identification
R67
Duplicate Return
R68
Untimely Return
R69
Multiple Errors
R70
Permissible Return Entry Not Accepted
R71
Misrouted Dishonored Return
R72
Untimely Dishonored Timely
R73
Timely Original Return
R74
Corrected Return
R80
Cross Border Payment Coding Error
R81
Non-Cross Border Participant
R82
Foreigner Receiver ID
R83
Unable to Settle
R84
Not Processed
R85
Fair Share Rebate

Checks

Like RPPS, checks are another way for your users to pay bills. Since they are credit only, they do not pose a financial risk. Even though checks do not fail for lack of funds, they can still fail for the following reasons:
Code
Description
CHR03
Stop payment – a stop payment has been placed on the item
CHR15
Unable to process

Stopping Check Payment

If a check payment has not SETTLED yet (refer to Possible Transaction Statuses), the user can still choose to stop the check payment using Cancel Transaction API call.

RDC

Like ACH, RDC is a one-way messaging system for payment processing. Meaning, that a transaction in RDC is assumed to have succeeded unless the receiving bank sends a failure notice.
Based on the reason for failure, the receiving bank can have up to 60 days to fail a transaction. This means, if you released an RDC credit in 3 business days to your user, you might still receive a failure note (also known as a Return) up to 57 days later. Here are the most common return reasons:
Code
Description
CHR01
NSF – customer does not have sufficient funds to cover the item
CHR02
UCF – uncollected funds hold
CHR03
Stop payment – a stop payment has been placed on the item
CHR04
Closed account – the item’s account has been closed
CHR05
UTLA – unable to locate account
CHR06
Frozen/blocked account – account has restrictions placed by customer or bank
CHR07
Stale dated – the date on the item is more than 6 months old
CHR08
Post dated – the date on the item is in the future
CHR09
Endorsement missing
CHR10
Endorsement irregular
CHR11
Signature(s) missing
CHR12
Signature(s) irregular, suspected forgery
CHR13
Non-cash item (non negotiable)
CHR14
Altered/fictitious item/Suspected counterfeit/Counterfeit
CHR15
Unable to process
CHR16
Items exceeds stated max value
CHR17
Not Authorized (Includes Drafts/Remotely Created Checks) – Unauthorized item such as a draft/RCC
CHR18
Branch/account sold (Wrong Bank)
CHR19
Refer to Maker
CHR20
Item cannot be re-presented (exceeds allowable number of presentments
CHR21
Unusable image
CHR22
Cannot determine amount
CHR23
Refer to image – return reason is contained within the image of the item
CHR24
Duplicate Presentment (Supporting documentation shall be readily available)
CHR25
Forgery – an affidavit shall be available upon request
CHR26
Warranty breach (includes Rule 8 & 9 claims)
CHR27
RCC warranty breach
CHR28
Forged and counterfeit warranty breach (Rule 9)
CHR29
Retired/ineligible routing number
CHR30
Image Missing
CHR31
Ineligible Item
CHR32
Item cannot be re-presented (exceeds number of allowable times for presentment)
CHR33
unusable image
CHR34
Image fails security check
CHR35
Duplicate presentment
CHR36
Does not conform with ANS X9.100-181
CHR37
Does not conform to the Industry’s Universal Companion Document
CHR38
Warranty Breach (includes Rule 8 & Rule 9 claims)
CHR39
RCC Warranty Breach (Rule 8)
CHR40
Forged and Counterfeit Warranty Breach
CHR41
Retired/Ineligible Routing Number
These returns are broken into three categories:

Unauthorized

These returns occur when the account holder of the bank account that the check belongs to informs their bank (receiving bank) that the transaction was not authorized by them or points out some other fraudulent issues with the check. RDC guidelines allow account holders to take up to 60 days to report checks as unauthorized. Return codes CHR03, CHR14, CHR17, CHR24, CHR25, and CHR26 signify unauthorized returns.

Administrative

Administrative returns indicate that a transaction was returned due to administrative or account data errors. They occur within 3 business days of settlement. Return codes CHR02, CHR03, and CHR04 signify administrative returns.

Others

The rest of the returns are other types of returns allowed by the RDC network. Like Administrative, these returns also occur within 3 business days of settlement.

Crypto SRNs

SRNs allow you to transfer funds from a CRYPTO-US account to an external wallet address. Currently, Synapse only supports bitcoin, ethereum and ethereum_dai.
SRN stands for System Resource Name. Here it's being used to define an external payment address that is not created or managed by us. Currently, it stands for bitcoin and ethereum wallet addresses, but later can be used for payment gateways like PayID.
Since SRNs are just outgoing crypto payments, they do not pose any financial risk.

Credit Extension

Even though we are the lender of record on all loans issued through Credit Hub, you are still the guarantor of all credits extended through your platform (see Credit Terms to learn more).
For that reason, it's important for you to have a credit underwriting strategy. A good credit underwriting strategy should try to assess two things:
  1. 1.
    Propensity to Pay
  2. 2.
    Willingness to Pay

Propensity to Pay

A good way to understand a user's propensity to pay is by getting a holistic understanding of the user's debt-to-income ratio. This means understanding all the income sources and all the debt obligations the user has on a regular basis. There are quite a few tools in the market for this like traditional FICO or Plaid's Assets and Liability features are a good way to measure a user's debt-to-income ratio.

Willingness to Pay

A good way to understand a user's willingness to pay is to measure the user's engagement with your platform. If a user finds value in your products and services, they will be more inclined to pay back the obligations through your platform over others.
Based on the above definitions, here are some examples of how you might choose to design your Credit Risk Policy, based on your overall risk appetite:
Risk Appetite
Policy
Conservative
We will not provide any unsecured credit products. Customers will be required to keep funds in a loan reserve which will equal to total credit issued to them.
Moderate
Policy Propensity to Pay
We will use Plaid's Assets and Liability features to measure a customer's propensity to pay. All users will need to have a debt-to-income ratio of lower than 0.5 to be approved for the loan. All loans provided will have an installment less than or equal to half of the user's monthly disposable income (income - existing debts).
Willingness to Pay
We will only solicit the user for a credit account after they have been using the platform for over 6 months.
Ladder Up
The users that do not fit the above parameters will only be offered secured loans and later laddered up into an unsecured loan.
Aggressive
We will provide $100 line of credits to customers to measure their willingness to pay and assume this as the cost of customer acquisition. Once history is built, the user will be able to request higher amount of loans.

Provisional Credits

If you are going to issue Debit or Credit Cards to your users, then you also need to consider the financial risk of issuing provisional credits. Since you will lose most disputes, these credits are a source of financial losses for all FinTech platforms providing card products. Most card transactions that are disputed, are entitled to a provisional credit.
To learn more about Card Disputes and Provisional Credits, See Card Disputes Guide.

Regulatory Risk

Regulatory Risk can lead to regulatory fines. Which impacts your operating capital and in extreme cases can cause suspension of your program altogether.

Consumer Regulations

As a part of building a financial product, you are also expected to comply with UDAAP, Reg E, Fair Lending, and any other applicable financial regulations. As we build your program, we also provide specific guidance on how to comply with those regulations.

Transaction Monitoring

Synapse is responsible for transaction monitoring as part of our relationship with our partner banks. We work with our financial institutions behind the scenes to investigate and report activity as we monitor transactions across your platform. Due to the confidential nature of these reports, we are unable to share if or when we recommend a transaction or a user to be reported to FinCEN and/or other government agencies.
It is important to understand that Synapse's transaction monitoring and reporting structure does not absolve any obligations that you may have as a company independent of Synapse. For example, if your business is registered with FinCEN, and therefore has its own screening and reporting obligations, Synapse does not provide these controls as a service to you.
Last modified 6mo ago