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 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 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:
Code | Description | Locks Node | Locks User |
| Insufficient Funds | ❌ | ❌ |
| Account Closed | ✅ | ❌ |
| No Account/Unable to Locate Account | ✅ | ❌ |
| Invalid Account Number | ✅ | ❌ |
| Returned Per ODFI's Request | ❌ | ❌ |
| Authorization Revoked by Customer | ✅ | ✅ |
| Payment Stopped | ✅ | ❌ |
| Uncollected Funds | ❌ | ❌ |
| Customer Advises Not Authorized | ✅ | ✅ |
| Check Safekeeping Entry Return | ❌ | ❌ |
| Branch Sold To Another DFI | ✅ | ❌ |
| RDFI Not Qualified to Participate | ✅ | ❌ |
| Account Holder Deceased | ✅ | ✅ |
| Account Frozen | ✅ | ❌ |
| File Record Edit Criteria | ❌ | ❌ |
| Non-Transaction Account | ✅ | ❌ |
| Invalid Company Identification | ❌ | ❌ |
| Invalid Individual ID Number | ❌ | ❌ |
| Credit Refused by Receiver | ❌ | ❌ |
| Duplicate Entry | ❌ | ❌ |
| Corporate Customer Advises Not Authorized | ✅ | ✅ |
| Permissible Return Entry | ❌ | ❌ |
| Return of XCK Entry | ❌ | ❌ |
| Limited participation DFI | ✅ | ❌ |
These returns are broken into three categories:
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 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.
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 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.
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:
Code | Description | Locks Node | Locks User |
| More information is needed from the card issuer | ❌ | ❌ |
| Refer to card issuer's unique transaction rules | ❌ | ❌ |
| Not recognized as a valid merchant | ❌ | ❌ |
| Card not activated for transaction use | ❌ | ❌ |
| Suspicious activity; do not honor this card's transactions | ✅ | ❌ |
| Error during transaction process | ❌ | ❌ |
| Card has unique conditions; currently not activated for transaction use | ❌ | ❌ |
| Needs more identification to process the transaction | ❌ | ❌ |
| Transaction requested; currently in progress | ❌ | ❌ |
| Transaction amount partially approved | ❌ | ❌ |
| Approved but not processed | ❌ | ❌ |
| Transaction invalid | ❌ | ❌ |
| Transaction amount invalid | ❌ | ❌ |
| Card number does not exist | ✅ | ❌ |
| Card issuer does not exist | ✅ | ❌ |
| Customer canceled/reversed payment | ✅ | ❌ |
| The customer reversed the transaction: chargeback | ✅ | ✅ |
| Please retry the transaction | ❌ | ❌ |
| Response from the card processor was invalid | ❌ | ❌ |
| Transaction formatted incorrectly (Potential reversal detected) | ❌ | ❌ |
| Suspected malfunction, reversal | ❌ | ❌ |
| Transaction fee was unacceptable | ❌ | ❌ |
| File update not supported by receiver | ❌ | ❌ |
| Unable to locate record on file | ❌ | ❌ |
| Duplicate file update record, no action taken | ❌ | ❌ |
| File update field edit error | ❌ | ❌ |
| Field update record locked out | ❌ | ❌ |
| File update not successful, contact the acquirer | ❌ | ❌ |
| Transaction formatted incorrectly (Potential reversal detected) | ❌ | ❌ |
| Transaction must be initiated in person, bank not supported by "switch" | ❌ | ❌ |
| Completed partially, reversal | ❌ | ❌ |
| Expired card, pick-up | ✅ | ❌ |
| Suspected fraud, pick-up | ✅ | ✅ |
| Card acceptor must contact acquirer, pick-up | ❌ | ❌ |
| Restricted card, pick-up | ✅ | ❌ |
| Merchant must contact the card security | ❌ | ❌ |
| PIN tried too many times; request a new card or try again later | ✅ | ❌ |
| No credit account tied to credit card | ❌ | ❌ |
| Function requested can not be carried out | ❌ | ❌ |
| Lost card: request a new card | ✅ | ❌ |
| Account tied to card is not universal | ❌ | ❌ |
| Stolen card: request a new card | ✅ | ❌ |
| Investment account not on required | ❌ | ❌ |
| Reserved for ISO use | ❌ | ❌ |
| Insufficient funds (NSF) | ❌ | ❌ |
| Checking account not associated with the card | ❌ | ❌ |
| Savings account not associated with the card | ❌ | ❌ |
| Card Expired: request a new card | ✅ | ❌ |
| Pin tried is incorrect | ❌ | ❌ |
| No record of the validity of the card | ❌ | ❌ |
| Transaction not permitted to cardholder | ❌ | ❌ |
| Transaction denied by acceptor (Potential chargeback detected) | ❌ | ❌ |
| Fraud suspected | ✅ | ✅ |
| Merchant must contact the card acquirer | ❌ | ❌ |
| Transaction exceeds card limits | ❌ | ❌ |
| Card restricted | ❌ | ❌ |
| Card information compromised (Potential chargeback detected) | ❌ | ❌ |
| Original amount incorrect, reversal | ❌ | ❌ |
| Current transactions exceeds withdrawal frequency limit | ❌ | ❌ |
| Merchant must contact the card acquirer | ❌ | ❌ |
| Hard capture | ❌ | ❌ |
| Response received too late, reversal | ❌ | ❌ |
| Reserved for ISO use | ❌ | ❌ |
| Allowable number of PIN tries exceeded | ❌ | ❌ |
| Key synchronization error | ❌ | ❌ |
| Reserved for private use | ❌ | ❌ |
| Customer not eligible for POS | ❌ | ❌ |
| Invalid digital signature | ❌ | ❌ |
| Stale date transaction | ❌ | ❌ |
| Issuer requested standin | ❌ | ❌ |
| Count exceeds limit | ❌ | ❌ |
| Reserved for private use | ❌ | ❌ |
| Time limit for pre-authorization reached | ❌ | ❌ |
| Issuer has no reason to decline the transaction (Account Verification) | ❌ | ❌ |
| Cannot verify PIN | ❌ | ❌ |
| Check already posted | ❌ | ❌ |
| Card information not on file | ❌ | ❌ |
| Security code verification failed | ❌ | ❌ |
| Card cutoff is in progress | ❌ | ❌ |
| Card change in progress or not taking effect | ❌ | ❌ |
| Intermediate network/financial institution is unknown | ❌ | ❌ |
| Transaction is in violation of the law and will not be completed | ❌ | ❌ |
| Duplicate transaction | ❌ | ❌ |
| Error with transaction reconciliation | ❌ | ❌ |
| System error during transaction | ❌ | ❌ |
| Reserved for national use | ❌ | ❌ |
| Card network error during transaction | ❌ | ❌ |
| Reserved for ISO use | ❌ | ❌ |
| SEC is invalid | ❌ | ❌ |
| Address and verification check data is required for this transaction | ❌ | ❌ |
| Security code date is required for the transaction | ❌ | ❌ |
| Transaction not permitted to cardholder | ❌ | ❌ |
| Country of the card issuer is blocked by this merchant | ❌ | ❌ |
| Incorrect MAC was sent | ❌ | ❌ |
| Standard Entry Class requirements were not met | ❌ | ❌ |
| System error during transaction | ❌ | ❌ |
| Account length error | ❌ | ❌ |
| Card information error | ❌ | ❌ |
| Security code format error | ❌ | ❌ |
| Internal authorization error | ❌ | ❌ |
| Card product code is blocked | ❌ | ❌ |
| Attempt to process a BRIC transaction on a prior PIN based transaction | ❌ | ❌ |
| CyberSource Time Out Connection to CyberSource timed out | ❌ | ❌ |
| CARD_ENT_METH supplied is not valid or required additional data not provided as defined | ❌ | ❌ |
| CARD_ID is not valid | ❌ | ❌ |
| Required PIN block not present | ❌ | ❌ |
| Card Bin is not valid for pin-less routing | ❌ | ❌ |
| Signature store did not complete | ❌ | ❌ |
| Debit PIN transactions must be swiped | ❌ | ❌ |
| DB proxy response was not processed within the time out period | ❌ | ❌ |
| Transaction declined by merchant to security code mismatch | ❌ | ❌ |
| Transaction not allowed as per a validation rule | ❌ | ❌ |
| Processing gateway full: poll again later | ❌ | ❌ |
| Authorization life cycle unacceptable | ❌ | ❌ |
| Authorization life cycled expired | ❌ | ❌ |
| Card authentication failed | ❌ | ❌ |
| Fraudulent transaction prior to embossed valid date | ❌ | ❌ |
| Credit not received | ❌ | ❌ |
| Allowable PAN entries warning -- approved | ❌ | ❌ |
| Transaction approved with card overdraft protection | ❌ | ❌ |
| Security code is invalid | ❌ | ❌ |
| Internal transaction processing error | ❌ | ❌ |
| Check not acceptable for cash | ❌ | ❌ |
| Check not acceptable | ❌ | ❌ |
| Check deposit limit exceeded | ❌ | ❌ |
| Cash back limit exceeded | ❌ | ❌ |
| Check amount does not match courtesy amount | ❌ | ❌ |
| PIN not selected for card | ❌ | ❌ |
| PIN already selected for card | ❌ | ❌ |
| Unmatched voucher information | ❌ | ❌ |
| Card number entered too many times | ✅ | ❌ |
| Expiration date not valid for card | ✅ | ❌ |
| Card status is set to inactive | ❌ | ❌ |
| Expiration date mismatch: request a new card | ✅ | ❌ |
| Item suspected for stop pay | ❌ | ❌ |
| Account associated with card was closed | ❌ | ❌ |
| Account associated with card is ineligible for the transaction | ❌ | ❌ |
| Duplicate transaction | ❌ | ❌ |
| No account associated with card on file | ❌ | ❌ |
| Unable to locate card | ❌ | ❌ |
| Transaction denied | ❌ | ❌ |
| Transaction settled via ACH | ❌ | ❌ |
| Cross-reference card not found | ❌ | ❌ |
| Category limit exceeded | ❌ | ❌ |
| Transaction limit exceeded | ❌ | ❌ |
| Daily limit exceeded | ❌ | ❌ |
| Monthly limit exceeded | ❌ | ❌ |
| Invalid secret code | ✅ | ❌ |
| Pin key sync error | ❌ | ❌ |
| Bad security code | ❌ | ❌ |
| Transaction ordered to be stopped | ❌ | ❌ |
| Transaction authorization revoked | ❌ | ❌ |
| Stop reoccurring payments | ❌ | ❌ |
| Card lost: do not honor | ❌ | ❌ |
| Account associated with the card is closed | ❌ | ❌ |
| Account associated with the card is inactive | ❌ | ❌ |
| Card has unique conditions: do not honor | ❌ | ❌ |
| Purchase only approval for purchase with cash back transaction | ❌ | ❌ |
| Card does not have sufficient funds for the transaction fees (NSF Card) | ❌ | ❌ |
| Card chip failed during transaction | ❌ | ❌ |
| PIN compromised | ✅ | ❌ |
| MasterCard MoneySend Error: Incorrect Expiration date | ❌ | ❌ |
| MasterCard MoneySend Error: Card declined due to an unknown reason | ❌ | ❌ |
| MasterCard MoneySend Error: Card declined due to unsupported card type | ❌ | ❌ |
| MasterCard MoneySend Error: Card declined due to an unknown reason | ❌ | ❌ |
| MasterCard MoneySend Error: Card declined due to an unknown Reason | ❌ | ❌ |
| MasterCard MoneySend Error: Card transaction request has an unknown status | ❌ | ❌ |
| 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.
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.
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.
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.
Though FedWires do not fail for lack of funds, they can still fail for the following reasons:
Code | Description |
| Return Per Customer Request - Returned per customer request. |
| Return Per Platform Request - Returned per platform request. |
| Account Closed/Frozen - The receiving account is closed/restricted/frozen, therefore the wire cannot be credited. |
| 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. |
| Country Not Allowed - The specified country is not allowed per the platform's controls and the wire has been returned. |
| Exceeds User's Limits - The transaction exceeds the user's daily, monthly, and/or annual limits. |
| Exceeds Platform's Limits - The transaction exceeds the platforms' daily, monthly, and/or annual limits. |
| Name Mismatch - The recipient's name in the wire instructions does not match the name on file with us. |
| Inactive Account - The receiving account is inactive, or unverified therefore the wire cannot be credited. |
| Invalid Account Number - The account number in the wire instructions does not match the account number on file with us. |
| Duplicate Transaction - Duplicate transaction, the duplicate has been returned. |
| 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 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 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.
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.
Though SWIFT Wires do not fail for lack of funds, they can still fail for the following reasons:
Code | Description |
| Return Per Customer Request - Returned per customer request. |
| Return Per Platform Request - Returned per platform request. |
| Account Closed/Frozen - The receiving account is closed/restricted/frozen, therefore the wire cannot be credited. |
| 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. |
| Country Not Allowed - The specified country is not allowed per the platform's controls and the wire has been returned. |
| Exceeds User's Limits - The transaction exceeds the user's daily, monthly, and/or annual limits. |
| Exceeds Platform's Limits - The transaction exceeds the platforms' daily, monthly, and/or annual limits. |
| Name Mismatch - The recipient's name in the wire instructions does not match the name on file with Synapse for the account. |
| Inactive Account - The receiving account is inactive, or unverified therefore the wire cannot be credited. |
| Invalid Account Number - The account number in the wire instructions does not match the account number on file with Synapse. |
| Duplicate Transaction - Duplicate transaction, the duplicate has been returned. |
| Outside of Allowed Flow of Funds - The account number in the wire instructions is not a valid account number on file with Synapse. |
| Return per ODFI Request (Recall Received) - Returned per sending FI's request, a recall was received. |
| Detailed transaction reason not sufficient - The transaction details are not sufficient for Synapse to understand the purpose of the wire. |
| Beneficiary address invalid - The beneficiary’s address is either incomplete or invalid. |
| Beneficiary name invalid - The beneficiary’s name is either incomplete or invalid. |
| Below $1,000 USD minimum - Wire amount must equal at least $1,000 USD. |
| Verbal verification form required - The verbal verification form is missing from the transaction. |
| Verbal verification form invalid - The verbal verification form has at least one error that renders it invalid. |
| Correspondent bank details invalid - The name, address or ABA/SWIFT of the correspondent bank is invalid. |
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].
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 |
| Account Closed |
| Account Number Invalid |
| Wrong Account Number |
| Pre-Notification Error |
| Originator Requested Return |
| Authorization Revoked |
| Payment Stopped Settlement |
| Uncollected Funds |
| Advised Unauthorized |
| Branch Sold |
| Payee Deceased |
| Beneficiary Deceased |
| Account Frozen |
| File Edit -Record Criteria |
| Wrong Entry Date |
| Account Error |
| Non Transaction Account |
| Wrong BillerId |
| Account Number Mistake |
| Payment refused by Biller |
| Duplicate Entry |
| Fair share Amount |
| Advised Unauthorized |
| Permissible Return Entry |
| Routing Number Error / Check Digit Error |
| DFI account Number |
| Misrouted Return |
| Trace Number Error |
| Dollar Amount Mismatch |
| Individual Identification |
| Invalid Transaction Code |
| Invalid Company Identification |
| Duplicate Return |
| Untimely Return |
| Multiple Errors |
| Permissible Return Entry Not Accepted |
| Misrouted Dishonored Return |
| Untimely Dishonored Timely |
| Timely Original Return |
| Corrected Return |
| Cross Border Payment Coding Error |
| Non-Cross Border Participant |
| Foreigner Receiver ID |
| Unable to Settle |
| Not Processed |
| Fair Share Rebate |
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 |
| Stop payment – a stop payment has been placed on the item |
| Unable to process |
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.
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 |
| NSF – customer does not have sufficient funds to cover the item |
| UCF – uncollected funds hold |
| Stop payment – a stop payment has been placed on the item |
| Closed account – the item’s account has been closed |
| UTLA – unable to locate account |
| Frozen/blocked account – account has restrictions placed by customer or bank |
| Stale dated – the date on the item is more than 6 months old |
| Post dated – the date on the item is in the future |
| Endorsement missing |
| Endorsement irregular |
| Signature(s) missing |
| Signature(s) irregular, suspected forgery |
| Non-cash item (non negotiable) |
| Altered/fictitious item/Suspected counterfeit/Counterfeit |
| Unable to process |
| Items exceeds stated max value |
| Not Authorized (Includes Drafts/Remotely Created Checks) – Unauthorized item such as a draft/RCC |
| Branch/account sold (Wrong Bank) |
| Refer to Maker |
| Item cannot be re-presented (exceeds allowable number of presentments |
| Unusable image |
| Cannot determine amount |
| Refer to image – return reason is contained within the image of the item |
| Duplicate Presentment (Supporting documentation shall be readily available) |
| Forgery – an affidavit shall be available upon request |
| Warranty breach (includes Rule 8 & 9 claims) |
| RCC warranty breach |
| Forged and counterfeit warranty breach (Rule 9) |
| Retired/ineligible routing number |
| Image Missing |
| Ineligible Item |
| Item cannot be re-presented (exceeds number of allowable times for presentment) |
| unusable image |
| Image fails security check |
| Duplicate presentment |
| Does not conform with ANS X9.100-181 |
| Does not conform to the Industry’s Universal Companion Document |
| Warranty Breach (includes Rule 8 & Rule 9 claims) |
| RCC Warranty Breach (Rule 8) |
| Forged and Counterfeit Warranty Breach |
| Retired/Ineligible Routing Number |
These returns are broken into three categories:
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 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.
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.
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.
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:
Propensity to Pay
Willingness 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.
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. |
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 can lead to regulatory fines. Which impacts your operating capital and in extreme cases can cause suspension of your program altogether.
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.
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.
