Banking Exam Digital Banking and Fintech 3 — Questions and Answers
Question 1: Which authentication method uses behavioral biometrics such as typing rhythm and mouse movement patterns?
- Two-factor authentication (2FA)
- Continuous or passive authentication (Correct answer)
- One-time password (OTP)
- Knowledge-based authentication (KBA)
Correct answer: Continuous or passive authentication
Continuous or passive authentication monitors behavioral biometrics in real time to verify user identity without interrupting the session.
Question 2: What is 'Buy Now, Pay Later' (BNPL) and how is it typically regulated in the US?
- A layaway program regulated entirely under the Truth in Lending Act
- A short-term installment loan product that largely falls outside traditional consumer credit regulation (Correct answer)
- A federally insured savings product offered by credit unions
- A form of revolving credit regulated identically to credit cards
Correct answer: A short-term installment loan product that largely falls outside traditional consumer credit regulation
BNPL products typically split purchases into installments and have historically operated in a regulatory gray area, though CFPB has moved to extend TILA protections to them.
Question 3: What is the purpose of a 'sandbox' environment in fintech development and regulatory contexts?
- A secure vault for storing physical customer documents
- A controlled testing environment where fintechs can pilot products with limited regulatory requirements (Correct answer)
- A government database for storing suspicious activity reports
- An isolated network for running cybersecurity penetration tests
Correct answer: A controlled testing environment where fintechs can pilot products with limited regulatory requirements
Regulatory sandboxes allow fintech companies to test innovative products with real customers under relaxed regulatory oversight within defined parameters.
Question 4: What distinguishes a 'prepaid debit card' from a standard debit card in terms of federal protections?
- Prepaid cards are always exempt from all federal consumer protections
- Prepaid cards under the CFPB Prepaid Rule receive protections similar to debit cards including error resolution rights (Correct answer)
- Prepaid cards are FDIC insured at a higher limit than standard accounts
- Prepaid cards are regulated exclusively by state law
Correct answer: Prepaid cards under the CFPB Prepaid Rule receive protections similar to debit cards including error resolution rights
The CFPB's Prepaid Rule extended Regulation E error resolution rights and disclosure requirements to prepaid accounts, aligning protections closer to those for debit cards.
Question 5: What is a 'stablecoin' in the cryptocurrency ecosystem?
- A cryptocurrency with a fixed supply cap like Bitcoin
- A digital asset designed to maintain a stable value by pegging to a reference asset such as the US dollar (Correct answer)
- A government-issued central bank digital currency (CBDC)
- A cryptocurrency that can only be used for cross-border payments
Correct answer: A digital asset designed to maintain a stable value by pegging to a reference asset such as the US dollar
Stablecoins are cryptocurrencies pegged to stable reference assets (fiat currency, commodities, or algorithms) to minimize price volatility.
Question 6: Which fraud scheme involves criminals intercepting and altering payment instructions, often via email compromise, to redirect funds?
- Phishing
- Business Email Compromise (BEC) / payment redirection fraud (Correct answer)
- Card skimming
- Account takeover via SIM swapping
Correct answer: Business Email Compromise (BEC) / payment redirection fraud
BEC fraud involves attackers compromising business email accounts to intercept payment communications and redirect wire transfers or ACH payments to criminal accounts.
Question 7: What is the role of a 'core banking system' in a financial institution's technology stack?
- The firewall system protecting the bank's perimeter network
- The central software platform that processes daily banking transactions and maintains account records (Correct answer)
- The mobile app framework used to deliver customer-facing services
- The compliance management software for filing regulatory reports
Correct answer: The central software platform that processes daily banking transactions and maintains account records
Core banking systems are the central back-end platforms that process deposits, loans, payments, and maintain the ledger of all customer accounts.
Banking Exam Digital Banking and Fintech 3
Which authentication method uses behavioral biometrics such as typing rhythm and mouse movement patterns?