Banking Exam Digital Banking and Fintech 4

Question 1

What does 'KYC' stand for and why is it critical in digital banking onboarding?

Accepted Answer

Know Your Customer — a regulatory process to verify customer identity and assess risk

Answer

KYC (Know Your Customer) requires banks to verify customer identities and assess money laundering or terrorist financing risk before establishing a business relationship.

Question 2

What is 'tokenization' in the context of digital payments and data security?

Accepted Answer

Replacing sensitive payment data with a non-sensitive substitute value (token) to reduce breach exposure

Answer

Payment tokenization replaces a card's primary account number (PAN) with a unique token, so merchants never handle actual card data, reducing PCI DSS scope.

Question 3

Which US federal law governs electronic fund transfers, including debit card transactions and ACH payments, and sets consumer error resolution rights?

Accepted Answer

Electronic Fund Transfer Act (EFTA) / Regulation E

Answer

The Electronic Fund Transfer Act and its implementing regulation, Regulation E, establish consumer rights for error resolution, liability limits, and disclosures for electronic payments.

Question 4

What is 'open banking' and what technology typically enables it?

Accepted Answer

A framework allowing third parties to access customer financial data with consent, enabled by APIs

Answer

Open banking uses standardized APIs to allow licensed third-party providers to access customer account data and initiate payments, with the customer's explicit consent.

Question 5

What is 'velocity checking' in digital banking fraud prevention?

Accepted Answer

Monitoring the frequency and speed of transactions to detect unusual patterns indicative of fraud

Answer

Velocity checks flag suspicious transaction patterns — such as multiple rapid purchases, failed login attempts, or rapid fund movements — that deviate from normal customer behavior.

Banking Exam Practice Test

Banking Exam Practice Test

Banking Exam Digital Banking and Fintech 4