APRP Payment Systems 2 — Questions and Answers
Question 1: Which network rule governs the time frame within which an issuer must respond to an authorization request in card payment systems?
- Floor limit policy
- Authorization response time limit (Correct answer)
- Interchange reimbursement fee schedule
- Chargeback representment window
Correct answer: Authorization response time limit
Network rules specify authorization response time limits to ensure timely approval or decline decisions during card transactions.
Question 2: In ACH payment processing, what is the primary function of an ODFI (Originating Depository Financial Institution)?
- It settles disputes between merchants and cardholders
- It originates ACH entries on behalf of its customers and assumes responsibility for them (Correct answer)
- It provides the final clearing of funds through the Federal Reserve
- It monitors ACH networks for fraudulent transactions on behalf of NACHA
Correct answer: It originates ACH entries on behalf of its customers and assumes responsibility for them
The ODFI initiates ACH entries at the request of its originators and is responsible for the entries it submits to the ACH network.
Question 3: Which payment rail is most commonly used for large-value, time-critical interbank transfers in the United States?
- ACH
- Fedwire Funds Service (Correct answer)
- RTP (Real-Time Payments)
- PayPal
Correct answer: Fedwire Funds Service
Fedwire is the Federal Reserve's real-time gross settlement system used for large-value, time-critical transfers between financial institutions.
Question 4: What does 'settlement risk' refer to in the context of payment systems?
- The risk that a payment network will fail to authenticate a transaction
- The risk that one party will fail to deliver on its obligation after the counterparty has already fulfilled theirs (Correct answer)
- The risk that chargebacks will exceed a merchant's reserve account
- The risk of regulatory fines for non-compliance with PCI DSS
Correct answer: The risk that one party will fail to deliver on its obligation after the counterparty has already fulfilled theirs
Settlement risk, also called Herstatt risk, occurs when one party has already settled but the counterparty defaults before completing its leg of the transaction.
Question 5: A merchant's payment processor offers 'interchange-plus' pricing. What does this pricing model mean?
- The processor charges a flat percentage regardless of card type
- The processor passes through the actual interchange cost plus a fixed markup (Correct answer)
- The processor bundles all fees into a single monthly charge
- The processor offsets interchange fees with a surcharge applied to cardholders
Correct answer: The processor passes through the actual interchange cost plus a fixed markup
Interchange-plus pricing passes the actual interchange fee set by the card network to the merchant, plus a separate transparent markup from the processor.
Question 6: Which of the following best describes a 'pull payment' in electronic payment systems?
- The payer initiates the transfer and pushes funds to the payee
- The payee initiates the transaction and pulls funds from the payer's account (Correct answer)
- A payment triggered automatically by a smart contract on a blockchain
- A refund issued by the merchant back to the customer's account
Correct answer: The payee initiates the transaction and pulls funds from the payer's account
A pull payment is initiated by the payee (e.g., a biller) who requests funds from the payer's account, as in ACH direct debit or card-on-file transactions.
Question 7: Under the RTP network operated by The Clearing House, what is the maximum transaction limit per payment as of recent guidelines?
- $250,000
- $500,000
- $1,000,000 (Correct answer)
- $10,000,000
Correct answer: $1,000,000
The RTP network supports transactions up to $1,000,000 per payment, making it suitable for both consumer and business use cases.
APRP Payment Systems 2
Which network rule governs the time frame within which an issuer must respond to an authorization request in card payment systems?