KYC, reviews and chargebacks: what banks and processors will ask, and how to answer

Banks and payment processors are required by law to know who their customers are and to keep an eye on what they do. A founder abroad gets more questions than a US founder, because the checks are harder to complete from a distance. If you're prepared, they're a formality. Here's what you'll be asked, when, and how to have the answers ready.

KYC checks the people and KYB checks the company. The provider identifies the person opening the account and every owner of 25% or more, with a passport and proof of address, and verifies the company with its formation document and EIN. It asks what the business does, where its customers and suppliers are, roughly how much money will move and from where, and whether any owner holds or held a prominent public role. Then it compares the answers with each other and with your website. Consistency is most of the test.

Monitoring doesn't stop, and certain things prompt a question:

• Volume well above what you said to expect.
• Money from a new country, a new kind of customer or supplier, or a high-risk source.
• A large transfer to a personal account with no clear link to the business.
• Payments that look as if they're on someone else's behalf.
• A product or category the provider restricts, discovered after the account opened.

The question usually comes as a request for documents: an invoice, a contract, a statement or an explanation. Answer within a few days, completely, with the documents attached. A question you answer is closed. A question you ignore can become a limit on the account, and an ignored limit can become a closure.

A chargeback is a customer's card issuer reversing a payment at the customer's request. The processor takes the amount back from your balance, adds a dispute fee, and holds the money until the issuer decides. On Stripe the fee for receiving a dispute isn't returned even if you win. Countering it adds a second fee, which is returned if you win.

Every dispute counts against you, won or lost, and refunds don't undo one. Stripe says the industry treats dispute activity above 0.75% as excessive. The card networks set their own lines, measured each month:

• Visa counts disputes plus fraud reports from issuers. From a 0.5% ratio and 5 a month it can call you non-compliant; at 1.5% and 1,500 a month it fines.
• Mastercard places you in its Excessive Chargeback Program at 1.5% with at least 100 chargebacks a month. Fines start in the second month.

Visa's lower line needs only 5 disputes in a month, so a small shop with a bad week can cross it. Stripe and PayPal usually act before a network does, so keep well under 0.75%.

• Use a clear billing descriptor, so customers recognise the charge on their statement.
• Give honest delivery times, track shipments, and make your refund policy easier to use than a chargeback.
• Reply to support requests within a day, because many chargebacks come from customers who couldn't reach you.
• Refund quickly when you know you'll lose, before the customer goes to their bank.
• Avoid categories prone to disputes unless you can afford the reserve a processor will hold.

Keep one folder with the formation document, the EIN letter, the operating agreement, passports, proofs of address, your website and a one-paragraph description of the business. Add invoices for what the company is paid for, receipts for what it pays, and reconciled statements. With those, you can answer almost any request from a bank or processor within the hour, and accounts that answer quickly tend to stay open.