Compliance Status Overview

Before a Merchant can process transactions through the GrailPay Payments API, they must meet our compliance requirements. Compliance Status represents whether a Merchant is eligible to transact based on the verification of their business and the individuals who own or control it. When you onboard a Merchant onto the GrailPay platform, we perform identity verification checks to ensure the business is legitimate and that we understand who is behind it. This is a regulatory requirement for all payment processors and helps protect against fraud, money laundering, and other financial crimes. A Merchant’s Compliance Status is determined by two factors:

• KYB (Know Your Business) — Verification of the Merchant’s business entity
• KYC (Know Your Customer) — Verification of each Beneficial Owner associated with the business

Both the Merchant and all of its Beneficial Owners must pass verification before the Merchant can begin transacting.

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What is KYB?

To comply with U.S. financial regulations and ensure the integrity of our Payments platform, GrailPay requires all Merchants to pass Know Your Business (KYB) verification as part of the onboarding process. KYB is a mandatory due diligence process that helps identify and validate the legitimacy of a business, its ownership structure, and its associated individuals. During KYB, we collect and validate details such as:

• Legal business name and entity type
• Employer Identification Number (EIN / TIN)
• Business address
• Business owners (with associated SSNs, emails, and dates of birth)
• Supporting documentation, when applicable

This information is submitted to our verification providers to confirm that the business is registered, operating legitimately, and not subject to regulatory flags.

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Why KYB Matters

KYB is a core component of anti-money laundering (AML) and fraud prevention frameworks. By verifying Merchant entities during onboarding, GrailPay ensures:

• Trustworthy participation in the ACH network
• Reduced risk of fraudulent or high-risk businesses
• Compliance with NACHA, FinCEN, and other regulatory obligations
• Accurate ACH classification for downstream financial processing

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KYB Outcomes

Once a KYB request is submitted, the Merchant will be assigned one of the following status values:

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What is KYC?

KYC, or “Know Your Customer,” is the process of verifying the identity of individuals associated with a business. In the context of GrailPay, KYC is performed on each Beneficial Owner of a Merchant. A Beneficial Owner is any individual who owns 25% or more of the business, or who has significant control over the business (such as a CEO, CFO, or Managing Member). Federal regulations require us to verify the identity of these individuals before allowing the business to process payments. During KYC verification, we collect and verify information such as:

• Full legal name
• Valid email address
• Date of birth
• Social Security Number (SSN) or government-issued ID
• Residential address

This information is checked against authoritative data sources to confirm the individual’s identity. KYC verification helps ensure that the people behind a business are who they claim to be.

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KYC Outcomes

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How Compliance Status Works

Compliance Status is evaluated in real-time whenever a Merchant attempts to perform a compliance-gated action, such as creating a transaction. This ensures that decisions are always based on the most current verification information available. Rather than storing a static status that could become outdated, GrailPay computes the Compliance Status dynamically by examining the current KYB and KYC results. This approach provides:

• Accuracy — The status always reflects the latest verification results
• Transparency — Compliance decisions are based on clear, documented criteria
• Auditability — A complete history of verification events is maintained for regulatory purposes

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Compliance Status Values

A Merchant’s Compliance Status is one of four values: Pending, Approved, In Review, or Rejected.

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Pending

When a Merchant is first onboarded, their Compliance Status is Pending. This indicates that the KYB and/or KYC verification processes are still underway. This means:

• The business KYB verification has not yet completed, and/or
• One or more Beneficial Owners have not yet completed KYC verification

Merchants with a Pending status cannot create transactions until all verifications are complete.

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Approved

The Merchant has passed all compliance checks and is authorized to transact. This means:

• The business has passed KYB verification
• All Beneficial Owners have passed KYC verification

Merchants with an Approved status can create transactions, receive payouts, and use all features of the Payments API without restriction.

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In Review

The Merchant’s KYB verification requires additional review, but all Beneficial Owners have passed KYC. This means:

• The business verification is pending manual review
• All Beneficial Owners have been verified successfully

Merchants with an In Review status cannot create transactions until the KYB review is complete. Most reviews are resolved within 1–2 business days. If additional documentation is required, we will reach out to the Merchant directly.

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Rejected

The Merchant has failed one or more compliance checks and is not authorized to transact. This can happen if:

• The business failed KYB verification
• One or more Beneficial Owners failed KYC verification

Merchants with a Rejected status cannot create transactions or process payments. If you believe a rejection was made in error, please contact GrailPay support to discuss next steps.

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Corrective Action

In the event that either KYB Status or KYC Status is set to In Review or Rejected, manual intervention will be necessary to unblock the merchant from compliance-gated actions. The exact remediation steps will vary, and may include requests for additional documentation from the merchant. Please reach out to [email protected] to highlight any merchants that require immediate attention.

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Monitoring Compliance Status

You can monitor a merchant’s Compliance Status by retrieving the merchant record or by listening for the ComplianceStatusChanged webhook event. Changes to Compliance Status will be reflected in real time, allowing your system to take appropriate onboarding or operational actions.

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Summary