Checking Account Verification Services: What are your options?
Checking Account Verification Services offer merchants the ability to mitigate check acceptance risk at the point of sale, either in person or online. Checking account verification options range from automated routing number check to negative database options to near real-time inquiries into current checking account status. Checking account balance inquiries are possible but require the customer to either log-in or provide credentials to their online banking system.
Electronic Bank Verification tools offer your business the ability to significantly reduce payment acceptance risk by validating in real-time the customer has an active bank account with positive funds status.
The ACH or electronic check world lacks the authorization component present with credit cards. With credit cards you are able to authorize at the time of payment that the customer has the requisite funds on their cards; thereby reserving those funds for capture and settlement. In essence-You know you are getting paid at the point of sale.
For some businesses this lack of an authorization means that a Checking Account Verification system is needed to mitigate payment acceptance risk. Without an ACH Verification System your newly onboarded customer may require significant work to obtain correct or valid checking account information. This amplifies the need for merchant check verification tools.
Contrast the credit card authorization component with ACH and check processing: An ACH transaction processed today goes to the ACH network for debiting the customer tomorrow morning [assuming tomorrow is a banking day].
There are two banks involved: The bank initiating the debit on behalf of their merchant [ODFI] and the customer’s bank [RDFI].
Those two bank have another day to sort out any reasons for rejecting the debit eg NSF, closed account etc.
Note: Same Day ACH accelerates this time frame but does NOT authorize a payment-this means there is still risk of the payment rejecting.
So payment rejects are known about only after payment is accepted; in some cases days later. Consider a business that pays commissions for new customers. Their sales team brings on a new client and is paid. Your bank reports back 5 days later the check payment rejected. You need a system to check a bank account is valid.
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Checking Account Verification Services
The business has multiple issues to address: The commission payment may need to be pulled back. That customer must be contacted for payment. Accounting may need to be undone
For businesses that accept checks either as an ACH, Check 21 or Remote Deposit all face the risk that the payment will result in a return [failed transaction].
So what are your options to reduce check acceptance risk?
How to verify a check is good
Most third party checking account verification services include the most basic tool of routing account number validation. The bank routing number identifies the bank the check is drawn against. The databases holding this information can be checked in real time.
The next level is negative databases. Based on history [both positive/negative] of that checking account info, a response is returned regarding the account status. An example would be writing a check at Home Depot. If the check is good or bad, Home Depot can report that check status to the database. With many retailers contributing data to the network there are many millions of checking accounts to reference.
Recency becomes an issue, as the customer’s last instance of writing a check at a participating retailer becomes the last data point. This means that data can be stale or a known bad check writer may not have made it into the database in a timely fashion.
The next level of check verification comes from banks and Credit Unions contributing data from their ATM network. A daily upload of account status is made to the network and queries to the network can provide account insight. When a check verification inquiry comes in an almost immediate response can be generated. These responses can tell you:
- The account is closed
- The account # is invalid
- The account is non DDA eg Home Equity checks
- The account is in an NSF status: For some businesses this is important as they do they know they have a good account
Checking Account Verification Service
- Account has pending NSF’s or stop payments
- The account is open and in good standing with a positive funds balance. Very importantly you do not get a balance confirmation. The account can have $25 or $25000.
The level of this insight varies based on the 3rd party provider. Depending on the provider, you can receive information that can indicate:
- NSF checks
- Bad check writer
- Closed checking account
- Invalid checking account
- Potential fraudulent transactions and other suspicious activity
Further information available: High Risk of payment return | Non Transactional Account (Prepaid Accounts) | Pending Closed |Account Returning Items | Repeat offender of NSF (Non Sufficient Funds) | Open Valid Account |Non DDA | Closed Account or Unable to Locate Stop Payment | Account with Recent Returns.
There are now additional check verification services that can validate an account is open, check balances and provide account ownership details.
In order to leverage these systems the customer is presented a must either log-in to their online banking or provide their credentials for logging in. Typically a lightbox [see image]is presented and the customer enters their online banking credentials. Although this can create friction from the user this process has become much more common and many consumers have had some experience with it. The additional insight gathered from this process can be valuable.
For businesses that simply must have as accurate onboarding information as possible eg insurance, loan products this addition level of information is very desirable. In some cases the business is able to tap into the customer’s online bank information. So for example it would be possible to check that the customer has requisite funds for each recurring payment made or to gain insight into irregular cash flow. For lenders in particular this level of insight provides risk mitigation insights previously unavailable. It is even possible to automate micro deposit validation. Micro deposits are small $ credits to a bank account eg 27 cents. The customer typically would validate the amount and then report this back to the platform. This can now be accomplished automatically but again requires initial online bank log-in from the end customer.
To learn more [ including back testing your data ] contact AgilePayments today
The vast majority of bank accounts in the US are in the database with successful inquiry rates from 90-95%. Depending on urban or rural address, the stats can vary up or down.
For larger businesses there can also be the opportunity to create an internal bad account database. This database can be used in conjunction with other risk mitigation tools.
The 3rd party provider you work with should offer you a combination of all the services discussed including:
- Routing number validation
- Proprietary Negative Database-should comprised of tens of millions of bad accounts and negative items from verification past data
- Real-time Status on Accounts. (via financial institutions)
- Negative Data (Basic and Premium) Services that provide negative information on unpaid items
- The ability to verify business bank account
It is important to note what the checking account verification services at this level do NOT provide, namely:
- Funds availability or balance inquiry
- Bank account ownership. The name on the checking account is not being matched to the customer name provided — Checking Account Owner Authentication
For many businesses this provides a significant improvement in their payment acceptance processes.
New client intake or onboarding can be a major friction point for businesses that rely on future recurring payments. Examples would be insurance companies with premium payments, an alarm monitoring business collecting monthly monitoring fees or car loan repayment.
The customer may provide their bank account and routing info or a voided check might be taken. In either case there is the potential for user error when inputting data.
Check verification solutions offer the chance to validate the account is open and in good standing before the account will be loaded into a recurring billing engine. So a data entry or possibly closed account or even fraud can be caught before “booking” the sale.
Consider an insurance company binding a policy on Monday the 1st. Conventionally the insurance company might not now for a week or more that policy should be never have been written. What happens if in that week a claim is made? For a small transaction fee they could have avoided a $30,000 loss.
Or the energy company that essentially may be providing a free month of service to a renter or homeowner that knows how to game the system.
Many businesses use third parties to generate new customers. Typically these 3rd parties are paid when the new client is boarded. In many cases the same or next day.
What happens when that new customer’s payment fails because of bad checking account data? Again more friction, more financial loss and more potential for losing that new customer.
By employing a checking account verification system businesses can eliminate much of the “after the sale” work needed when payment fail.
In addition you can often save a sale. The majority of the time payment rejects are accidents. If the customer has to go through the hassle of the sale process again there is no doubt there will be a subset of those sales that will be lost. By leveraging checking account verification tools businesses don’t lose hard won customers because of data entry errors.
Businesses that rely on future billing are especially vulnerable to bad check data.
Using a cutting edge Checking Account Verification Service can dramatically reduce bad check acceptance and the workflow problems they create.
The check verification service should be available as a stand alone [eg using a web based Virtual Terminal] or in integrated fashion that can be programmatically part of workflow. Approve/Decline logic can be customized to the particular business. In some use cases for instance an account currently in an NSF stats may still be onboarded.
How to verify a bank account number online | Verify Funds
To learn more [ including back testing your data ] contact AgilePayments today
How to verify a bank account number online | Verify Funds |
merchant check verification