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Agile Payments Blog


Checking Account Verification Tools: Reduce payment risk from check acceptance

Checking Account Verification Tools offer businesses the ability to reduce check acceptance risk at the point of sale, in person or in an online environment. Checking account verification tools range from an automated routing number check to negative database inquiries options to near real-time insight into current checking account status. Checking account balance validation is possible but this requires either the customer to log-in or provide credentials to their online banking system.

The ACH or electronic check world does not have the authorization component present with credit cards. When processing a credit card you are able to ascertain at the time of payment that the customer has the requisite funds on their card and in turn reserve those funds for capture and settlement. In essence-You know you are getting paid.

For many businesses this lack of an authorization means that a Checking Account Verification system is needed to mitigate payment acceptance risk.

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.

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.



Checking Account Verification Tools

The business has multiple issues to address: The insurance company has to void the policy and may have exposure from an accident. That customer must be contacted for payment. Accounting may need to be undone.

Mitigating loss through third party check verification services can be an important part of the business that relies on ACH processing for check acceptance.

So what are your options to reduce check acceptance risk?

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 is 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. Verification services can also meet the NACHA WEB Entry mandate and Validate a Checking Account. 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
  • 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.

**Note: There are services that can check balances. However in order to leverage these systems the customer must either log-in to their online banking or provide their credentials for logging in. This can create friction in an online setting and phone payments would not be eligible.

To learn more [ including back testing your data ] contact AgilePayments today