Unlocking Seamless and Secure Payments with Bank Account Verification

There are over 1.5 billion people around the world without access to traditional bank accounts. This underserved population represents an enormous growth opportunity for financial organizations. However, following the advent of generative AI, identity fraud has become more accessible and sophisticated than ever, with losses recently reaching $43 billion and impacting over 40 million U.S. adults. So, in the age of ChatGPT and cheap deepfake tools, how can companies safely confirm account status and ownership, weed out bad actors, and ensure inclusive financial access with minimal friction?

Read on to discover how bank account verification is more than a necessity to mitigate risk, but can also be a tool for growth that lets you tap into a global market of underbanked, thin-file, and non-traditional banking clients.

What Is Bank Account Verification?

Bank account verification, also known as funding source verification, is the process of confirming that a bank account is valid, belongs to the person or entity identifying themselves as the owner, and that the account has sufficient funds to cover the transaction.

Bank account verification is essential for safeguarding various types of transactions, such as:

1. Online bank payments
2. Electronic fund transfers (EFTs)
3. Automated Clearing House (ACH) payments

By verifying the ownership and validity of the bank account, companies can reduce the risk of fraudulent transactions and ensure compliance with regulations. From financial services and online marketplaces to online gaming, organizations across many sectors must verify the ownership of bank accounts in a variety of cases, including for:

1. Account-to-account transfers
2. Loan repayments
3. Payroll direct deposit
4. Government benefit disbursements
5. Marketplace payouts
6. Gig economy earnings
7. Insurance claims
8. Bill payments and auto-pay

Why is Bank Account Verification Important?

Bank account verification mitigates the risk of fraud by confirming the identity of an account holder before permitting any funds to be transferred. According to the Department of Justice, 1 in 5 people have had their identity stolen at some point in their life leading to millions of compromised identities floating around the internet. When combined with the threat of account takeovers and synthetic identities, conducting any financial transactions in this environment exposes organizations to the risk of fraud.

Bank account verification also protects the wider financial system and prevents illicit activities such as money laundering and terrorist financing. It can supplement the customer identification program (CIP) provision of the USA PATRIOT Act which mandates that US financial institutions must develop a program for verifying the identities of their clients. It’s also a critical aspect of complying with anti-money laundering requirements and Know Your Customer (KYC) regulations.

What Are the Limitations of Traditional Bank Account Verification Methods?

Companies can use a variety of different bank account verification methods. The three main approaches currently in use are: microdeposits, instant verification, and automatic bank account validation (ABAV). Although these methods are common, they have some significant drawbacks:

• Microdeposits: A verification method that sends a small test transaction to an account, with the customer then required to confirm the amounts. The biggest limitations of this approach are time and friction. In an increasingly digital economy that runs on immediate results, a 2-3 business day wait to confirm a transaction introduces an unacceptable delay.
• Instant verification: A much faster method than microdeposits, instant verification is a process where a company confirms their customers’ identities using a secure API. However, this method requires users to share sensitive login credentials, increasing privacy and security risks. This represents a friction point as customers may abandon the process.
• Automatic Bank Account Validation (ABAV): ABAV verifies the identity of the owner of a bank account by comparing account and routing numbers to information stored in a database. It is an effective and fast method but generally only works for offline or B2B payments.
• Document verification: Customers are required to provide bank statements or other documents to prove their account ownership. However, as this approach is labor-intensive, time-consuming, prone to manual errors, and involves sensitive information, it’s often avoided except for higher-risk situations.

Though useful for verifying accounts at major banks, most legacy bank account verification methods leave significant coverage gaps, excluding the 69% of customers who use neobanks, digital banks, credit unions, and community banks. Is there an effective, trustworthy, and efficient verification method that can be used to confirm even non-traditional accounts?

Socure’s Innovative Approach: Account Intelligence 2.0

Socure offers an easy-to-implement alternative to legacy verification methods. Socure Account Intelligence 2.0 (SAI) is a bank account verification solution designed to enable companies to reach the millions of consumers who currently lack access to traditional banking opportunities. So, what makes SAI’s approach unique?

First, Socure Account Intelligence requires only three pieces of information from a customer in order to verify their account: their name, account number, and routing number. Minimizing the amount of data collected protects the privacy of your customers and mitigates the risks of handling sensitive information.

Second, existing bank account verification solutions overly rely on data from traditional financial institutions, hindering financial inclusion and the fastest-growing segment of new account growth from younger consumers and new-to-country. Socure Account Intelligence 2.0 solves this challenge by leveraging alternative and consortium data to verify the status and ownership of non-traditional accounts at digital banks, credit unions, and regional banks, unlocking an incremental 10-20% lift in coverage creating a more inclusive financial services experience for all users.

Finally, Account Intelligence provides results in real time through a single API, allowing businesses to verify accounts and transfer funds faster than ever before and provide the kind of seamless transaction experience that consumers appreciate.

Benefits of Socure Account Intelligence

SAI’s bank account verification solution offers multiple advantages over legacy methods, including:

• Improved customer experience: SAI enables faster and more frictionless onboarding and payments, avoiding requiring the login credentials used by permission-based alternatives.
• Enhanced efficiency: Real-time verifications and automation eliminate the need for manual interventions.
• Inclusive coverage: Verifies accounts at digital banks, credit unions, and regional institutions, unlocking 10-20% more coverage for hard-to-verify consumers such as Gen Z or new-to-country.
• Bolstered security: SAI’s approach eliminates the need for customers to share sensitive banking credentials.
• Cost savings: Unlike most verification solutions that charge a fee per transaction, Socure offers a pay-for-performance model that features volume-based discounts. If SAI fails to provide a definitive verification, no fee is owed.
• Upgraded compliance: SAI adheres to Nacha’s WEB Debit Account Validation Rule. Compliance with this rule is required to complete any ACH transactions.
• Greater assurance: When SAI is paired with Socure’s identity and fraud solutions, Socure’s consortium database of actual customer outcomes of over 2 billion known good and bad identities provides increased confidence in good customer outcomes.

How SAI 2.0 Enables Inclusive Financial Access

For thin-file consumers who cannot easily access and participate in the traditional financial system, SAI 2.0 helps drive inclusive access by ensuring that they can benefit from bank account verification.

Socure Account Intelligence 2.0 helps businesses verify and include more diverse customer segments such as:

• Gig economy workers paid through digital platforms
• Immigrants and expats using regional or home country banks
• Younger consumers favoring digital-only banks
• Low-income households relying on local credit unions

By providing access to the broader financial system, expanding bank account verification promotes financial inclusion and equity around the world.

Instant Account Verification For Traditional and Non-Traditional Accounts

Without trustworthy bank account verification, businesses cannot confidently conduct secure transactions online, harming the growth of the digital economy. While legacy methods are limited in speed, scope, and effectiveness, Socure Account Intelligence 2.0 offers instant, frictionless, and accurate verification for both traditional and non-traditional accounts. SAI 2.0 enables users to automatically verify bank accounts, seamlessly onboard customers, and effectively mitigate the risk of fraud.

If you’re ready to unlock the benefits of seamless bank account verification with Socure Account Intelligence, schedule your live trial to learn more.