Most typically, a company will require a potential customer to verify their bank account before they are allowed to make use of a product or a service. Why is that? This article seeks to help understand what bank account verification is, why it is important, and how to go about it.
Bank account verification can entail traditional methods like; checking bank statements or recent methods, including open banking. Whatever means, Bank account verification is a crucial step to ensuring that customers’ funds are not misappropriated. Mitigating fraud and mistakes that can arise with managing a customer's account is crucial.
Reading on, a concise and simple explanation of bank account verification will be provided, as well as all the basics there is to know. It will also include the various ways that can be explored to achieve bank account verification. That way, it can be easy to choose a suitable verification method.
What Is Bank Account Verification?
In simple terms, Bank Account Verification refers to the process through which a financial institution or company confirms a potential customer’s bank account information. This verification aids companies that make or receive payments as a protocol ensures that the account is correct and without irregularities.
The process ensures that outgoing and incoming funds are taking place in the right or legitimate account. Bank account verification is an important part of the KYC process when it comes to digital transactions. It ensures that fraud and other illegitimate practices are mitigated.
Why Is Bank Account Verification Important?
Bank Account Verification is an important part of the Know Your Customer process as well as the (AML) Anti Money Laundering Processes. However, several reasons make Bank Account Verification important.
1. Preserves Company Reputation:
It assures customers that a company is security conscious, which means that their information is secure. It can also help present a company as a reputable company.
2. Helps Mitigates Or Prevent Human Error:
Bank account verification reduces human error that may have to do with inputting wrong account details incorrectly or using an individual's account number for a different individual. It also saves administrative staff from headaches and repetitive and strenuous work that may have to do with chasing down and cleaning up mistakes that could arise due to the use of invalid account numbers or wrong charges.
3. Satisfy Regulatory Requirements:
Companies and financial institutions must meet KYC and AML requirements. Bank account verification saves companies from a lot of dicey situations that may have to do with non-compliance, which can cost companies a lot of financial and reputational losses.
4. Protect the Business:
Bank account verification protects businesses from malicious individuals with equally malicious intent who may be looking for loopholes constantly to commit crimes or illegal activities such as fraud, money laundering, and impersonation.
5. Saves Time And Money:
Since customer’s details are not lodged manually and with a secure data source and information. Time is saved as well as money. Lesser staff personnel are needed to onboard customers, and fewer errors are made.
Recommended - What is Regulatory Compliance?
What Does Bank Account Verification Entail?
Bank Verification encompasses a variety of processes, but overall, it has most recently come to involve digital processes. For a company to carry out Bank Account Verification, it would require information that includes the following;
- Account holder’s name
- Bank Account Number
- Routing number
Bank Account verification may typically involve the potential customer providing authentic information that proves that they own such an account. An example of such credible or authentic information would be a bank statement. Sometimes, a customer may prove their identity by providing data that matches the data on file at a credit bureau or held at the bank they own an account with. Bank Account Verification involves the following methods:
1. Verifying The Identity Of The Potential Customer:
This involves authenticating the account holder’s identity. This takes place during customer onboarding and can be carried out with the following methods:
i. In-person Bank Account Verification Process:
The potential customer must be present physically when they have to open a new account. An agent will be physically present to assess the account holder or potential customer. Necessary checks will be taken on the identity, ID card or passport copy, and address. They will be assessed to ascertain that they do not resent any risks for malicious activities; it will also be confirmed if they are on any list of fraudulent or wanted persons. After all, these have been confirmed or verified as valid; an account is opened.
ii. Bank Account Verification Online:
This involves digital onboarding and has become quite common as digital processes begin to encompass everything that is done in modern times. This is possible through online verification service providers like Youverify. Basically, the user or potential customer does not need to be physically present or be assessed by a physical agent.
The verification and account opening is done online through a registration and identification process that is completely digital and automated. The process requires them to verify their identity documents, including passports, ID cards, identity, and proof of life.
Youverify allows businesses to automate the bank account verification process from start to finish for more comprehensive compliance and an easier customer onboarding process. Request a demo today to see how it works.
2. Micro Deposits:
This method involves a customer giving their account details to a merchant. To verify the account number, the merchant sends small amounts of money to the customer’s account to verify its ownership and validity.
3. Credit Checks:
Credit checks involve checking a customer’s account details against the information available on file at a credit bureau. When the information matches, then the account is verified.
4. Using open banking:
A company or financial institution can choose to partner with an open banking provider. The agent or merchant has to connect directly to their customer's bank account in real-time. Then, the provider instantly compares the customer's name and account number with the details listed with the customer's bank. With this, agents and companies can easily verify identities and accounts on the go.
Bank Account verification is an important part of the KYC process, and it helps mitigate errors and fraudulent activities and mitigates redundant tasks. Youverify is an open banking OS that can automate bank account verification processes.