What is Bank account verification?
Bank account verification is the process of enabling businesses to cross-check the propriety of bank accounts. This is a part of the customer due diligence (CDD) procedure that companies are required to go through to prevent ID fraud and financial crime.
Apart from risk mitigation, bank account verification helps reduce documentation errors and streamline KYC data management. There are various systems and procedures through which the process can be undertaken with the advent of technologies like bank account verification APIs, penny drop verification, third-party verification methods, and many more.
The common thread is that verifying bank accounts is essential for banks and other financial institutions (FIs).
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Why Is Bank Verification Crucial For Onboarding?
When the topic of bank verification arises, the first question that would come to someone’s mind is what is the need for bank verification in the first place?
Many firms have to send clients money or charge them. They frequently need the details of their bank accounts to sanction and conduct these transactions. Businesses have typically relied on customers to supply account information. However, this hands-off approach to KYC often results in instances of fraud and the usage of banks for money laundering.
Bank account verification is important for a number of reasons.
- Bank account verification helps fight fraud
Bank account verification is a crucial part of registration & KYC since it helps businesses verify the client’s authenticity and that the customer information presented is kosher.
Businesses can use this technique to verify that the submitted bank account information is accurate and belongs to the rightful owner.
- Bank account verification is simpler than normal KYC
Bank account verification is simpler and more expedient to perform as compared to regular customer KYC.
This is because bank account verification simply requires a customer’s bank account information, which is already validated by another FI. Hence the data required to be retrieved and authenticated is readily available, making bank account verification a quick and convenient KYC option for banks and NBFCs.
This is especially true since bank account verification involves the usage of APIs.
- Bank account verification can be easily incorporated into customer journeys
Since bank account verification workflows can be integrated as APIs, the verification process can be introduced with ease into any key touch points.
Banks and NBFCs can make use of bank account verification by integrating with APIs without any third-party assistance. This reduces the risk of data leakage and improves risk management.
The risk of automated clearing house or ACH refunds and possible fraudsters can also be reduced with the aid of bank account verification. Unauthorized returns happen when the buyer’s bank account has money debited from it, and the originating depository financial institution (ODFI) requests that the money be put back into the account it was taken out of.
Having a trustworthy bank account verification technique is crucial to maintaining a low ACH return rate since these actions might have severe financial repercussions for the company receiving the returned payment.
How Can FIs Conduct Bank Account Verification?
The process of account verification in banks can be done in different ways. The processes are versatile and can be incorporated easily into the framework of any bank.
Some of the most notable ways to verify customer bank accounts are as follows:
- Penny Drop Verification:
One method of confirming the legitimacy of a user’s bank account is Penny Drop Verification. This is done by making a modest deposit of INR 1. This yields the verified bank information and the beneficiary’s name.
- Bank Account Verification API:
An API is made available to users so they can identify and authenticate consumer account owners and instantly check the status of their accounts for a variety of use cases.
- Verification via Third-party Bank:
Businesses, people, or other financial institutions can verify the validity of an account using a check verification service or a third-party bank verification service. This is typically not a secure option for bank account verification.
Penny Drop Verification
The process not only confirms the legitimacy of the customer’s bank account but also determines whether or not the specified account is active. The process also aids in determining whether the submitted account data are associated with the same vendor or not.
A penny drop check verification process is carried out the following way:
- The customer provides the penny drop service provider with their bank account number and IFSC code.
- The service provider’s dashboard or the penny drop API are used to access the penny drop function.
- The provider then provides INR 1 (a penny) into the customer’s bank account.
- The process is deemed a success if the customer’s bank account is active. If not, the process is termed a failure.
- The beneficiary name and verified account status are returned following a successful penny drop transaction to confirm the consumer. But only the account status and the reason for failure are returned if the bank account verification fails.
Penny drop check can trigger a number of transactions, including transfers of insurance funds, requests for partial withdrawals, pension fund transfers, transfers of employee salaries, and many more.
To ensure that financial transactions only take place between the company and the intended beneficiaries, they cross-check the account information they have collected with the KYC proofs and bank account information that has been provided by the client or employee.
Read more about penny drop verification here.
Bank Account Verification API
The Bank Account Verification API makes it simple and reliable to verify a bank account’s legitimacy. By doing so, any fraudulent activity can be stopped and the legitimacy of the customer can be established.
The majority of regulatory organizations recommend that specific institutions and entities use online bank account verification API services to confirm the legitimacy of the account and the reliability of their customers. The customer’s selective credentials are all that is needed for this process.
The process of undertaking bank account verification API is very simple. It involves the following steps :-
- Add the IFSC code and the customer’s bank account number.
- Information is received by the banking information system to verify the account details.
- Immediately verified bank accounts are available for transactions.
Using the method of bank account verification API, loans are disbursed instantly. Easily disburse a quick loan to the appropriate, active bank account.
Additionally, it aids in identifying fraudulent accounts and removing manual errors when payouts are made to verified accounts. Last but not least, an online gaming organization can help the player complete the amount payout process quickly after verifying their bank account.
Third-Party Bank Verification Methods
Businesses, people, or other financial institutions can verify the account’s validity using a check verification service or a third-party bank verification service.
Verifying a third-party bank account can be done in a variety of ways, including by searching databases for accounts with a poor track record, determining whether the account number is real, or calling the bank directly to get the information confirmed.
For businesses in the BFSI (Banking, Financial Services, and Insurance) sector dealing with Securities, Broking, and Mutual Funds, Third-Party Validation (TPV) of bank accounts is a need. According to Securities and Exchange Board of India (SEBI) regulations, consumers may only conduct transactions from bank accounts they provided when registering with regulated businesses.
How To Use Bank Account Verification For Due Diligence
Bank account verification APIs are lightweight and flexible tools to verify customer accounts.
Step 1: Integrate with bank account verification APIs
Step 2: Customer enters bank account number & IFSC Code
Step 3: The API retrieves pre-validated data for verification. The response data include – Client ID, Client’s full name, UPI ID, and IFSC details
Step 4: This data is secured & stored on servers for the bank to utilize for due diligence
Step 5: Once verification is complete, these data are deleted for security purposes unless specified otherwise
Bank account verification APIs retrieve key customer details that are important for banks to adequately verify customer identity and make sure their bank account is legitimate.
These data can also be used to auto-fill information in bank applications and streamline documentation.
Scan.It: SignDesk’s Easy Solution for Bank Account Verification
Scan.It is one of SignDesk’s verification options. It uses cutting-edge compliance technology and has helped our 400+ clients save onboarding costs, decrease KYC drop-offs, cut TAT by up to 99 percent, protect against fraud, and make it simple for users to sign up for bank accounts and be verified.
Numerous accolades have been given in recognition of our work to automate bank account verification using penny drop verification, with user-friendly AI-powered authentication and bank account verification API, India has benefitted in its banking sector contributing significantly to anti-money laundering measures.
Are you prepared to use the various verification processes for the bank account?
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