The account verification process confirms that a bank or business account is valid, active, and owned by the right person. It’s a critical step for preventing fraud, ensuring payments go to the correct recipients, and maintaining compliance with financial regulations.
Modern methods like open banking and micro-deposits, as well as automated tools make this process faster and more accurate.
In this guide, we’ll explore how account verification works, the main methods used, and how automation tools like Trustpair simplify the automated account verification process.
Account Verification: key takeaways
- Account verification is useful: upon account setup, before sending or receiving a payment, when setting up a direct debit and when suspecting fraudulent activity like identity theft
- Regulatory rules like Know Your Customer (KYC) and Customer Due Diligence can require account verification as part of compliance
- Accounts can be verified through: micro-deposits, bank statement matching and open banking
- Automation can be helpful, especially with biometric checks, tech integrations and tools for automated compliance
What Is the Account Verification Process?
The account verification process is a way to validate bank and business accounts – checking that they exist and that they are associated with the true account holder. The process to verify identities confirms that the person claiming to own the account actually does, and that they are set up to make secure transactions in advance of payments like direct debits.
This process is typically used in several situations:
- Upon account opening: before giving access to user privileges, banks and businesses need to confirm identity and eligibility
- Prior to sending or receiving a payment: ensuring that the details are correct so the payment goes through to the right recipient
- Prior to setting up a direct debit: checking that the account is valid to make ongoing regular payments and has sufficient funds
- When institutions suspect fraudulent behavior: to investigate and protect customer accounts before it gets worse
Why is bank account ownership important?
Regulatory compliance: regulations like Know Your Customer, Know Your Business and Customer Due Diligence are all made stronger with account verification. Both traditional financial institutions and payment service providers must follow these regulations, typically during their onboarding process.
This deals with sensitive data, such as the account holder’s name, financial account information and transactional data. Therefore, firms must consider how they do this securely, such as with multi factor authentication, in order to reduce fraud and the risks of financial crime.
What Are the Main Methods of Account Verification?
There are a few different ways to verify bank account details to ensure secure transactions, including both manual and automated account verification:
- Micro-deposits
- Bank statement matching
- Open banking verification
Micro-deposits
Once the person claiming ownership gives their account information over, the other party must send two separate deposits over digital platforms. These deposits are typically less than $1 and can be reversed, but are sent to confirm:
- That the money can be sent (that the account exists)
- That the customer is the rightful owner, as they must confirm the exact value of the micro deposits
Micro-depositing relies on the customer being online, as it works in real-time, so can be a risky manual process. It also relies on the customer being responsive, which may exclude certain subsets from participation. They are also heavily dependent on human accuracy.
Bank statement matching
Bank statement matching involves the reading of bank statement documents and then matching them to the financial data details previously given.
Banks tend to use optical character recognition technology (OCR) to achieve this, because it’s otherwise a very manual process. But OCR fraud controls are fairly limited, meaning that fraudsters could quite easily dupe the document fraud detection technology with convincing fakes.
As a company that has prevented 100% of fraud attempts for our clients, we recommend involving at least one external source in your verification process. This means that you are not just relying on the customer telling the truth.
Open banking verification
Open banking verification happens through a direct link to the customer’s bank account, once they consent to data sharing. This usually happens at the account creation stage, and requires robust online services like APIs to facilitate. It provides an instant account verification, with a ‘valid / invalid’ answer, and since the data is direct-from-source, there’s the least chance of corruption.
How Does Bank Account Verification Work?
The bank account verification process works in four simple steps:
- Confirm validity: the bank account is both in existence and active
- Verify ownership: the customer is the true owner of the account
- Check that funds are available: payments are possible and the account has enough reserves to pay its bills
- Comply: ensure that operations are in line with data regulations like GDPR, and that you have fulfilled due diligence requirements for online transactions
Fortunately, tools exist to manage the entire bank account verification process from start to finish. By enriching data in real-time, users can combine given bank account data with robust external databases. This goes beyond the limited name and account number validation that many companies rely on.
Here’s why that’s important:
Real world example: Europ Assistance
Europ Assistance is an international insurance operator, which only did manual controls of vendor banking data before adding vendors to their procurement portal.
But this meant that data reliability of new vendors wasn’t guaranteed and there was a risk of error and fraud or money laundering from the start of the vendor relationship. If a vendor was to change their bank details throughout the relationship, Europ Assistance wouldn’t know if the request was genuine or fraudulent.
This created a very high operating risk level, especially because over 42,000 third parties were managed in the vendor database. So Europ Assistance partnered with Trustpair to clean up the data, validating the details of each customer’s account details before every payment is made. It eliminated the risk of fraud and error within third party services, even with change of bank detail requests.
How Can Businesses Automate the Account Verification Process?
Businesses can automate the process of user verification in several ways:
- Implement biometric verification methods: use fingerprint and face recognition software to match the user to their documents without added friction
- Aggregate data from multiple sources: access data from a huge range of sources, cross-referenced and automatically formatted to flow into your platform with good readability, and fed into further systems like automated bill payments
- Use tools that automate compliance: automatic adherence to due diligence and KYC regulations will require no extra workarounds or integrations for your team
- Adopt a done-for-you account verification service, like Trustpair: opting for Trustpair takes all of the self-building woes out of the process, with an on-the-shelf solution that integrates with 20 other procurement and third-party programs.
Owning the account verification process
The account verification process confirms that a bank or account exists, is owned by the right person, and is eligible for financial transactions. Verification methods include microdeposits, bank statement matching (with historical data), and open banking for real-time confirmation. Automated tools like Trustpair streamline these steps, ensuring accuracy and fraud prevention.
