A Checking Account Verification Service reduces risks for merchants associated with in person and/or online check acceptance at the point of sale.
Checking account verification options include:
- Near real-time inquiries into current checking account status
- Automated routing number checks
- Negative database options
- Making checking account balance inquiries if the customer provides either log-in or online banking system credentials
With credit cards you know you are getting paid at the point of sale: You are able to authorize at the time of payment that the customer has the requisite funds on their cards; thereby reserving those funds for capture and settlement.
Unlike the credit card realm, the e-check world lacks an authorization component present. For some businesses this means that a Checking Account Verification system is necessary in order to mitigate payment acceptance risk.
Let’s compare the credit card authorization component with ACH and check processing: A processed ACH transaction goes to the ACH network for debiting the customer the following morning[assuming tomorrow is a banking day]. The two banks involved are 1) The bank initiating the debit on behalf of their merchant [ODFI] and 2) 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. Same Day ACH accelerates this time frame but doesn’t authorize a payment. This means there is still risk of the payment rejecting. Only after payment is accepted can payment rejects be discovered, and in some cases not until days later.
The business now has a number of issues to address:
- The commission payment may need to be pulled back
- That customer must be contacted for payment
- Accounting may need to be undone
For businesses that accept checks either as an ACH, Check 21 or Remote Deposit all face the risk that the payment will result in a return [failed transaction].
Third Party Checking Account Verification Services:
Mitigating loss through third party check verification services can be an important part of the business that relies on ACH processing for check acceptance.
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 info can be checked in real time.
- The bank routing number identifies the bank the check is drawn against.
- 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.
- Based on history [both positive/negative] of that checking account info, a response is returned regarding the account status.
Banks and Credit Unions contributing data from their ATM network make sup the next level of check verification. When a check verification inquiry comes in an almost immediate response can be generated. These responses can tell you:
- The account # is invalid
- Checking Account Verification Service
- Account has pending NSF’s or stop payments
- The account is in an NSF status: For some businesses this is important as they do they know they have a good account
- The account is closed
- The account is non DDA eg Home Equity checks
- The account is open and in good standing with a positive funds balance. Very importantly you do not get a balance confirmation.
In order to leverage systems that can check balances, 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.
The level of this insight varies based on the 3rd party provider. Depending on the provider, you can receive information that can indicate NSF checks, a bad check writer, a closed checking account, an invalid checking account, or any potential fraudulent transactions and other suspicious activity.
The vast majority of bank accounts in the US are in the database with successful inquiry rates from 90-95%. There can also be the opportunity to create an internal bad account database for larger businesses, and this database can be used in tandem with other risk mitigation tools.
Your 3rd party provider should offer you a combination of all the following services:
- Proprietary Negative Database
- Routing number validation
- Negative Data (Basic and Premium)
- Real-time Status on Accounts. (via financial institutions)
The 3rd party provider will NOT provide funds availability or balance inquiry, or bank account ownership. The name on the checking account is not being matched to the customer name provided. For many businesses this provides a significant improvement in their payment acceptance processes.
Check Account Verification Services offer the chance to validate that an account is open and in good standing before the account will be loaded into a recurring billing engine, this means data entry or possibly closed account or even fraud can be caught before the sale is finalized.
What happens when that new customer’s payment fails because of bad checking account data? When a customer’s payment fails due to bad checking account data there is friction, financial loss and more potential for losing that customer. Employing a checking account verification system businesses can eliminate much of the “after the sale” work needed when payment fail.