Bank Account Verification & IDV in Open Banking

What Is Bank Account Verification?

Bank account verification is the process of validating account information provided by customers. It confirms that the account belongs to the person or business claiming to own it, and that the details they provided are correct.

The bank account verification process is a necessary part of onboarding customers or actioning transactions across a wide range of sectors, from fintechs to utility companies. Ensuring that accounts are properly verified is also often mandatory to comply with Know Your Customer (KYC) and anti-money laundering (AML) legislation.

Bank account verification methods are increasingly automated to improve accuracy and speed. For example, manually checking bank statements can take up to ten days, while checks completed via an automated service can happen in an instant.

The purpose of bank account verification is often for a business to verify its customers’ details. The same technology can also help consumers check they are paying the correct person or business. An example of this is the UK’s Confirmation of Payee (CoP) framework, which is part of the open banking initiative.

Why Is Bank Account Verification Important?

Bank account verification is a crucial safeguard against fraud and is often mandatory before opening a new account, such as for a cellphone contract or new credit card.

Bank account verification is important because:

• It is a key method of verifying a customer’s identity and reducing bank account fraud.
• It ensures that funds are sent to the correct destination (mis-keying an account number could mean transactions are incorrectly routed).
• Verifying customer bank accounts helps companies comply with KYC and AML obligations.
• Verification can weed out illicit customers. A failed verification can be the trigger to reject an application or have it passed through for further checks.
• The stringent checks required by bank account verification reassure customers that steps are being taken to protect their accounts.
• Bank account verification can reduce problems further down the line. For example, proper verification can help businesses fight chargeback fraud and other claims.

In the UK, many banks use the CoP framework. This is a type of bank account verification that checks an account number and sort-code match the intended payee. If not, the account holder has the opportunity not to proceed with the payment.

What Is a Bank Verification Check?

A bank verification check (often automated) confirms that bank details match what is expected. For example, that the company or individual’s account name matches that provided by the customer.

Bank verification checks can happen when setting up an account, or at another stage of the customer relationship. For example, companies must often undertake periodic KYC checks on existing customers.

How Do Businesses Verify Bank Accounts?

The method businesses use to verify bank accounts can vary across countries and organizations. Traditional methods include the manual submission of bank statements, as well as a system of “micro deposits.”

Micro deposits involve companies sending small deposits (usually two) to the bank account that a given customer claims to own. After this is done, the company asks the customer to confirm the exact amounts deposited as a means of verification.

While the micro deposit method is still used by many businesses, it has its flaws. For example, if an account has been compromised, a fraudster may be able to answer these questions. Additionally, as with manually verifying bank statements, micro deposits are laborious and time-consuming.

Automated methods are proving increasingly popular. In the UK and Europe, the Open Banking initiative allows companies to connect directly to bank accounts (per the account holder’s permission) to verify details. Open Banking continues to grow in popularity, with openbanking.org.uk’s data showing over seven million UK consumers using it as of early 2023.

Open Banking is also evolving in the US, but it still requires regulation and congressional approval. Filling the gap are third-party service providers and credit reference agencies – also in operation in other countries – which facilitate automated bank account verification checks using application programming interfaces (APIs).

APIs allow businesses to build verification checks into their standard processes. This facilitates checks that can be completed with minimal customer friction.

How Long Does the Bank Account Verification Process Take?

When a company’s systems are integrated with services provided by credit bureaus and third-party providers, the bank account verification processes can be completed in seconds. Similarly, initiatives such as Open Banking allow checks to take place extremely quickly once authentication is complete.

How Does AI Help in Instant Bank Account Verification?

AI can speed up bank account verification and improve accuracy. It’s now possible to automate checks that would once have been completed manually, such as through cross-referencing names, addresses, and account numbers. Similarly, AI-based systems can verify scanned or photographed documents or even complete online ID checks using video calls.

AI can also assist with countering attempts at fraud. For example, AI liveness tests’ during ID verification calls can detect deepfake videos.

Similarly, financial institutions can deploy AI to detect patterns of fraudulent activity.

Protection Against Fraudulent Bank Accounts

Here are a few ways to protect against the risks associated with fraudulent bank accounts: 

• Deploy pre-KYC technology: Many fraudsters give themselves away long before the formal KYC process. For example, they may log on from a known blacklisted IP or using a VPN.

Fraud prevention solutions that use device fingerprinting and other related techniques can filter out suspicious customers before time and money are spent routing them through full KYC procedures. 

• Use digital fingerprinting tools: An email address, phone number, or IP address can reveal valuable information about a customer before they even attempt a financial transaction. Digital fingerprinting tools can access useful data points, such as a run-down of all social media accounts linked to an email address.

Via API integration, related checks can take place in the background, allowing each customer to be treated according to the level of risk they present to the business.

• Use AI and machine learning: Machine learning and AI technology are now widely available, forming an integral part of many fraud protection solutions.

AI can outperform humans when it comes to pattern detection – something that’s integral to exposing suspicious transactions and fraudulent account use.

Ultimately, by being proactive, data-driven, and technically savvy, you can protect your organization from dealing with fraudulent bank accounts.

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