When a consumer opens a bank account, the bank goes through a procedure called bank account verification. It enables all required checks to be made on the account user and the source of their income, successfully stopping illegal activities like money laundering and the financing of terrorism.
In this post, we’ll examine how to validate a bank account and its owner, as well as the legal considerations that must be made while validating a client’s bank account.
Verifying the identification of the account holder is the first step in the bank account verification procedure. As is well known, this procedure can be completed in two ways during the client onboarding.
Bank Account Verification Types
Offline Bank Account Verification
Your clients must visit a branch or business office and inquire about opening a bank account in order to verify their accounts in person. There, a representative will do the required background checks on the account holder (identification, copy of ID card or passport, address, that they are not on any list of fraudulent individuals, etc.) and will create the bank account after confirming that the information supplied is accurate.
Online bank account verification
Here, we’re referring to digital onboarding, which is more and more popular in the banking industry. There is no requirement for the user to visit a branch or interact with an agent. Using a completely digital and automated registration and identification procedure, they may complete the verification and account opening process online. They will be asked for identity verification, their proof of life, and their identity document (passport, ID card, etc.).
To be in compliance with AML requirements, banks and businesses operating in regulated industries, such as insurance or telecommunications firms, are required to conduct identity verification when opening bank accounts. This law, which complies with EU norms, aids in the suppression of terrorist financing and money laundering.
How does Bank Account Verification work?
To prevent identity theft or money laundering, banks must check bank accounts and the owners of such accounts. In these crimes, not only the individual who did it but also the banks or regulated companies engaged in it for failing to identify such fraud is penalised, as mentioned in the 6th AML Directive, the annexe to the 5AMLD, which stipulates the fines for non-compliance and other liabilities.
According to the AML5 law, which all regulated industries, including banks and insurers, are required to follow, they must put in place the essential safeguards against fraud, money laundering, and identity theft. Hence, the most important step is to create safe, individual, and impenetrable access to the assets of the bank account and to confirm the identity of the account holder.
Thus, banks should check the bank account belonging to another bank while making transactions (given the case). This interbank cooperation ensures the accuracy of the bank account verification process and the many transactions conducted between them.
For the verification and integrity check of bank accounts, there are several bank account verification APIs available. Online bank account verification software also confirms the identity of the account holder, the location of the bank branch where the account is located, and other information.
All banking operations must incorporate these bank account verification technologies.
Bank Account Verification API
Businesses may use APIs to include bank account verification into their software programmes, expediting the procedure and lowering the possibility of mistakes.
The market for worldwide bank account verification is anticipated to increase at a CAGR of 16.7% from $4.8 billion in 2020 to $10.4 billion in 2025. The requirement for compliance with regulatory standards and the rising need for reliable and secure payment systems are the main drivers of this rise.
Advanced algorithms and machine learning are used by bank account verification APIs to validate bank account information. These APIs may verify account information such as sort codes, bank account numbers, and other.
You can also do further checks, such as determining if the account is still active and whether it is permitted to accept payments.
Many software programmes, such as payment gateways, e-commerce platforms, and accounting software, can incorporate bank account verification APIs. Businesses may verify bank accounts without having to navigate between apps or manually check the information by integrating these APIs into software applications.
Penny Drop Verification
Penny drop verification is an electronic verification technique whereby a tiny sum of money, often a penny, is put into the account, and its success is subsequently confirmed. The final step in the verification procedure is for the account holder to confirm the deposit amount. Bank account verification with the penny drop method is quick and reliable.
64% of U.S. banking institutions employ penny drop verification for account confirmation, according to an Aite Group survey. The study also discovered that penny drop verification, with a success rate of 91%, had a greater success rate than other types of electronic verification.
Read the blog to learn more about Penny Drop: Step up Your Payment Security with Penny Drop Verification
Penny Drop Verification API
Penny drop verification APIs enable businesses to integrate penny drop verification into their software applications. These APIs automate the penny-drop verification process, making it faster and more accurate.
Penny drop verification APIs work by initiating a transaction to deposit a small amount of money, usually a penny, into the account. The API then waits for the account holder to confirm the deposit amount. Once confirmed, the API returns a verification result, indicating whether the account details are valid or not.
Penny drop verification APIs can also perform other checks, such as checking if the account is still open and if it’s allowed to receive payments. These APIs can be integrated into various software applications, including payment gateways, e-commerce platforms, and accounting software.
Bank Account Verification API Benefits
Businesses can gain from utilising bank account verification APIs in a number of ways, including:
To verify bank account information, bank account verification APIs employ cutting-edge algorithms and machine learning, which lowers the possibility of mistakes.
Bank account verification APIs simplify the verification procedure, saving time and effort compared to manually verifying bank accounts.
By confirming the account holder’s information, bank account verification APIs assist prevent fraudulent transactions.
Customer experience is improved thanks to bank account verification APIs, which allow companies to swiftly and reliably validate bank accounts reducing customer churn during client onboarding.
Bank Account Verification processes in 2023
According to a MarketsandMarkets analysis, the worldwide bank account verification market is anticipated to expand at a CAGR of 16.7% between 2020 and 2025. The requirement for compliance with regulatory standards and the rising need for reliable and secure payment systems are the main drivers of this rise. The need for more complex bank account verification techniques will increase as the industry expands.
In the realm of banking and finance, bank account verification is a crucial procedure. Electronic verification techniques have transformed the procedure, making it quicker, more effective, and more accurate. Examples include penny drop verification and immediate verification. With the rise in popularity of bank account verification APIs, companies may now include bank account verification in their software programmes.
The future of bank account verification is bright because of the rising need for safe and effective payment methods.
Try IDcentral’s Bank Account Verification API
Sumanth Kumar is a Marketing Associate at IDcentral (A Subex Company). With hands-on experience with all of IDcentral’s KYC and Onboarding Technology, he loves to create indispensable digital content about the trends in User Onboarding across multiple industries.