Posted on April 27, 2021 by Transcend Pay
The last thing any merchant wants to deal with is having transactions returned by their payment processor. In most cases, transactions are rejected because there was a problem with the payer’s bank account. Whether they’re paying with an electronic check or through the Automated Clearing House (ACH), even the slightest inaccuracy with their account information could cause the transaction to be rejected. There may also be preexisting issues with the bank account that make it impossible for the bank to process the transaction. Whether these problems are evidence of fraud or simply careless mistakes, taking the time to verify bank information can help merchants avoid the hassle of rejected transactions.
How Bank Verification WorksWhen payments are made involving bank funds, merchants seek to protect themselves from potential risk by verifying the status of the account being used for payment. Bank verification can be performed in a variety of ways, but the process typically provides three important pieces of information.
1. Does the bank account exist?This question may sound a little foolish, but it’s the first question any merchant accepting bank-funded payments should ask. If the bank account provided as a funding source doesn’t exist, then there is a high probability that the payer is committing some sort of fraud. Verifying with the bank that an account exists before accepting payment greatly reduces fraud risk and protects both the merchant and the bank from liability and revenue loss.
2. Are there any holds on the account?Banks sometimes place holds on accounts when fraud is suspected or the account-holder repeatedly violates the bank’s policies (for instance, by bouncing too many checks over a period of time). Holds can restrict an account in several ways, but the key concern for merchants is whether or not the account holder is still authorized to make payments. Rapid account verification will quickly check with the bank to see if there are any restrictions currently placed upon the account.
3. Are there positive funds in the account?Because most people and businesses use their bank account to manage multiple payments and sources of income, there are often times when the account balance briefly dips into a negative value. It doesn’t necessarily mean that the account holder is “broke” or in financial distress. For instance, they may need to pay a vendor one day before they’re scheduled to receive a payment. For a merchant, however, negative funds in an account translate into not getting paid at all. Whatever payment is submitted will immediately be rejected, forcing them to resubmit it at a later date or returning to the customer for an alternative form of payment.
Rapid Merchant Account VerificationBank verification is typically conducted for check/eCheck payments and ACH payments. While they can be handled by contacting the bank directly, most merchants today use verification services through their payment processor. This allows them to instantly verify accounts and then immediately submit the payment information for processing.
How Do Banks Verify Checks?Paper and electronic check verification requires the bank account and routing numbers to confirm that basic payment information is correct. More sophisticated verification checks also take steps to confirm identity as a means of reducing fraud. This could include comparing information like the customer’s name, their current address, the last four digits of their Social Security Number, or their phone number against information associated with their account.
How Does ACH Verification Work?Verifying payments through the ACH network is a bit more complicated, but can still be completed very quickly to streamline the payment processing process and protect all parties from risk. Traditionally, there are two ways of verifying accounts through the ACH.
- Microdeposits: This method is frequently used by merchants who prefer to avoid using the internet to make or receive payments (yes, they still exist!). Using the customer’s account information, the merchant sends small deposits to the account (usually less than a dollar). It takes a day or two for the deposits to show up, which verifies the status of the account.
Bank Verification MessagesWhen a merchant makes an account verification request, the bank may provide one of several messages to indicate a potential problem with the account.
- Invalid Routing Number: The routing number is a code printed on the bottom of a check to indicate which financial institution holds the corresponding account. In essence, it functions as an address for a bank. This message typically means indicates that the number wasn’t entered correctly. However, routing numbers do sometimes change when banks merge or consolidate, so it could indicate that the account is now located under a different routing number.
- Account Closed: The bank once managed this account, but it is no longer active. While this could indicate that the person trying to make payments from this account is trying to commit fraud, it’s also possible that they provided outdated information by mistake, especially if they manage multiple payment accounts.
- Stop Payment: A stop payment is a request made by the account holder to prevent the bank from paying out a check or recurring debit payment. They are often used when checks are lost or purchases are canceled to prevent the transaction from processing.
- Not Sufficient Funds (NSF): One of the most common account verification messages, an NSF code indicates that the account doesn’t have enough money to cover the payment. Any attempt to process the payment will cause it to “bounce.” If the bank account has previously been verified as active and in good standing, it may permit the merchant to resubmit the transaction at a later date. About 85% of NSF returns eventually clear when they’re resubmitted.