The ACH or electronic check world lacks the authorization component present with credit cards.
While credit cards allow merchants to be able to authorize at the time of payment that the customer has the requisite funds on their cards, ACH and check processing may require Bank Account Verification Web Service to mitigate payment acceptance risk.
For example, take a look at new client intake or onboarding. This is a major friction point for businesses that rely on future recurring payments (e.g. insurance companies with premium payments, or car loan payments)User errors are likely to occur when inputting data as the customer provides their bank account and routing info, or a voided check might be taken.
Check verification solutions allow businesses to validate that an account is open and in good standing before the account is loaded into a recurring billing engine, meaning data entry errors, potentially closed accounts, or even fraud can be caught before “booking” the sale. Verification also meets the 2021 NACHA bank account validation requirement.
Furthermore, compare the credit card authorization component with ACH and check processing: ACH transactions completed today go to the ACH network for debiting the customer tomorrow morning [assuming tomorrow is a banking day]. Two banks are involved: The bank that initiates the debit on behalf of their merchant [ODFI] and the customer’s bank [RDFI].These two banks have another day to sort out any reasons for rejecting the debit eg NSF, closed account etc.
Unfortunately, payment rejects are known about only after payment is accepted; which can be days later. Imagine a business pays commissions for new customers. The sales team brings on a new client and is paid. Your bank reports back 5 days later the check payment rejected.
Now multiple problems have occurred: the commission payment may need to be pulled back, that customer must also be contacted for payment, and accounting may need to be undone.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]. Mitigating loss through third party check verification services may be a necessary part of the business that relies on ACH processing for check acceptance.
Bank account verification allows merchants to mitigate check acceptance risk at the point of sale, in person or online. Options range from automated routing number check to near real-time examinations into current checking account status to negative database options.
Options to reduce check acceptance risk include:
- Routing number validation
- Proprietary Negative Database-should comprised of tens of millions of bad accounts and negative items from verification past data
- Real-time Status on Accounts. (via financial institutions)
- Negative Data (Basic and Premium) Services that provide negative information on unpaid items.
However, checking account verification services at this level do NOT provide:
- Funds availability or balance inquiry
- Bank account ownership. The name on the checking account is not being matched to the customer name provided —Checking Account Owner Authentication
Read more about Bank Account Validation or to learn more contact AgilePayments today.